Emerald | Indian Growth and Development Review

Human capital, migration and rural entrepreneurship in China

Jialu Liu — 2011-09-27 00:00:00.0

Abstract

Purpose – Many countries have experienced, or are experiencing, urbanization. One such example is China. Even though the large-scale rural-urban migration seems chaotic on the surface, there are certain underlying forces driving individual decisions. The purpose of this paper is to provide some understanding of the relationship between human capital, migration, and occupational choices. Design/methodology/approach – The paper starts with an overlapping generations model. Human capital plays various roles across different occupations – it does not affect the income of farmers, it affects income of workers linearly, and it has increasing returns in rural non-farm business. The paper then derives income profiles for individuals with heterogeneous human capital, and finds the human capital thresholds of occupations. The paper calibrates the model to China, and simulates the model to answer two questions: how does an improving human capital distribution affect rural wages, quantities of migrants and return migrants? How does a fast-growing urban wage rate affect rural wages, quantities of migrants and return migrants? Findings – First, depending on the initial human capital level, policies aiming to enhance human capital may have different impacts on migration. If the initial human capital level is low, these policies will yield more permanent migrants; on the contrary, if the initial human capital is at a relatively high level, then a shrinking permanent migrant class with a growing entrepreneur class can be expected. This results in an inverted U-shaped relation between the initial human capital level and the size of the permanent migrant class. Second, even though the non-farm business of return migrants helps raise rural wages, the income inequality between rural and urban areas is not eliminated and migration is persistent. Third, borrowing constraints limit the size of rural non-farm businesses and slow down the development of rural industry. The fourth and final point is that, migration costs discourage labor mobility and reduce the quantities of both permanent migrants and entrepreneurs. Originality/value – This is an original paper on this subject.

The distributional impact of common-pool resource regulations

Stefan Ambec, Carine Sebi — 2011-09-27 00:00:00.0

Abstract

Purpose – Regulating common-pool resources is welfare enhancing for society but not necessarily for all users who may therefore oppose regulations. The purpose of this paper is to examine the short-term impact of common-pool resource regulations on welfare distribution. Design/methodology/approach – The authors model a game of common-pool resource extraction among heterogeneous users. Findings – It was found that market-based regulations such as fees and subsidies or tradable quotas achieve a higher reduction of extraction from free-access than individual quotas with the same proportion of better-off users. Also, they make more users better-off for the same resource preservation. Originality/value – The quota regulation has attractive fairness properties: it reduces inequality while still rewarding the more efficient users.

Environmental regulation, green R&D and the Porter hypothesis

Indrani Roy Chowdhury, Sandwip K. Das — 2011-09-27 00:00:00.0

Abstract

Purpose – The purpose of this paper is to examine the effects of environmental regulation on green R&D, as well as to characterize the conditions under which the Porter hypothesis, both the weak as well as the strict version, may or may not hold. Design/methodology/approach – The authors use a simple two-stage model with environmental R&D and endogenously determined abatement costs to address these issues. Findings – In a monopoly framework, the authors identify a channel arising out of the replacement effect that may increase R&D incentives following stricter regulation. It was found that the Porter hypothesis, both the weak as well as the strong version, is likely to hold if the new technology is relatively efficient in production, but not otherwise. Originality/value – The paper makes a contribution towards the debate on the relationship between environmental regulation and green R&D, in particular the extremely influential Porter hypothesis.

Interest rate discrimination, tenancy and cost sharing

Bibhas Saha, Tridib Sharma — 2011-09-27 00:00:00.0

Abstract

Purpose – The aim of this paper is to develop a theory of sharecropping with cost sharing after allowing for an explicit role of a creditor. In the tenancy literature, the prevalence of sharecropping has remained an important issue. While most contributions have focussed only on output sharing, very few have studied the issue of cost sharing. Besides, the existing models have considered interactions only between a landowner and a tenant. The purpose of this paper is to extend this setup to a third player – creditor. Design/methodology/approach – The authors adopt a static contract approach with full information and no uncertainty and model possible credit-cum-tenancy arrangements among a money-lender, a landowner and a tenant under the restrictions that the money-lender cannot charge a lump-sum fee and the input choices are left with the tenant. Findings – It is shown that all Pareto optimal arrangements between a creditor, a landowner and a tenant must involve interest rate discrimination between the tenant and the landowner and a share tenancy with cost sharing, or a fixed rent tenancy with cost sharing, or a mixture of the two. None of the polar contracts – wage or rent – is possible. Lending schemes that feature credit rationing or credit delegation can implement some Pareto efficient outcomes. Originality/value – The model developed in the paper presents a framework for studying various tripartite arrangements observed in rural economies of developing countries. Also, it provides a benchmark for studying contracts under asymmetric information and uncertainty.

Monetary policy in India: is something amiss?

Riccardo Cristadoro, Giovanni Veronese — 2011-09-27 00:00:00.0

Abstract

Purpose – Indian monetary policy performed reasonably well in the past, while both strategy and operational framework were evolving on par with domestic financial and monetary markets. The purpose of this paper is to document how this good track record came to an abrupt stop in recent years as inflation rose sharply and, more worryingly, expected inflation followed suit. Design/methodology/approach – This paper has analytical, empirical and policy dimensions. Given the recent surge in inflation in India, as well as in inflation expectations, a discussion of the role of monetary policy is needed. This is presented by resorting to survey evidence on expectations as well as to indirect evidence inferred from the market reactions to macroeconomic news. Findings – The authors documented the unhinging of inflation expectations in India in the aftermath of the financial crisis. The evidence gathered leads to the conclusion that both the monetary policy strategy and framework of the Reserve Bank of India would benefit from further evolution in the direction of a precisely defined and overarching objective (price stability), instead of the present multiplicity of goals, and of a well-defined operating target, enhancing the transparency, communication and signalling effect of policy moves. The authors suggest that embracing a flexible inflation targeting approach is a possible solution. Originality/value – This is a highly topical issue that has attracted a great deal of attention in policy discussions, both in India and in the region. Very few papers combine the analytical and empirical considerations in this topic.