ECONOMICS OF DEVELOPING 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. ECONOMICS OF DEVELOPING COUNTRIES TIAGO N. CALDEIRA EDITOR Nova Science Publishers, Inc. New York Copyright © 2009 by Nova Science Publishers, Inc. All rights reserved. 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LIBRARY OF CONGRESS CATALOGING-IN-PUBLICATION DATA ISBN 978-1-61761-917-5 (Ebook) Published by Nova Science Publishers, Inc. 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