rafmacalaba/datause-encoder-data huggingface dataset:
Policy Research Working Paper 10710

# **Abstract**

This paper uses the construction of India’s Golden Quadrilateral (GQ) highway to explore the impact of an exogenous increase in market access and competition across the firm life cycle and generates four findings. First, while exit rates fall for all plants, aggregate gains are driven by expansion of young plants. Older plants stagnate or contract, consistent with the challenges of increased competition for incumbents. Second, the benefits of connectivity to young plants depend on access to complementary factors, such as finance, and business conditions, although older plants respond better in more distorted districts, perhaps reflecting access to inputs while protecting output markets as in de Loecker et al. (2016). Third, expanding young plants correspond to capital intensive value chain embedded activities that do not require close coordination with final producers. Fourth, plant-level panel data confirms plant capabilities as central to both the magnitude of the response, and to the composition of plants driving it. Aggregate expansion among young plants is driven by high skill plants while contraction of old plants is driven by low skill plants, consistent with frontier firms being able to escape competition (Aghion et al. 2014).

This paper is a product of the International Finance Corporation and the Office of the Chief Economist, Latin America and the Caribbean Region. It is part of a larger effort by the World Bank Group to provide open access to its research and make a contribution to development policy discussions around the world. Policy Research Working Papers are also posted on the Web at http://www.worldbank.org/prwp. The authors may be contacted at agrover1@worldbank.org and wmaloney@worldbank.org.

_The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent._ Produced by the Research Support Team
Figure 2 Real Wage Overshooting in Textiles <!-- Start of picture text -->
-2 0 5 10 15<br>Year<br>Model Fixed Capital<br>Low Labor Mobility Cost<br>0<br>-.05<br>-.1<br>-.15<br>-.2<br><!-- End of picture text -->

Notes: real wage responses in the textile sector. The solid black line corresponds to the benchmark model with capital adjustment costs; the dashed gray line corresponds to a xed- _K_ model; the dotted gray line corresponds to a model with capital adjustment costs and lower labor mobility costs (set to U.S. values from Artuc and McLaren, 2015).

Figure 3 Asymmetric Response of the Capital Stock Positive and Negative Price Shocks in Textiles <!-- Start of picture text -->
-2 0 5 10 15<br>Year<br>Positive shock Negative shock (mirror)<br>.25<br>.2<br>.15<br>.1<br>.05<br>0<br><!-- End of picture text -->

Notes: evolution of the capital stock in the positive shock (solid line) and the mirrored (changed sign) benchmark response (dashed line).

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18 (bequest motives and age structure) independent variables in the regression specification. In addition, the incorporation of all these variables into a single specification allows a simultaneous test to the validity of all of these theories.

These panel regressions were estimated for the period 1975 to 1992 and both country and time fixed effects were used. Annual observations were used and countries did not have the same number of observations<sup>17</sup> . Estimating panel regressions calls for particular care in accounting for the dynamic properties of the variables. In addition to the control variables mentioned above, we also include a lagged dependent variable to reduce the serial correlation of the error terms.

# **Missing Data Technique**

A major problem with estimating cross-country regressions that use socioeconomic variables is that there will be many missing observations. In our case, data on the Gini coefficient and life expectancy at age 65 are often sparse and available at irregular intervals. The problem is exacerbated by the fact that it is usually the less developed countries with the missing data for these variables, and it is the less developed countries that are likely to exhibit bequest constrained behavior. Thus, the exclusion of countries due to the lack of socio-economic (or any) data is likely to introduce a systematic bias against the existence of negative bequest motives.

In an attempt to harvest all the information we can from our data set, we use a method developed by Griliches (1986) for the treatment of missing data or observations. From the data appendix, it will be seen that we have been able to work around the problem of having insufficient observations for elderly life expectancy by obtaining predicted values of elderly life expectancy by using data on life expectancy at birth, which is highly correlated to elderly life expectancy. Since we do not have a variable that is highly correlated with the Gini coefficient, we will apply this missing data technique to the Gini coefficient.

The technique involves three stages. In the first stage, we perform the “normal” estimation of the fixed effects panel regression with the dependent variable budget surplus share being regressed on all independent variables, including the Gini coefficient: 17 In the jargon of panel data analysis, the panel is “unbalanced”.
# 1. Behavioral development economics in historical perspective

From the earliest work in economics, many writers recognized that people are not always rational and that institutions and cultural contexts shape their character (Smith, 1982 [1759]; Hirschman, 1982). Yet with W.S. Jevons’ introduction of mathematical methods into economics and the creation of neoclassical theory in the 1870s, core research and much of the practice of economics adopted a different theory of the economic actor.<sup>1</sup> Neoclassical theory assumes an actor with unbounded rationality and exogenous preferences—he is called the _rational actor_ . Neoclassical theory until the 1970s investigated economic activity independent of institutions (other than property rights) and independent of culture. Few economists believed that the theory accurately described how individuals made decisions. Instead, adopting neoclassical assumptions was widely accepted as the best means of modeling behavior in economic contexts. In many circles, invoking preference changes as an explanation for behavioral changes was condemned as bad science (Stigler and Becker, 1977, p. 89).

Development and growth economists could explain a lot with neoclassical theory, and powerfully so. Central neoclassical applications are capital accumulation and markets with information problems:

## 1) _Capital accumulation and learning_ —

In the Solow model of growth, the cause of underdevelopment is a shortage of capital and skilled labor. Empirical work drawing on household-level panel data in poor countries

> 1 Throughout the 20<sup>th</sup> century, prominent researchers directed attention to violations of rationality. Keynes discussed “animal spirits” and Simon detailed many aspects of “bounded rationality” (Keynes 1937; Simon 1957).  However, this work was often marginalized or ignored because there was little interest in building on a behavioral perspective that lacked a unifying theoretical core.

3
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PSNP transfers are less likely to reduce expenditures on health and education by 7.7 percentage points and were less likely to reduce expenditures on agricultural inputs (fertilizer, seeds and livestock) by 13 percentage points. These associations are intuitive and consistent with our fixed effects results and provide suggestive evidence that PSNP transfers can help households avoid detrimental coping strategies to deal with income losses associated with COVID-19.

# **_5.2. The role of PSNP in protecting mothers’ and children’s diets_**

COVID-19 could affect maternal and child diet through reductions in income or reduced market access. Households might alter their consumption as incomes drop due to limited on- and off-farm income generating opportunities and fall in remittances and other private transfers. The effect on diet could manifest both in the number of items households consume and the quality of diets. To measure the effect of COVID-19 on these dimensions of diet, we use diet diversity indices for mothers and children as well as changes in consumption of animal source products and vitamin A rich fruits and vegetables.

Table 6 shows how diet diversity has changed in response to the COVID-19 crisis and the implication of PSNP in protecting mothers’ and children’s diets. We present two sets of results using a continuous diet diversity index for mothers and children as well as a dummy variable that takes value 1 if minimum diet diversity is met and 0 otherwise. The minimum diet diversity is defined at 5 food categories for mothers and 4 food categories for children (WHO, 2010). There has been an increase in diet diversity in the COVID-19 period, with the effect particularly large and statistically significant for children. Similar patterns are observed for the likelihood of meeting minimum diet diversity requirement. Children are about 18 percent more likely to meet the minimum diet diversity compared to the pre-COVID-19 period. Disruptions in some value chains particularly those perishable foods that rural households usually produce for markets (e.g., fruits, vegetables, eggs) means that these foods may end up being temporarily consumed at home – an indirect evidence of which Hirvonen et al. (2020) report for urban food markets in Ethiopia.

Access to the PSNP does not appear to affect maternal or child diet diversity, a result consistent with what Berhane et al. (2020) report using the 2019 data. This limited role PSNP plays in protecting mothers’ and children’s diets could be explained by several factors. First, as part of the transfers are given in cash and with limited market access, households cannot use cash transfers to buy food. Second, in kind transfers are likely given in consumption items households already 16
# **TABLE 11: SAMPLE CHARACTERISTICS OF CHILDREN AND MOTHERS INCLUDED IN CHILD HEALTH CONSULTATION EXIT INTERVIEWS AT BASELINE***

||Mean<br>T1|Mean<br>C1|Mean<br>C2|Mean<br>C3|Mean<br>total|p-value<br>T1/C3|p-value<br>C1/C3|p-value<br>C2/C3|p-value<br>F-test|N|
|---|---|---|---|---|---|---|---|---|---|---|
|_Child characteristics_|||||||||||
|Age in months|23.66|14.15|22.45|18.00|20.01|0.08|0.27|0.17|0.04|185|
|Female|0.58|0.40|0.54|0.49|0.51|0.33|0.43|0.65|0.48|188|
|_Caretaker characteristi_|_cs_||||||||||
|Single|0.35|0.20|0.26|0.16|0.25|0.04|0.69|0.27|0.18|187|
|Currentlymarried|0.60|0.77|0.74|0.80|0.73|0.03|0.79|0.51|0.16|187|
|Divorced or widowed|0.04|0.03|0.00|0.04|0.03|0.97|0.78|0.16|0.16|187|
|Literate|0.75|0.77|0.69|0.77|0.74|0.84|0.98|0.33|0.77|190|
|No education|0.06|0.11|0.17|0.08|0.11|0.74|0.66|0.16|0.34|187|
|Primaryeducation|0.38|0.37|0.43|0.38|0.39|0.96|0.94|0.59|0.93|187|
|Secondary education<br>level 1|0.27|0.26|0.30|0.38|0.30|0.26|0.25|0.36|0.59|187|
|Secondary education<br>level 2|0.21|0.17|0.07|0.12|0.14|0.20|0.52|0.43|0.24|187|
|Higher education|0.08|0.09|0.04|0.04|0.06|0.40|0.46|0.94|0.71|187|

* Standard errors adjusted for facility-level clustering of observations

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**[Belief Correction - Only T2:]** According to your previous answers, overall you expect about -<sup>_a_</sup> out of 10 Tunisian men and women to support a legal reform making gender equality in inheritance the legal standard in Tunisia. Is this correct? _[Record_

_respondent’s answer, allow for correction]_ _Answer:_ You indeed overestimated / underestimated this percentage / guessed correctly. A recent survey found that about 35% of Tunisian men and women support legal reform.<sup>_b_</sup>

> _a_ Average of items 3. and 4, rounded to the next integer.

> _b_ The stated percentage is based on a nationally representative study conducted by the researcher in Tunisia in March 2022. The question is specific and the respondents were not aware of the correct answer as the study results had not been published.

Depending on their priors, this information may lead treated respondents to update their perceptions of public support for inheritance law reform upwards or downwards. The perceptions of respondents in T1 were not corrected.

Respondents in both treatment groups received the following information on gifting.

**[Gifting Info - T1 & T2:]** Did you however know that there are alternative ways of arranging a more gender equitable bequest without legal reform?

Gifting, as defined in art. 200 XII of the Code of Personal Status is a way of transferring assets to the person of one’s choice. By “gifting” their daughter, parents can arrange a more gender equitable inheritance split, and Law 69 of October 28, 2006, even creates a fiscal benefit for donations to one’s children by significantly reducing property registration fees.

# **3.2.3 Endline Surveys and Outcomes**

Two endline surveys evaluated the causal effect of these treatments. The first directly followed the information treatment. The first main outcome asks respondents to choose their ideal bequest allocation in a hypothetical scenario. They were asked to allocate a bequest between two children, a son and a daughter. The most common answer was “two shares-oneshare”, which is the allocation prescribed by Islamic law. In this case, the “ideal bequest” 15
- 14 -

1. Does housing investment respond to housing market disequilibrium?

- If no, the presumption is that adjustment to labor market disequilibrium is more likely to occur through impacts on migration flows and thence on wage structures.

# 2. Is migration influenced by housing shortages?

If no, then one may conclude that wage differentials are sufficient to have offset the reluctance to migrate. If yes, there may be assumed to be costs to both industry and individuals of reduced mobility, costs which industry will attempt to offset by offering higher wap-eOs to induce - workers to migrate despite housing shortages.

# 3. Are wages influenced by housing shortages?

If yes,, then one may conclude that relative to the situation in market economies wages are distorted--too high in some regions and industries and too low in others, with the result that productivity and output suffer.

# Table 4: STANDARD DEVIATION RELATIVE TO AVERAGE EARNINGS IN **THE** MAIN AND INDUSTRIAL SECTORS IN SELECTED EAST EUROPEAN COUNTRIES, 1976

||Main<br>Sectors|Industrial<br>Sectors|
|---|---|---|
|Poland<br>Bulgaria|15.1<br>12.5|19.5<br>15.7|
|Czechoslovakia|13.4|15.2|
|Hungary|7.7|15.0|
|Romania|9.1|12.7|
|USSR|18.8|17.3|

Source: Table 10.3, Askansas and Levcik (1983).

10/ Industries may respond in one of two ways-either by offering higher money wages or by offering higher non-wage benefits, particularly company housing. This latter possibility seems to have been increasingly common in recent years, though the data were
suggest that trade reforms did not impact industry wage premiums. However, we find evidence that sector specific skill premiums have increased proportionately more in industries that experienced larger tariff reductions. This evidence is consistent with the sector-specific skillbiased technological change that is concentrated in sectors with larger tariff reductions and tradeinduced productivity improvements found by Hay (2001) and Muendler (2002).

Overall, we conclude that the trade reform in Brazil did partially contribute to the growing skill premium by impacting skill-biased technological change and industry specific skill premiums. However, we find little support for Hecksher-Ohlin type adjustments to trade reform.

The paper proceeds as follows. Section 2 of the paper provides background on Brazil's trade regime, describes the labor force data, and overviews the trends in the returns to education. Section 3 explores whether labor market developments in Brazil are consistent with predictions of the Hecksher-Ohlin trade model and (trade-inducecl) skill biased technological change. Section 4 analyses the relationship between industry wage premiums and trade reforms. Section 5 concludes.

# **2. Background**

# **2.1 Trade Policy in Brazil**

Like many other Latin American countries, Brazil pursued an import substitution policy to shield domestic firms from foreign competition until the 1980s. The high level of tariffs and large number of non-tariff barriers (NTBs) severely hindered the access of foreign good to the Brazilian market and provided high levels of protection to Brazilian firms. The level of protection varied widely across industries. For example, imports from the most protected sector, clothing faced tariffs exceeding 100 percent, followed by sectors such as textiles and rubber that were subject to tariffs exceeding 80 percent in 1987. This suggests that Brazil protected 6