Professor Sarmistha Pal

We study the effect of ethnic diversity on local public spending following fiscal decentralisation in a setting where local institutions are salient. Specifically, the latter affects coordination costs and thereby cooperative behaviour across the constituent ethnic groups. Our theory highlights the role of the local elite in lobbying for policies which favour them in a decentralised setting. The differences in preferences over public good allocations along with the salience of coordination costs across ethnic groups are relevant in determining the equilibrium lobbying behaviour. This results in ethnic diversity having a detrimental effect on local developmental spending which is aggravated by increased levels of coordination costs. We test these predictions using Indonesian community-level data. Utilising the 1997 and 2007 Indonesian Family Life Survey (IFLS) rounds, we are able to construct various measures of ethnic diversity. We exploit an institutional feature of Indonesian communities – namely, the observance of traditional “Adat” laws to proxy coordination costs across ethnic groups. Overall, we find that ethnic diversity depresses local development spending post decentralisation at the community level particularly where Adat laws are not followed, which is consistent with our theory.

We investigate the impact of community power on the practice of untouchability-the avoidance of physical contact – engaged in by upper and intermediate caste (OBC) Hindus vis-à-vis 'scheduled' castes (SCs) in rural India. Despite legal prohibition, the practice remains common, limiting access of SCs to public spaces and facilities as well as informal social and professional networks. Yet, the question of what determines its extent has received scant attention. We develop the novel argument that an upper caste or OBC household's propensity to practise untouchability is determined not solely by its own characteristics but, crucially, also by the inter-group distribution of resources across both caste and religious divides, via the mediation of a process of political contestation. Our theoretical model predicts that any increase in the collective resource endowment (power) of SCs, or, more interestingly, that of Muslims and Christians, will reduce the likelihood of an upper caste or OBC Hindu household practising untouchability. Any decrease in the collective resource endowment of the combined upper caste and OBC bloc will have the same effect. A marginal redistribution of resources from OBCs to upper castes may reduce it as well. Identifying a community's power with its population weighted land share, we find empirical associations consistent with these hypotheses in data from the India Human Development Survey 2011-12.

Unlike most existing studies, this paper examines the effects of birth interval on child mortality in a sequential framework. Birth spacing is captured by the length of time since the birth of the last child and the time varying covariates identifying the arrival of a younger sibling during any month after the birth of the present child. We use an instrumental variable method to reduce the endogeneity bias and compare the hazard estimates of child survival with and without instruments for birth spacing. These instrumented sequential results not only reaffirm the static inverse relationship, but also emphasize that the inverse relationship between birth interval and child mortality crucially depends on both the gender and the birth order of the child.

There are controversies regarding the role of individual and household characteristics in childhood nutritional status measured by anthropometric indicators. Using a nutrition index based on weight-for-age of children in rural India, the paper re-examines this issue. Ordered probit estimates of nutritional status suggest female literacy improves the nutritional status of boys at the cost of girls while higher per capita current income improves that of both boys and girls, though the impact is higher for boys; however, effect of income is not robust when we use instruments of longer-run income. But more income and literacy give more ways to discriminate between boys and girls.

We examine the impact of legislated land ceiling size on capital investment and industrialisation in the Indian states. India's land ceiling legislations of 1960s and 1970s had imposed a ceiling on maximum land holdings and redistributed above-ceiling lands. These ceiling legislations, effectively implemented or not, had increased land fragmentation and increased transactions costs of acquiring land for industries. Using state-level data from major Indian states, we show that low ceiling states had lower capital investment and lower industrialisation, when we consider relative (post-1971 ceiling size relative to pre-1971 one) or aggregate effects of legislated ceiling size, ceteris paribus. We eliminate competing explanations and attribute these results to higher transaction costs in states with lower ceiling size that has led to greater land fragmentation and hence lower landholding size. Low ceiling states also had lower share of non-cropped land and lower poverty rates, yielding policy implications beyond the Indian border.

The paper examines the nature, extent and impact of government control of privatized firms in China and the resultant market responses. As high as 82% of newly privatized Chinese firms remained partially privatized even after a decade of the 2005 Non-Tradeable Shares (NTS) reform. Using this reform as a natural experiment, we randomize the timing of the NTS conversion, which was subject to an administrative lock-up rule. Difference-indifference estimates around the adoption of the 2005 reform show that that Tobin's Q was significantly lower among partially privatized (PP) firms that continue to hold some NTS even after 2005. Fully privatized (FP) firms that converted all NTS into tradeable shares were, however, successful in increasing Tobin's Q and operating revenue. Unlike PP firms, FP firms effectively downsized employment, converted all non-tradeable shares, getting rid of all legal persons shares, thus strengthening their corporate governance mechanism and winning the confidence of the market. Stronger links with the governments at all levels have been an important driver of full (as opposed to partial) privatization. As such, the tension between the state and the market is evident even after several rounds of privatization in China, yielding important lessons not only in China, but also beyond its border.

Using data from the Indonesian Family Life Surveys, we study the impact of fiscal decentralisation in Indonesia on local public spending across communities characterised by different types of informal and formal institutions. Our results provide new evidence that fiscal decentralisation led to a significant increase in community spending on social infrastructure (health and education) in communities which observed strict adherence to customary laws and had a tradition of local democracy. We argue that investment in transport and communication facilitates exchange with outsiders and improves the outside options of community members, thus making it more difficult to sustain intra-community cooperation. Consequently, communities which enjoy a high level of cooperation in collective activities benefit less from investing in transport and communication and are more inclined to invest in social infrastructure.

The paper examines the effect of inequality on growth among the subnational states in India. Theoretically, growth of the regional economy is driven by productive public investment in the provision of health and education services financed by a linear output tax, and the optimum tax rate is determined by the median voter. In contrast to existing results, the authors obtain an ambiguous relationship between initial inequality and subsequent economic growth. Analysis of the Indian state-level data suggests that rural inequality influences growth of total output more than urban inequality, and does so negatively. The indicator of intersectoral inequality is more important in explaining sectoral output growth.

New medical inventions for saving young lives are not enough if these do not reach the children and the mother. The present paper provides new evidence that institutional delivery can significantly lower child mortality risks, because it ensures effective and timely access to modern diagnostics and medical treatments to save lives. We exploit the exogenous variation in community’s access to local health facilities (both traditional and modern) before and after the completion of the ‘Women’s Health Project’ in 2005 (that enhanced emergency obstetric care in women friendly environment) to identify the causal effect of hospital delivery on various mortality rates among children. Our best estimates come from the parents fixed effects models that help limiting any parents-level omitted variable estimation bias. Using 2007 Bangladesh Demographic Health Survey data from about 6000 children born during 2002-2007, we show that, ceteris paribus, access to family welfare clinic particularly boosted hospital delivery likelihood, which in turn lowered neo-natal, early and infant mortality rates, especially among adolescent mothers after the completion of Women’s Health Project in 2005; infant mortality for this cohort was more than halved if delivery took place in a health facility. Our analysis thus highlights the potential benefits of institutional delivery in women friendly environment that may save lives of newborn children, especially among young adolescent mothers.

Using the recent Indian National Family Health Survey (NFHS) data, this article analyses the factors determining the current contraceptive use in rural and urban West Bengal in eastern India. A bivariate probit model with selection is used to determine the likelihood of not being sterilised and that of currently using some traditional or modern reversible method of contraception among non-sterilised women. Our results suggest that male and female sterilisation is a popular method among the poorer couples with little assets, poor education and more living children. More literate women are, however, more likely to use various reversible methods of contraception though the effect of husband's education remains insignificant. Relative to women's education or various household assets, the effect of belonging to an upper caste household is more pronounced on the current use of contraception, especially among rural women. Simulations of the effect of eliminating illiteracy suggest that the quantititive significance of education is small despite its robust statistical significance. Thus there is limited effect of household assets and women's education on current use of contraception in our sample.

Social motivation can promote efficiency of public service delivery though its role in providing schooling is little understood. We provide both theoretical and empirical insights as to why not-for-profit private schools could enhance excellence in schooling, using Nepal as a case study. Results suggest that socially motivated trust schools outperform all other types of schools irrespective of whether we consider standardised test scores, absolute or relative to school expenditure per student. Results are robust and highlight that trust school’s social objective, coupled with private financing, ownership and management that minimises its agency costs, is key to their value for money.

In the absence of any official measures of old age poverty, this paper uses National Sample Survey household-level data to investigate the extent and nature of living standards and incidence of poverty among elderly in sixteen major states in India. We construct both individual and household-level poverty indices for the elderly and examine the sensitivity of these poverty indices to different equivalence scales and size economies in consumption. In general, these adjusted estimates indicate that households with elderly members have lower incidence of poverty in all of the states, albeit to different degrees. Part of the explanation appears to be related to differences in dependency ratios in households with and without elderly, where a significant percentage of elderly, especially men, continue to work well past the age of sixty. The favourable effect of the presence of elderly on household living standards and incidence of poverty is however weakened once we control for dependency ratio, among other things, with significant inter-state variation noted in our sample.

Access to public infrastructure is understood to be central to economic growth. Good governments that invest in essential public goods and services (e.g., transport/ communications) realise high rates of return (e.g., Easterly, 2001). Decentralization is identied by many as an important policy reform to improve the delivery of public goods and services in developing countries. Since scal decentralisa- tion provides greater decision-making power to local governments, its impact on public goods provision should, arguably, depend on the quality and nature of local institutions. The relevant local institutions should include not only the processes through which communities make collective decisions regarding public spending, but also the informal institutions which facilitate economic exchange and maintain law and order within the community. We develop a theoretical model of inter- and intra-community trade to argue that communities that have higher levels of mutual cooperation should have a stronger preference for spending on social goods, e.g. schools and health centres, as opposed to physical infrastructure. Using the Indonesian Family Life Survey community-level data from 1997 and 2007, we nd evidence of heterogeneity in public goods spending across communities in the period prior to scal decentralisation, with greater spending on social goods in communities which observe traditional (adat) norms, and less spending on physical infrastructure in communities with a democratic electoral system. Fiscal decentral- isation led to an increase in investments in physical infrastructure, as well as a convergence in spending across communities with di¤erent types of local institutions.

Compulsory schooling laws (CSL) are often advocated for fighting youth crime. While this has generally worked for the US/Europe, its efficacy remains largely unexplored for the emerging economies. Exploiting the sizeable exogenous variation in compulsory high schooling of 15-17-year-olds after the 2009 Brazilian Constitutional Amendment 59, we find that about 53% of municipalities that received additional federal transfers for its implementation had experienced an increase in high school enrolment after 2009. Comparing these treated municipalities with the rest, we estimate a difference-indifference model to determine the impact of CSL on violent youth crime indices. Results document a weak or insignificant treatment effects (relative to the existing studies) especially in poor disadvantaged areas of the country. We document that the latter can solely be attributed to the weakening of CSL induced incapacitation effects because of the sudden overcrowding resulting in higher grade repetition in day and night schools in treated municipalities. We eliminate the competing explanations and establish the robustness of our results, arguing that the efficacy of CSL is crucially contingent on how it affects class size and school quality.

Using a simple theoretical model we conjecture that dual practice may increase the number of patients seen but reduce hours spent at public facilities, if public physicians lack motivation and/or if their opportunity costs are very large. Using data from Indonesia, we then test these theoretical conjectures. Our identification strategy relies on a 1997 legislation necessitating health professionals to apply for license for private practice only after three years of graduation. Results using a difference-in-difference regression discontinuity design provides support to our conjectures, identifying the role of weak work discipline, lack of motivation and opportunity costs of public service provision.

The paper examines the theoretical and empirical validity of task-based segmentation of rural labour contracts in seasonal agriculture. Regular labour is hired to perform tasks that are difficult to supervise for which casual labour is not incentive-compatible, and a regular wage above the reservation wage ensures no shirking in these tasks. It is argued that there is a hoarding cost of regular labour which is the cost when productivity is low during the slack season. This implies that minimization of supervision costs necessitates the employment of regular labour in certain tasks, but enhances hoarding cost. Results from the ICRISAT villages in India suggests that daily regular wages are lower than daily casual wages, adjusted by the probability of unemployment. Estimates of a tobit selection model suggest that (a) task characteristics are not significant even among the farms hiring regular labour, (b) larger employment-intensive farms tend to hire more regular labour irrespective of the choice of crop, and (c) there is a significant substitutability between regular and family labour. These results seem to question the very basis of task-based segmentation and strengthen the hoarding cost argument: farms hiring regular labour use it indiscriminately in both non-monitorable and monitorable tasks and, if possible, they may substitute family labour for regular labour with a view to minimizing hoarding cost.

The paper offers an explanation of labour tying commonly observed in seasonally agricultural economies. Employers may either hire regular labourers in the slack season to satisfy all or most of the labour demand in the high season but have underutilised labour in the low-demand season or rely on casual labourers only. Thus farmers hiring regular labour may also hire some casual labour as and when needed to minimise the hoarding costs of regular labour. Secondly, daily regular wages are usually lower than daily casual wages, but regular labourers usually get some wage-advance as well. Thus asset-poor workers have incentives to choose regular labour with interest-free wage advance because they face high marginal costs of credit in the segmented credit markets. The optimum hoarding costs decrease with increase in farm size, but increase with increase in spot market wages. However with improved availability of alternative employment opportunities and/or cheaper credit facilities to the asset-poor labourers, the supply of regular labour is likely to decline. Empirical evidence from the ICRISAT villages in south India seems to be consistent with the primary propositions of the model.

Compulsory schooling laws (CSL) are often advocated for tackling youth crime. While this may work in developed countries, our study of the Brazilian municipalities over 2000-13 finds mixed evidence. Exploiting the large exogenous variation in compulsory high schooling of 15-17 year olds after the 2009 Brazilian Constitutional Amendment 59, we examine its effect on violent youth crime indices. Only about 53% sample municipalities had adopted the Amendment by 2013. Difference-indifference estimates with municipality fixed effects accounting for the endogenous adoption of the Amendment show small treatment effects for homicides, but insignificant effects for homicide rates in the full sample. In the absence of any significant increase in income/employment for this age group, the observed effects can only be attributed to the incapacitation induced by the Amendment; but this effect was weakened by sudden overcrowding in day and night schools in treated municipalities after 2009. In particular, the small beneficial effect of the Amendment vanishes when class size is greater than its sample median. The crime reduction effects of CSL thus crucially depend on whether/how CSL affects class size.

There are significant gender differences in child schooling in the Indian states though very few studies explain this gender difference. Unlike most existing studies we take account of the implicit and explicit opportunity costs of schooling and use a bivariate probit model to jointly determine a child's participation in school and market jobs. Results obtained from the World Institute of Development Economics Research (WIDER) villages in West Bengal suggest that indicators of household resources, parental preferences, returns to and opportunity costs of domestic work significantly affect child school enrolment. While household resources have similar effects on enrolment of boys and girls, other arguments tend to explain a part of the observed gender difference. Even after taking account of all possible arguments, there remains a large variation in gender differences in child schooling that cannot be explained by differences in male and female characteristics in our sample. © Blackwell Publishing Ltd and the Board of Trustees of the Bulletin of Economic Research 2004.

The paper examines the capital structure adjustment dynamics of listed non-financial corporations in seven east Asian countries before, during and after the crisis of 1997–1998. Our methodology allows for speeds of adjustment to vary, not only among firms, but also over time, distinguishing between cases of sudden and smooth adjustment.Whereas, compared with firms in the least affected countries, average leverages were much higher, generalized method-ofmoments analysis of the Worldscope panel data suggests that average speeds of adjustment were lower in the worst affected countries. This holds also for the severely financially distressed firms in some worst affected countries, though the trend reversed in the post-crisis period. These findings have important implications for the regulatory environment as well as access to market finance.

We provide novel evidence on the effectiveness of mandated changes in Russian transparency and disclosure (henceforth T&D) rules in boosting shareholder welfare. We focus on the staggered implementation of these T&D reforms initiated in 2002 and implemented during 2003-07. Using difference in difference method, we find that the reforms improved earnings quality, which on average reduced the operating performance (i.e., EBIT/Assets) of treated domestically-listed (relative to our control group of cross-listed) Russian firms, but had no significant impact on their market valuation. We argue that low tax alignment, where financial statements are not used for tax purposes, made it possible for managers of domestically-listed firms to inflate pre-reforms earnings, which became difficult post-reforms, leading to a drop in operating earnings. Yet, firm values, on average, remained unchanged because the drop in earnings was roughly offset by a decrease in the required market return due to more reliable accounting information post reform. Also, T&D reforms had negligible effects on cross-listed firms that act as our control group. Further, for domestically listed firms without a domestic controlling shareholder, post-reform reported earnings did not drop, while firm value increased significantly. For the domestically listed firms with a controlling shareholder, just the opposite occurred. Thus, a key finding of our study is that a strong governance structure is a prerequisite for significant gains in shareholder wealth following improved reliability of firm accounting information.

In this paper, we develop an information theory-based framework about cross-border acquisitions in the financial intermediation industry. We argue that even though “soft” information embedded in customer relationships of local banks can, in principle, help multinational banks (MNBs) overcome informational disadvantage in host countries, the cost of verification of this private information may, paradoxically, make local banks with significant customer relationships unattractive for cross-border acquisition. Further, we propose that the relationship between the amount of customer information embedded in an incumbent bank and the likelihood of its acquisition by a MNB is modified by the institutional distance between the home and host countries of the MNB. Specifically, the strength of the negative relationship increases with institutional distance between home and host countries because it increases the verification cost of private information with institutional distance. Our hypotheses find support in the context of Central and Eastern Europe.

Rapid growth of the private provision of basic schooling around the world has given rise to a policy debate about the role of the private sector in the universal provision of basic schooling. In this chapter, the authors use three rounds of individual-level unit record data from India, collected over the period 1993-94 to 2011-12, to examine if the private sector can deliver schooling for all at a given point in time and also its evolution over time. Specifically, the authors focus on the role of gender and compare private school choice between mixed-gender (households with both boys and girls) and single-gender (those with only boys and only girls) households. The results using the IHDS1 and IHDS2 data show that private school enrolment is significantly lower for girls compared to boys. The magnitude of this disadvantage is double that of overall school enrolment. However, female disadvantage in private schooling disappears among mixed-gender (relative to single-gender) households. This can be attributed to the altruism of more motivated mixed-gender households choosing private schools for both their boys and girls. Girls with educated mothers are more likely to be sent to private schools while boys from more wealthy households are more likely to be enrolled in private schools; family wealth, however, does not boost girls' private schooling. Finally, female disadvantage in private schooling is significantly higher in 2004-05 relative to that in 1993-94 while there is no evidence of a declining gender gap post 2004-05. The results raise concerns for the private provisioning of basic schooling even at a time when the economy attained very high rates of growth and poverty went down significantly. This chapter concludes by discussing the possible role of direct pro-girl policies to tackle this gender gap. JEL Codes: I25, O10, C21

This article examines the impact of ownership structures of emerging market firms, which are shaped by local institutions, on the decision of these firms to undertake outward FDI. Our results suggest that family firms and firms with concentrated ownerships, both ubiquitous in emerging markets, are less likely to invest overseas, and that strategic equity holding by foreign investors facilitates outward FDI. We conclude that organisational forms such as family firms, that are optimal outcomes of institutions prevailing in emerging markets, may be sub-optimal in a changing business environment in which outward FDI is necessary for access to resources and markets.

For developing countries, decentralising power from central government to local authorities holds the promise of deepening democracy, empowering citizens, improving public services and boosting economic growth. But the evidence on when and how decentralisation can bring these benefits has been mixed. Under the wrong conditions, decentralised power can be captured by unrepresentative elites or undermined by corruption and the clientelistic distribution of public resources. The picture is complex, and we still do not understand enough about what factors can contribute to creating better local government, and to what effect. Decentralised Governance brings together a new generation of political economy studies that explore these questions analytically, blending theoretical insights with empirical innovation. Individual chapters provide fresh evidence from around the world, including broad cross-country data as well as detailed studies of Bangladesh, India, Pakistan, China, Indonesia, Ghana, Kenya and Colombia. They investigate the pros and cons of decentralisation in both democratic and autocratic regimes, and the effects of critical factors such as advances in technology, citizen-based data systems, political entrepreneurship in ethnically diverse societies, and reforms aimed at improving transparency and monitoring. This wide-ranging volume examines the conditions under which devolving power can intensify democratic competition, boost transparency, and improve local governance, providing examples of good and bad practice in both. It is essential reading for researchers investigating decentralised governance, development and democratisation, and for policymakers and practitioners drawing lessons for future reforms.

The present paper examines the effects of ownership structures on capital structure and firm valuation. It argues that the effects of separation of control from cash flow rights on capital structure and firm value also depend on the separation of control from management as well as on legal rules and enforcement defining investors’ protection. We obtain firm-level panel data (three stage least squares, 3SLS) estimates from four of the East Asian countries worst affected by the last crisis. There is evidence that the general wisdom that higher control than cash flow rights may lower firm value may be reversed among owner-managed family firms in the sample countries.

If fertility reflects the choice of households, results of their choice (duration between successive births and health of the children) cannot be considered to be determined randomly. Most existing studies of child health, however, tend to overlook the effects of fertility selection on child health. This paper argues that not accounting for this selection issue yields biased estimates and it is difficult a priori to predict the direction of this bias. We find that the estimates of birth spacing on child mortality are different when we do not account for fertility selection. Additionally, the correlated hazard estimates that we present here better fit our samples than the corresponding bivariate probit estimates used in the literature. A comparison of the fertility behaviour of households in the Indian and the Pakistani Punjab highlights the differential nature of institutions on demographic transition in these neighbouring regions.

This paper examines the determinants of gender differences in educational attainment using data for all university graduates. We find that, although women students perform better on average than their male counterparts, they are significantly less likely to obtain a first class degree. There is no evidence that this is because of differences in the types of subject male and female students study or in the institutions they attend, nor does it reflect differences in personal attributes, such as academic ability. Rather, it is differences in the way these factors affect academic achievement that give rise to gender differences in performance.

Compulsory schooling laws are often suggested as a means of combating youth crime, but little is known about how effective they are in emerging economies. Using the exogenous changes in compulsory high school enrolment after the 2009 Brazilian Constitutional Amendment 59, we investigate its impact on youth crime indices, violent and less violent ones. We compared municipalities that received federal funding to increase high school enrolment with those that did not, using difference-indifference models to estimate the effects on selected youth crime indices. Our findings suggest that the Amendment had little or no effects on reducing youth crime. We observe small crime reduction when the incapacitation effects of the Amendment were largely outweighed by the negative effects of sudden overcrowding in classrooms with overburdened teachers providing inadequate supervision, and insufficient crime monitoring in public schools with shorter school hours. Adverse effects of overcrowding were worse in poor municipalities with more disadvantaged students and fewer resources that exactly balanced out the incapacitation effects, producing zero effects on crime. The effectiveness of compulsory schooling laws in reducing youth crime thus depends on the balance between the incapacitation effects and overcrowding effects.

Does the introduction of corporate transparency and disclosure rules in emerging economies affect compliance, and therefore earnings quality and firm performance? We explore these questions for an important emerging economy, Russia, using a natural experiment, the 2002 introduction of Russian corporate governance code. We exploit the exogenous variation in voluntary disclosure and find a significant increase in corporate disclosure among the domestic Russian firms over the period 2003-07 when firms gradually adopted some but not all disclosure rules. The immediate effect of the introduction was a drop in reported earnings. Market valuation, however, only improved for domestic firms after 2007, when all domestic firms had complied. However, cross-listed firms, which were already satisfying international standards, remained largely unaffected. Though average compliance by domestic firms was only 53%, average firm value of treated domestic firms, relative to cross-listed ones, went up by about 10%. Results are robust, confirm external validity and offer important policy implications for other emerging/ transition economies.

One of the central explanations of the recent Asian Crisis has been the problem of moral hazard as the source of over-investment and excessive external borrowing. There is however rather limited firm-level empirical evidence to characterise inefficient use of internal and external finances. Using a large firm-level panel data-set from four badly affected Asian countries, this paper compares the rates of return to various internal and external funds among firms with low and high debt financing (relative to equity) among financially constrained and other firms. Selectivity-corrected estimates obtained from random effects panel data model do suggest evidence of significantly lower rates of return to long-term debt, even among firms relying more on debt relative to equity in our sample. There is also evidence that average effective interest rates often significantly exceeded the average returns to long-term debt in the sample countries in the pre-crisis period. © 2006 Elsevier Inc. All rights reserved.

This article argues that networked firms are likely to have an advantage in securing bank finance in countries with weak legal and judicial institutions since it helps banks and other financial institutions to minimize the underlying agency costs of lending. An analysis of recent Business Environment and Enterprise Performance Survey (BEEPS) data from 15 Central and Eastern European (CEE) countries lends some support to this hypothesis. Even after controlling for other factors, firms affiliated to Business Associations (BA) are more likely to secure bank finance. Further, the importance of business networking is particularly evident among firms who borrow from private domestic banks, as these new banks attempt to minimize costs of adverse selection. There is also some confirmation that the significance of networking disappears with improvement in institutional quality. © 2013 Copyright Taylor and Francis Group, LLC.

The influence of ethnic diversity on public policy has assumed increasing attention in Europe during a period of rapid globalisation in the post-colonial era. Given the growing trend in public opinion against multiculturalism, it is particularly important to implement policies that are based on substantive evidence rather than a priori judgement. This paper argues that ethnic diversity and representation of minorities may affect public spending differently. Evidence using recent data from local governments in London suggests that greater ethnic diversity may lower (have no effect on) productive (unproductive) public spending, while greater minority representation may increase productive public spending, especially in more ethnically fractionalised communities. Further, the net effect of diversity on productive public spending is positive. These results are robust to alternative specifications, and therefore have potentially powerful policy implications.

Paper was nominated among the top 5 best papers at FMA(Sydney) 2016, FMA(Boston) 2017; it was also presented at the Indian Economic Growth Conference, Indian Statistical Institute (New Delhi).

There is a growing debate about land acquisition for infrastructure and industries in many densely populated countries. In this context, the present paper assesses the impact of the historical land ceiling legislations, largely implemented during 1960-85 to promote distributional equity, on corporate investment in India. We argue that the implementation of the land ceiling legislations had increased the transaction costs of buying land and also the price premium firms pay when acquiring land, thus inducing firms to invest less in land and capital. The detrimental ceiling effect is more pronounced when the ceiling size is more restrictive as for the most fertile land. Arguing that the variation in land ceiling size across the Indian states over time was largely dependent on choice of crops or soil fertility and as such could be treated as independent of the state authorities, our results support the conjecture that more restrictive land ceiling size has led to lower investment in both fixed and total capital output ratios at the state-level (1960-85). Further analysis of firm-level (1996-2012) data confirms that the ceiling effect persists in the long run, thus identifying an unintended consequence of land ceilings for investment and economic growth in the Indian states.

This paper examines whether the introduction of corporate governance (CG) reforms in general and that of transparency and disclosure (T&D) rules in particular can necessarily boost firm performance. Existing literature suggests that CG reforms can boost performance because it can resolve the conflict of interest between the controlling and the minority owners, especially in societies with highly skewed distribution of ownership. We however argue that the success of CG reform would, in addition, depend on whether the reforms may initiate further conflict, e.g., that between the state and the controlling owner. Using recent data from Russia for 2000-2008, we find that the introduction of corporate governance codes in Russia had limited success to improve indices of firm performance in our sample. We argue that this arises from the predatory behavior of the central and local governments: greater transparency make businesses easy targets for aggressive tax enforcement policy by the central government while the decentralized local governments increase the bribe price to protect businesses from high central taxes, which may also induce some businesses to go underground.

In the wake of the global financial crisis, several macroeconomic contributions have highlighted the risks of excessive credit expansion. In particular, too much finance can have a negative impact on growth. We examine the microeconomic foundations of this argument, positing a non-monotonic relationship between leverage and firm-level productivity growth in the spirit of the trade-off theory of capital structure. A threshold regression model estimated on a sample of Central and Eastern European countries confirms that TFP growth increases with leverage until the latter reaches a critical threshold beyond which leverage lowers TFP growth. This estimate can provide guidance to firms and policy makers on identifying “excessive” leverage. We find similar non-monotonic relationships between leverage and proxies for firm value. Our results are a first step in bridging the gap between the literature on optimal capital structure and the wider macro literature on the finance-growth nexus.

Social motivation can promote efficiency of public service delivery though its role in providing schooling is little understood. We provide both theoretical and empirical insights as to why not-for-profit private schools could enhance excellence in schooling, using Nepal as a case study. Results suggest that socially motivated trust schools outperform all other types of schools irrespective of whether we consider standardised test scores, absolute or relative to school expenditure per student. Results are robust and highlight that trust school’s social objective, coupled with private financing, ownership and management that minimises its agency costs, is key to their value for money.

In sectors such as financial intermediation, a multinational bank’s (MNB) ability to compete in a host country location depends on its access to information that are embedded in the relationships between local banks and their clients. Institutional distance between home and host countries of MNBs increases the verification costs of the quality of these embedded relationships (and hence the associated assets), and also makes it difficult for a MNB to balance its legitimacy between the two contexts. In this paper we develop hypotheses about the implications of information costs and institutional distance on entry mode choice of MNBs; the hypotheses find support in our empirical analysis.

Existing studies highlight the uncertainty about changes in living standards in China's transition to market economy. Using household data from Jiangsu and Sichuan provinces, we examine the significance of demographic characteristics on rural household welfare which has generally been overlooked in the existing literature. Three sets of results are reported here: (i) estimates of total land allocated per household suggests that household marginal share of land is higher for a resident adult compared to a child or an old and lower for non-resident members or members engaged in non-farm activities. (ii) Regular adjustment of land to changing demographic composition generates a lack of security of tenure in land as well as an impetus for the growth of rural non-farm activities as reflected in the estimates of household per capita income and expenditure: an additional resident or non-resident adult, engaged in non-farm activities enhances rural household welfare while an additional child or old member lowers it, which also reflects the deterioration in the provision of social services. (iii) Probit analysis of poverty status based on poverty-level income suggests that the poor are likely to be those households with more children or old members and also those primarily depending on farm activities. In a situation of changing demographic patterns and a changing balance between rural farm and non-farm employment prospects, there is a need to identify the poor and the vulnerable adequately so that the latter do not have to bear the brunt of the reform. Copyright (C) 2000 John Wiley and Sons, Ltd.

Evidence obtained from the ICRISAT villages in India suggests that the decline of regular contracts has been accompanied by the growth in real wages and casualisation of the rural labour force. In view of this evidence, the article examines the causes of the declining incidence of regular contracts in rural India. We argue that this has been caused by the leftward shift in the regular labour supply curve due to improved employment and credit opportunities and not an upward movement of the labour demand curve as manifested by the increase in real wages over the years.

The Millennium Development Goals implicitly assume that the state has the prime responsibility of delivering basic education, ignoring the rapid private school growth. The present paper attempts to identify the causal effect of private school growth on youth literacy and enrolment rates, using the variation in private school growth in Indian districts. The average treatment effects generally mirror the district fixed effects estimates: the effect of private school growth on literacy and enrolment rates among 10-19 year olds remains positive and significant while the corresponding effect is much weaker for gender gap in literacy and enrolment rates.

Primary enrolment rates are very high in Peru, but so are the failure and drop-out rates. Thus an understanding of the nature of child schooling should consider school progression from primary to secondary and higher levels, taking account of the conditional sequence with the previous level and self-selection into the next higher level of schooling. Using a unique correlated sequential probit model with unobserved heterogeneity the present paper does so and obtains richer results, argued to be better than the standard static estimates. It is shown that the same set of individual/parental/household characteristics may affect different levels of schooling differently.

Elite capture is a natural concern regarding decentralisation. We highlight the effects of ethnic diversity and social norms on the extent of such capture. Ethnic diversity, through differences in the preference for public goods, facilitates capture. However, this may be counteracted by social norms which promote cooperative behaviour within communities. We test these theoretical predictions using community-level data from the 1997 and 2007 Indonesian Family Life Survey (IFLS) rounds with fiscal decentralisation being implemented in between. We exploit a particular institutional feature of Indonesian communities — namely, the observance of traditional " Adat " laws to proxy coordination across ethnic groups. Overall, we find that ethnic diversity depresses community-level development spending after decentral-isation, particularly where Adat laws (which promote an ethic of mutual cooperation) are not followed. The opposite is observed for spending on non-developmental items.

With a view to redress the dearth of economic analysis on occupational dynamics in rural household economies, this study examines the nature and characteristics of occupational change and mobility in rural India. Using the unique WIDER data-set from six villages in West Bengal, India the factors causing a change of primary occupation among those tried to change occupation over a twelve-month recall period has been analysed. Bivariate probit estimates jointly determining the probability of trying to change occupation and having been successful suggest that success in changing occupation depends crucially on socially constructed 'status' - being older, male, from larger farming families or having higher schooling experience. They also exemplify the effects of regional diversity, levels of prosperity and different patterns of employment between agricultural and non-agricultural activities.

While the existing literature suggests that CG reforms tend to boost firm performance, in the context of Russia the present paper argues that the beneficial effect of any CG reform may be outweighed by the possible adverse effects arising from the conflict between the state (as tax collector) and the controlling owner and/or that between the central and local governments in a decentralized set-up. Using introduction of the CG reform as a natural experiment, we compare the estimates of market (e.g., Tobin’s Q) and accounting (e.g., EBIT share) based measures of performance to identify the causal effect of the reform on firm performance in a sample of firm-level panel data from Russia. We argue that the negative effect of the reform is likely to be more pronounced in the accounting based measure of performance which can be subject to manipulation. First, greater Transparency and Disclosure is associated with significantly higher Tobin’s Q, but not EBIT share. Further analysis exploits the variation in both measures of firm performance between domestic and foreign listed Russian firms before and after the introduction of CG reform and suggests that the reforms failed to spur any significant improvement in the market based performance measure, while it is associated with significantly lower EBIT-share among domestic listed Russian firms. We argue that the differential impact of the reform on EBIT share provides support to our central hypothesis.

Women make up one-half of the world’s population, though two-thirds of the world’s non-literate adults are women, which highlight the pervasive denial of the basic human right to education experienced by women across the globe. While there is a sizeable literature on gender discrimination in girls’ schooling, we know very little about girls’ access to private schooling, despite its rapid growth around the world in recent years. Using two nationally representative datasets from household surveys conducted in India in 2005 and 2012, our paper aims to bridge this gap by examining the role of gender in private school choice. We argue that the gender of the child is potentially endogenous in India because parents continue to have children until they have a son. To redress this potential endogeneity, we exploit the variation in private school choice among 7-18 year olds born to the same parents within the same household in an attempt to minimize both child-invariant and child-varying household-level omitted variable bias. We then explore the nature of female (dis)advantage across different types of households, communities and years with a view to assess the role of parental preferences in this respect and its change, if any. The analysis thus allows us to provide new evidence for the causal effect of gender on private school choice in India. Significant female disadvantage exists in both survey years, though the size of this disadvantage varies across sub-samples and years. Female disadvantage is significantly higher among younger (relative to eldest) girls and also in northern and northwestern (relative to western) regions, but it is lower among girls from poor (relative to rich) households, Christian (relative to Hindu high caste) households, and those with more educated mothers. Our results are robust, irrespective of whether or not we restrict the sample to those born to a household head. We infer that the observed within-household variations in female disadvantage across subsamples reflect variations in non-altruistic parental preferences linked to deeply held cultural norms (for example, sons acting as old-age security and the exogamy of girls), access to schools and other public goods, and also job opportunities and returns to schooling for girls, thus posing considerable challenges in the attempt to secure ‘education for all.’

The paper examines both theoretically and empirically the factors determining the demand for regular labour in seasonal agriculture. In an implicit contract framework it is argued that there are ‘hoarding costs’ of regular labour in the slack period when there is not much work to be done. Consequently, the number of regular labour employed is constrained by the hoarding cost where larger employment-intensive farms tend to hire more regular labour. Evidence from the ICRISAT villages in India, too, show that though the marginal costs of regular labour are zero, there are significant hoarding costs of regular labour among small farms so that larger farmers are the major demanders of regular labour. Estimates of the double-hurdle model jointly determining the probability of hiring regular labour and demand for regular labour-hours (if a regular labour is hired) are shown to be an improvement over univariate tobit estimates of the demand for regular labour-hours only.

Using the WIDER data-set from rural West Bengal, this article examines gender differences in child schooling, using indicators of school enrolment and attainment at the primary level. Among various factors studied, there is only weak evidence that characteristics of the older siblings and household resource constraint can explain this observed gender difference. There is, however, significant evidence that paternal and maternal education explain gender differences in both school enrolment and attainment: while father's education has a significant impact on both boy's and girl's education at the primary level, mother's literacy has greater impact on the chances of daughters being educated than sons. In other words, when mothers have bargaining power, in this case via education, they are likely to increase collective household welfare rather than to perpetuate discriminatory practices.

Managing dual practice of health workers has often proved to be challenging, especially in emerging countries characterized by weak monitoring and low motivation. This paper exploits an exogenous variation in the initiation of private practice among heads of local public facilities (known as puskesmas) providing primary health care after the introduction of a 1997 health regulation in Indonesia. This regulation required health professionals to apply for a license for private practice at least three years after their graduation. Exploiting the exogenous variation in private practice after the 1997 regulation, we provide estimates of causal effects of dual practice on provision of public health services, distinguishing between the effects when private practice is located at or away from the public hospital. The estimates suggest that dual practitioners (relative to those engaged in public service only) work significantly less hours per week while they see significantly more patients in their public facilities. These adverse effects of dual practice are most pronounced when private practice is held away from the puskesmas. These results have important bearings on human resource management of universal health care provision.

In view of limited empirical evidence concerning the microeconomic aspects of corporate financial problems in the East Asian countries in the 1990s, this paper analyses the financing pattern of corporate investment in Indonesia, Korea, Malaysia, and Thailand. The analysis is based on an unbalanced panel of listed firms during the period 1989-1997. By using firm size, retention practices, and leverage as three different indicators of financial constraint on firm investment, we have examined the role of various internal and external financing variables on corporate investment in the sample countries. Results indicate that a large number of sample firms depend on free cash flow, especially in Indonesia; there was also a steady increase in debt-equity ratio in all countries. There were signs of agency costs in the use of cash flow in Korea and Malaysia and also in the use of debt financing in Malaysia and Thailand. There was also sign of over-investment among the Thai firms during 1994-1997 though it appears very little if at all was done to redress it in time. © 2001 Elsevier Science Inc. All rights reserved.

The article examines workers’ choice between casual and regular contracts. It departs from existing theories in that in addition to wage considerations it highlights the significance of time and credit constraints. Results obtained from the ICRISAT villages in India suggest that risk‐averse landless labourers ought to prefer casual to regular contracts because earnings from casual contracts are higher. However, this argument gets strongly modified once we consider that a large part of regular wages are received in advance and that the comparative attractiveness of regular contracts depends crucially on whether labourers have access to credit and other jobs.