Candidate: Khaled Ibrahim Abdel-Kader

Degree of: Doctor of Philosophy

Department: Economics

Title: Three Essays on Economic Reform: Effects on Human Development, Fertility, and Factor Shares

Committee:
Dr. Eskander Alvi, Chair
Dr. Matthew Higgins
Dr. Jon Neill
Dr. Ahmed Hussen

Date: Friday, September 20, 2002 3:00 p.m.-5:00 p.m. 4204 Dunbar

Abstract: This Dissertation contains three essays on economic reform programs supported by the IMF and World Bank. Using appropriate theoretical and empirical models, we investigate the impact of reform on three aspects of economic development; (1) human development, (2) fertility, and (3) income shares of factors of production. In the first essay, we examine the long-run impact of reform on different measures of human development and income using panel data for 40 reforming countries. We also examine the same impact when countries' initial macroeconomic conditions are incorporated. Confirming the implications of the theoretical framework, empirical results show that reform has long-run positive impact on GDP per capita and measures of human development. We also find that initial debt-GDP ratio and initial GDP growth have negative impact on human development measures and GDP per capita.
In the second essay, we examine the impact of reform on fertility in reforming countries relative to non-reforming countries. We argue that reform can reduce fertility by making capital more complementary to female labor, raising women's relative wage, and hence raising the opportunity cost of child-rearing. Without the increase in complementarity between capital and female labor, women's wage stays low and the economy converges to a (over)
lower steady state equilibrium where capital and output per head are low, female labor participation is low and fertility is high. To test this empirically, a random coefficient regression model to estimate the complementarity between physical capital and female labor is specified and estimated. We then test for the impact of capital per head on fertility by estimating a dynamic heterogeneous model using weighted and unweighted regressions. The results are consistent with the predications of the theoretical model and show that capital per head has a significant negative impact on fertility after reform as female labor and physical capital become more complementary.
In the third essay, we examine the distributional impact of reform on labor and capital in reforming countries. Using a simple theoretical model and assuming that factors of production are paid less than their marginal products pre reform , we show that the impact of unemployment and capital accumulation on the functional distribution of income is ambiguous and depends solely on the size of the elasticity of substitution between capital and labor. Empirical results show that the elasticity of substitution is greater than one but decreases after reform. With lower elasticity of substitution after reform, the increase in capital per head is expected to raise capital's share relative to labor's share. However, reform has a positive impact on the shares of both factors. It was also concluded that labor and capital are highly underpaid in terms of their marginal products before reform and that reform removes this distortion in factor markets.

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