Asian Development Review

This paper revisits demographic dividend issues after almost 2 decades of debate. In 1998, David Bloom and I used a convergence model to estimate the impact of demographic-transition-driven age structure effects and calculated what the literature has come to call the “demographic dividend.” These early estimates seem to be similar to those coming from more recent overlapping generation models, when properly estimated. Research has shown that the demographic dividend is not simply a labor participation rate effect, but also a growth effect. Life-cycle savings, investment deepening, foreign capital flows, and schooling have all been greatly affected by the demographic transition. The paper discusses just how much of these positive growth effects are based on accelerating human capital accumulation induced by demand-side quality–quantity trade-offs versus a co-movement between demographic transitions and public schooling supply-side expansions. Since emigration has been driven in part by demography, it has wasted some of the demographic dividend by brain drain. In addition, within-country rural–urban migrations have also been driven in part by demographic transitions with different spatial timing. Finally, the paper shows how lifetime—not just annual—income inequality has been influenced by demographic transitions.

Inequality in access to education is known to be a key driver of income inequality in developing countries. Viet Nam, a transitional economy, exhibits significant segmentation in the market for skilled labor based on more remunerative employment in government and state firms. We ask whether this segmentation is also reflected in human capital investments at the household level. We find that households whose heads hold state jobs keep their children in school longer, spend more on education, and are more likely to enroll their children in tertiary institutions relative to households whose heads hold nonstate jobs. The estimates are robust to a wide range of household and individual controls. Over time, disparities in educational investments based on differential access to jobs that reward skills and/or credentials help widen existing income and earnings gaps between well-connected “princelings” and the rest of the labor market. Capital market policies that create segmentation in the market for skills also crowd out investment in private sector firms, further reducing incentives for human capital deepening.

The People's Republic of China (PRC) is currently promoting indigenous technology development through support of Chinese firms and, arguably, by restricting operations of foreign multinational firms. This policy seems to overlook the impact of foreign firms on technology development in local firms. For instance, technology might leak out to local firms though spillovers. Moreover, competition from foreign firms might force local firms to engage in technology development. We examine the impact of foreign direct investment (FDI) on technology development in the PRC. We start by surveying a large and growing literature on FDI and spillovers in the country. Most previous studies find evidence of positive spillovers. We then continue to examine the effect of FDI on competition in the Chinese manufacturing sector and the effect of competition on firms’ research and development (R&D). Our analysis is conducted on a large dataset including all large- and medium-sized Chinese firms over the period 1998–2004. Our results show that FDI increases competition but there are no strong indications of competition affecting investments in R&D.

This paper analyzes the dynamics of assets held by low-income households facing various types of income shocks in pre-independence and post-independence Pakistan. Focusing on the province of Khyber Pakhtunkhwa (formerly known as the North–West Frontier Province or NWFP), the paper first investigates long-run data at the district level beginning 1902. Results show that the population of livestock, the major asset of rural households, experienced a persistent decline after crop shocks due to droughts, but did not respond much to the Great Depression. In the post-independence period, crop agriculture continued to be vulnerable to natural disasters, although less substantially so, while the response of livestock to such shocks was indiscernible from district-level data. To examine microeconomic mechanisms underlying such asset dynamics, I analyze a panel dataset collected from approximately 300 households in three villages in the NWFP during the late 1990s. Results show that the dynamics of household landholding and livestock are associated with a single long-run equilibrium. When human capital is included, the dynamics curve changes its shape but this is not sufficiently nonlinear to produce statistically significant multiple equilibriums. The size of livestock holding was reduced in all villages hit by macroeconomic stagnation, while land depletion was reported only in a village with inferior access to markets. The patterns of asset dynamics established from historical and contemporary analyses are consistent with limited but improving access to consumption smoothing measures in the study region over the century.

This paper analyzes the equity of opportunity in basic education and infrastructure services in seven developing countries, Bangladesh, Bhutan, Indonesia, Pakistan, the Philippines, Sri Lanka, and Viet Nam. The analysis applies a method developed by the World Bank called the Human Opportunity Index, which measures the total contribution of individual socioeconomic and demographic circumstances to inequality of opportunity in accessing basic services. The new and major contribution of the paper, however, is the development of a methodology that quantifies the relative contribution of each circumstance variable to the inequality of opportunity. This contribution is crucial in identifying which underlying inequalities matter most—which can have important policy implications, for instance, in terms of developing better-targeted interventions. Results of the empirical analysis indicate that more needs to be done to improve the distribution of economic benefits. Opportunities to access basic education and infrastructure services in the seven countries vary widely in terms of availability and distribution. The study also finds that inequality of opportunity is driven mainly by per capita household expenditure. This suggests that household poverty plays a crucial role in determining equitable access to basic services.

We study the effect of political connection (PC) on company value in an environment where low PC is due to better institutions and not confounded by favorable social/cultural factors. We find that in Singapore, the only country that fits this description, PC in general adds little to the value of a company. However, in industries that are subject to more stringent government regulations, PC appears to be somewhat important. Robustness checks show that alternative PC variables give rise to similar results, and the addition of control variables do not drastically change the findings. Politically connected firms have higher managerial ownership and tend to be smaller than non-PC firms, rendering them more susceptible to poorer governance practices. We show that the presence of politically connected directors somewhat neutralizes such potential negative effects. PC firms are associated with good governance practices such as nonduality in their chairman and chief executive officer positions and fewer executive directors.