Liu, X; (2012) Essays in Applied and Development Economics. Doctoral thesis , UCL (Univesity College London).

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Abstract

This thesis contains three self-contained essays in development and applied economics. Chapter 1 develops a new way to estimate the habit persistence coefficient of consumption using household panel data. In contrast to the traditional approach of estimating an approximate Euler equation, the identification comes from comparing the coevolution of income and consumption. Using Spanish data from 1985 to 1995, we estimate a joint model of habit formation and income variability. Under alternative preference specifications, we find habit persistence plays an important role in smoothing the impact of permanent income shocks on consumption. With our estimated parameters, we find habit persistence reduces the variance of consumption by 40% over the life-cycle. The presence of habits in consumption offers an explanation for the “excess smoothness of consumption” puzzle. Chapter 2 examines the empirical link between inequality and common property resource extraction. Using a Tunisian data, we find groundwater table falls less in villages with higher land area inequality. We also design a choice experiment to elicit farmers’ willingness to pay for a community-based management regime for groundwater use, and their demand for information sharing and accountability. We find farmers are inclined to cooperation and stabilizing water table level, and a majority demand a transparent system with independent monitoring, which is absent from the current management scheme. We further examine the effect of land inequality and heterogeneity on farmers’ inclination. Chapter 3 investigates the causal effect of father’s labour migration on children’s education in rural China. We employ two different empirical strategies which are compared and contrasted. The first strategy uses a fixed effect instrumental variable procedure. The second approach treats education and migration as duration processes using the multivariate duration framework developed by Abbring and van den Berg (2003). We find father’s migration has no significant impact on child’s lifetime education attainment.

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