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on Development |
| By: | Ling Shen |
| Abstract: | Dictatorship is the predominant political system in many developing countries. However, different dictators act quite differently: a good dictator implements growth-enhancing economic policies, e.g. investment in public education and infrastructure, whereas a bad dictator expropriates wealth of her citizens for her own consumption. The present paper provides a theoretical model by deriving underlying determinants of dictatorial behavior. We assume that the engine of economic growth is private investment. It can increase the productivity of individuals who invest, as well as the aggregate technological level. A good dictator encourages this investment in order to expropriate more. However, the cost of this encouragement is that the ensuing higher growth rate will induce earlier democratization. In this paper we will illustrate the trade-off between economic benefits from a growth-enhancing policy in the short run and the shorter life-time of the dictator in the long run. Furthermore, we will find that the higher the return from private investments is the less likely the dictator will be a good one. Contrary to McGuire and Olson (1996) we find that a long life-time does not always induce positive incentives among dictators. |
| Keywords: | dictatorship, political transition, economic growth |
| JEL: | H00 O12 P16 |
| Date: | 2005–09 |
| URL: | http://d.repec.org/n?u=RePEc:bon:bonedp:bgse22_2005&r=dev |
| By: | Fernanda, ESTEVAN; Jean-Marie, BALAND |
| Abstract: | In this paper, we investigate the role of young adult mortality on child labor and educational decisions. We show that, in the absence of appropriate insurance mechanisms, the level of child labor is inefficient. It may be too high if parents are not very altruistic and anticipate positive transfers from their children in the future, but it can also be too low, in particular when parents expect to make positive transfers to their children in the future. Imperfect capital markets unambiguously increase the equilibrium level of child labor. We also show that a cash transfer conditional on child’s schooling can always restore efficiency regarding child labor. |
| URL: | http://d.repec.org/n?u=RePEc:ctl:louvec:2005040&r=dev |
| By: | Rohini Pande (Economic Growth Center, Yale University); Christopher Udry (Economic Growth Center, Yale University) |
| Abstract: | In this paper we argue the case for greater exploitation of synergies between research on specific institutions based on micro-data and the big questions posed by the institutions and growth literature. To date, the macroeconomic literature on institutions and growth has largely relied on cross-country regression evidence. This has provided compelling evidence for a causal link between a cluster of ‘good’ institutions and more rapid long run growth. However, an inability to disentangle the effects of specific institutional channels on growth or to understand the impact of institutional change on growth will limit further progress using a cross-country empirical strategy. We suggest two research programs based on micro-data that have significant potential. The first uses policy-induced variation in specific institutions within countries to understand how these institutions influence economic activity. The second exploits the fact that the incentives provided by a given institutional context often vary with individuals’ economic and political status. This can help us better understand how institutional change arises in response to changing economic and demographic pressures. |
| Keywords: | Institutions, Growth, Cross-Country Regressions |
| JEL: | O11 O12 O17 P51 |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:egc:wpaper:928&r=dev |
| By: | Markus Goldstein (The World Bank); Christopher Udry (Economic Growth Center, Yale University) |
| Abstract: | We examine the impact of ambiguous and contested land rights on investment and productivity in agriculture in Akwapim, Ghana. We show that individuals who hold powerful positions in a local political hierarchy have more secure tenure rights, and that as a consequence they invest more in land fertility and have substantially higher output. The intensity of investments on different plots cultivated by a given individual correspond to that individual’s security of tenure over those specific plots, and in turn to the individual’s position in the political hierarchy relevant to those specific plots. We interpret these results in the context of a simple model of the political allocation of land rights in local matrilineages. |
| Keywords: | Land tenure, Investment, Institutions |
| JEL: | O12 O13 O17 |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:egc:wpaper:929&r=dev |
| By: | Nava Ashraf (Harvard University); Dean Karlan (Economic Growth Center, Yale University); Wesley Yin (University of Chicago) |
| Abstract: | Informal lending and savings institutions exist around the world, and often include regular door-to-door deposit collection of cash. Some banks have adopted similar services in order to expand access to banking services in areas that lack physical branches. Using a randomized control trial, we investigate determinants of participation in a deposit collection service and evaluate the impact of offering the service for micro-savers of a rural bank in the Philippines. Of 137 individuals offered the service in the treatment group, 38 agreed to sign-up, and 20 regularly used the service. Take-up is predicted by distance to the bank (a measure of transaction costs of depositing without the service) as well as being married (a suggestion that household bargaining issues are important). Those offered the service saved 188 pesos more (which equates to about a 25% increase in savings stock) and were slightly less likely to borrow from the bank. |
| Keywords: | Savings Behavior, Microfinance, Field Experiment, Savings Mobilization, Deposit Collector |
| JEL: | D1 D9 G1 G2 O1 |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:egc:wpaper:930&r=dev |
| By: | Arnstein Aassve (Institute for Social and Economic Research); Henriette Engelhardt (Vienna Institute of Demography); Francesca Francavilla (University of Florence); Alexia Fuernkranz-Pskawetz (Vienna Institute of Demography); Abbi Kedir (University of Leicester); Jungho Kim (Vienna Institute of Demography); Fabrizia Mealli (University of Florence); Letizia Mencarini (University of Florence); Stephen Pudney (Institute for Social and Economic Research) |
| Abstract: | Just as poverty analysis has a central part in Development Economics, studies of fertility behaviour have an equally important standing in the Demography literature. Poverty and fertility are two important aspects of welfare that are closely related. In this paper we use unique longitudinal data sources to study the relationship between poverty and fertility at household level over a two to five year period. In particular we compare the relationship between fertility and poverty in four countries: Albania, Ethiopia, Indonesia and Vietnam. These countries differ greatly in their history, average income, social structure, economic institutions and demographic features. We find that there is a substantial difference in the relative importance of the determinants of poverty dynamics and fertility; the persistence of high levels of fertility and poverty in Ethiopia is driven by lack of economic growth and poor access to family planning; education and health provision are crucial elements in reducing poverty and fertility, as is clear from Vietnam, Indonesia and Albania. |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:ese:iserwp:2005-13&r=dev |
| By: | Richard H. Adams, Jr. (The World Bank) |
| Abstract: | The author uses a large household data set from Guatemala to analyze how the receipt of internal remittances (from Guatemala) and international remittances (from the United States) affects the marginal spending behavior of households on various consumption and investment goods. Contrary to other studies, the author finds that households receiving remittances actually spend less at the margin on consumption-food and consumer goods and durables-than do households receiving no remittances. Instead of spending on consumption, households receiving remittances tend to spend more on investment goods, like education, health, and housing. The analysis shows that a large amount of remittance money goes into education. At the margin, households receiving internal and international remittances spend 45 and 58 percent more, respectively, on education, than do households with no remittances. These increased expenditures on education represent investment in human capital. Like other studies, the author finds that remittance-receiving households spend more at the margin on housing. These increased expenditures on housing represent a type of investment for the migrant, as well as a means for boosting local economic development by creating new income and employment opportunities for skilled and unskilled workers. |
| Keywords: | Poverty, Labor and employment |
| Date: | 2005–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3532&r=dev |
| By: | Derek H. C. Chen (The World Bank); Hiau Looi Kee (The World Bank) |
| Abstract: | The authors present a model of endogenous growth in which the main engine of economic development is knowledge. Using a two-sector closed economy model that comprises of a conventional goods-producing sector and a research and development sector, their model incorporates two key aspects of knowledge: technology and human capital. Steady-state equilibrium conditions show that the growth rate of per capita income hinges on the growth rate of human capital. While the growth rate of human capital has been previously shown to affect the growth of the economy in transition between steady states or balanced growth paths, the authors are the first to link the growth rate of human capital to the steady-state growth rate of productivity and output per worker. Furthermore, this result does not exhibit scale effects or policy invariance, both of which have been longstanding concerns with the predictions of endogenous growth models developed in the 1990s. |
| Keywords: | Macroeconomics and growth, Education |
| Date: | 2005–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3539&r=dev |
| By: | Ganesh Seshan (The World Bank) |
| Abstract: | What is the effect of trade liberalization on households in developing countries? To what extent do the poor benefit when local markets are made more accommodative to international trade? The author empirically analyzes the distributional impact of trade policies on households in a low-income country with a large rural economy where labor markets are imperfect. The methodology in this paper, which can be applied to various types of labor market conditions, relates changes in prices attributed to trade reforms to changes in household welfare, income distribution, and poverty using theoretically consistent measures of producer and consumer welfare. The author investigates the effects on poverty and income distribution of national and international market integration in Vietnam's rice sector and fertilizer market between 1993 and 1998, a period of ongoing market reforms when the national poverty rate fell sharply from 59 percent to 37 percent. He finds that when the effects of opening the rice and fertilizer market are isolated, Vietnam's agricultural trade reforms did not contribute to a significant improvement in overall household welfare or decline in poverty over this period. Nonetheless, the liberalization exercise can explain about half of the reduction in poverty incidence among farm households. The results also show that liberalization did not exacerbate income inequality, but did generate gains for rural households across the distribution, particularly the poor, at the expense of urban households. |
| Keywords: | Agriculture, Rural development, International economics, Labor and employment |
| Date: | 2005–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3541&r=dev |
| By: | Dominique van de Walle (The World Bank); Dorothyjean Cratty (The World Bank) |
| Abstract: | Recipient government responses to development project aid have typically been studied at high levels of aggregation, using cross-country comparisons and/or aggregate time series data. Yet increasingly the relevant decisions are being made at the local level, in response to specific community-level projects. The authors use local-level data to test for fungibility of World Bank financing of rural road rehabilitation targeted to specific geographic areas of Vietnam. A simple double difference estimate suggests that the project's net contribution to rehabilitated road increments is close to zero, suggesting complete displacement of funding. However, with better controls for the endogeneity of project placement the authors find much less evidence of fungibility, with displacement accounting for around one-third of the aid. The results point to the importance of dealing with selection bias in assessing project aid fungibility. |
| Keywords: | Infrastructure, Governance, Transition, Rural development |
| Date: | 2005–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3542&r=dev |
| By: | Anton Korinek (The World Bank); Johan A. Mistiaen (The World Bank); Martin Ravallion (The World Bank) |
| Abstract: | The authors examine the distributional implications of selective compliance in sample surveys, whereby households with different incomes are not equally likely to participate. They discuss poverty and inequality measurement implications for monotonically decreasing and inverted-U compliance-income relationships. The authors demonstrate that the latent income effect on the probability of compliance can be estimated from information on response rates across geographic areas. On implementing the method on the Current Population Survey for the United States, they find that the compliance probability falls monotonically as income rises. Correcting for non-response appreciably increases mean income and inequality, but has only a small impact on poverty incidence up to poverty lines common in the United States. |
| Keywords: | Poverty |
| Date: | 2005–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3543&r=dev |
| By: | Ana M. Fernandes (The World Bank); Alberto E. Isgut (Wesleyan University) |
| Abstract: | The empirical evidence on whether participation in export markets increases plant-level productivity has been inconclusive so far. The authors explain this inconclusiveness by drawing on Arrow's (1962) characterization of learning-by-doing, which suggests focusing on young plants and using measures of export experience rather than export participation. They find strong evidence of learning-by-exporting for young Colombian manufacturing plants between 1981 and 1991: total factor productivity increases 4-5 percent for each additional year a plant has exported, after controlling for the effect of current exports on total factor productivity. Learning-by-exporting is more important for young than for old plants and in industries that deliver a larger percentage of their exports to high-income countries. |
| Keywords: | Private sector development, International economics |
| Date: | 2005–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3544&r=dev |
| By: | Jici Wang (Peking University); Xin Tong (Peking University) |
| Abstract: | The authors examine the diverse prospects of innovative sectors in Beijing and Shanghai using available indicators and data collected for this study through surveys. Beijing is the first choice for companies locating in China, but foreign employees prefer Shanghai for living convenience and cultural amenities. While Shanghai lags behind Beijing in knowledge creation and the generation of startup companies in the innovative sectors, it takes the lead in the commercialization of technological innovations and the development of creative cultural industries. The municipal authorities of Beijing and Shanghai have improved the innovation environment of the cities, but certain elements still stunt the growth of innovative industries, which cannot be removed easily. Three kinds of knowledge-intensive enterprises included in innovative sectors in the survey are high-tech manufacturers, knowledge-intensive business services, and creative content providers. The survey found that the clustering of the firms arose from the attraction of preferential policies and the purchase by governments or state-owned enterprises of information technology products. The survey shows that interaction among firms is inadequate in the knowledge-based industrial clusters in both Beijing and Shanghai. Hence, it may be some time before clustering leads to substantial gains in collective efficiency for innovative industry in Beijing and Shanghai. |
| Keywords: | Industry, Private sector development, Urban development |
| Date: | 2005–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3545&r=dev |
| By: | Michael Kremer (Harvard University); Edward Miguel (University of California, Berkeley); Rebecca Thornton (Harvard University); Owen Ozier (ICS Africa) |
| Abstract: | The authors report results from a randomized evaluation of a merit scholarship program for adolescent girls in Kenya. Girls who scored well on academic exams received a cash grant and had school fees paid. Girls eligible for the scholarship showed significant gains in academic examination scores (average gain 0.15 standard deviations). There was considerable sample attrition and no significant program impact in the smaller of the two program districts, but in the other district girls showed large gains (average gain 0.22-0.27 standard deviations), and these gains persisted one full year following the competition. There is also evidence of positive program externalities on learning-boys (who were ineligible for the awards) also showed sizable average test gains. Both student and teacher school attendance increased in the program schools. |
| Keywords: | Education |
| Date: | 2005–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3546&r=dev |
| By: | Tooraj Jamasb (University of Cambridge); Raffaella Mota (University of Cambridge); David Newbery (University of Cambridge); Michael Pollitt (University of Cambridge) |
| Abstract: | Driven by ideology, economic reasoning, and early success stories, vast amounts of financial resources and effort have been spent on reforming infrastructure industries in developing countries. It is therefore important to examine whether evidence supports the logic of reforms. The authors review the empirical evidence on electricity reform in developing countries. They find that country institutions and sector governance play an important role in the success and failure of reform. And reforms also appear to have increased operating efficiency and expanded access to urban customers. However, the reforms have to a lesser degree passed on efficiency gains to customers, tackled distributional effects, and improved rural access. Moreover, some of the literature is not methodologically robust and on par with general development economics literature. Further, findings on some issues are limited and inconclusive, while other important areas are yet to be addressed. Until we know more, implementation of reforms will be more based on ideology and economic theory rather than solid economic evidence. |
| Keywords: | Infrastructure |
| Date: | 2005–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3549&r=dev |
| By: | Vincent Palmade (FIAS (A joint facility of the World Bank and IFC)) |
| Abstract: | There are many economic diagnostic tools available which are trying to identify the constraints to economic growth in a given country. Unfortunately these tools tend to provide inconclusive and often conflicting answers as to what the most important constraints are. Even more worrisome, they tend to overlook the many industry-specific policy and enforcement issues which, collectively, have been found to be the most important constraints to economic growth. This is the key finding from more than 10 years of economic research by the McKinsey Global Institute (MGI). The MGI Country studies have been uniquely based on the in-depth analysis of a representative sample of industries where clear causality links could be established between factors in the firms' external environment and their behavior, in particular through the analysis of competitive dynamics. They showed in detail how industry-specific policy and enforcement issues were the main constraints to private investment and fair competition-the two drivers of productivity and thus economic growth. This finding implies that governments and international financial institutions should rely on in-depth industry level analysis to uncover product market competition issues and set reform priorities. These analyses should include the often overlooked but critically important domestic service sectors such as retail and housing construction. |
| Keywords: | Private sector development, International economics, Macroeconomics and growth |
| Date: | 2005–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3551&r=dev |
| By: | Jean-Eric Aubert (The World Bank) |
| Abstract: | The author provides a conceptual framework for approaching the promotion of technological innovation and its diffusion in developing countries. Innovation climates in developing countries are, by nature, problematic, characterized by poor business and governance conditions, low educational levels, and mediocre infrastructure. This raises particular challenges for the promotion of innovation. The latter should be understood as the diffusion of technologies-and related practices-which are new to a given context (not in absolute terms). What matters first is to provide the necessary package of support-technical, financial, commercial, legal, and so on-with flexible, autonomous agencies adapting their support and operations to the different types of concerned enterprises. Facilitating and responding to the emergence of grass-root needs at the local level is also essential. Support to entrepreneurs and local communities should be primarily provided in matching grant forms to facilitate the mobilization of local resources and ownership. It is of primary importance to pay the greatest attention to country specificities, not only in terms of development level, size, and specialization, but also in terms of administrative and cultural traditions. At the global level, major issues need also to be considered and dealt with by appropriate incentives and regulations: the role of foreign direct investment in developing countries' technological development, conditions of technologies' patenting and licensing, the North-South research asymmetry, and brain drain trends. |
| Keywords: | Agriculture, Industry, Private sector development, Rural development, Public sector management |
| Date: | 2005–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3554&r=dev |
| By: | Constantinos Stephanou (The World Bank); Juan Carlos Mendoza (The World Bank) |
| Abstract: | The objective of this paper is to provide an overview of the changes in the calculation of minimum regulatory capital requirements for credit risk that have been drafted by the Basel Committee on Banking Supervision (Basel II). Even though the revised credit capital rules represent a dramatic change compared to Basel I, it is shown that Basel II merely seeks to codify (albeit incompletely) existing good practices in bank risk measurement. However, its effective implementation in many developing countries is hindered by fundamental weaknesses in financial infrastructure that will need to be addressed as a priority. |
| Keywords: | Domestic finance, International economics |
| Date: | 2005–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3556&r=dev |
| By: | Jac Heckelman (Wake Forest University); Stephen Knack (The World Bank) |
| Abstract: | Market-oriented economic policies-reflected in limited economic activity by government, protection of private property rights, sound monetary policy, outward orientation regarding trade and efficient tax and regulatory policy-have been strongly linked to faster rates of economic growth. Foreign aid is often provided in the belief that it encourages liberalizing reforms in these areas. This paper analyzes the impact of aid on market-liberalizing policy reform, correcting for the possible endogeneity of aid. Results indicate that higher aid slowed reform over the 1980-2000 period, as measured by a broad index of policies. Disaggregating policy into five areas, aid is significantly linked to slower reform in some policy areas but not in others. Disaggregating by decade, aid's adverse impact on policy reform is much more pronounced for the 1980s than for the 1990s. |
| Keywords: | Private sector development, Governance, Transition, Macroeconomics and growth, Public sector management |
| Date: | 2005–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3557&r=dev |
| By: | Magnus Lindelow (The World Bank); Pieter Serneels (University of Oxford); Teigist Lemma (International Labour Organization) |
| Abstract: | Insufficient attention has been paid to understanding what determines the performance of health workers and how they make labor market choices. This paper reports on findings from focus group discussions with both health workers and users of health services in Ethiopia, a country with some of the poorest health outcomes in the world. It describes performance problems identified by both health, users and health workers participating in the focus group discussions, including absenteeism and shirking, pilfering drugs and materials, informal health care provision and illicit charging, and corruption. The second part of the paper presents four structural reasons why these problems arise: (1) the ongoing transition from a health sector dominated by the public sector, toward a more mixed model; (2) the failure of government policies to keep pace with the transition toward a mixed model of service delivery; (3) weak accountability mechanisms and the erosion of professional norms in the health sector; and (4) the impact of HIV/AIDS. The discussions underline the need to base policies on a micro-analysis of how health workers make constrained choices, both in their career and in their day to day professional activities. |
| Keywords: | Social Development, Health and population, Public sector management |
| Date: | 2005–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3558&r=dev |
| By: | Adam Wagstaff (The World Bank) |
| Abstract: | It is acknowledged that the lack of any systematic link between growth and income inequality does not necessarily mean that economic growth is not accompanied by major changes in the underlying income distribution. The author uses a method devised to decompose the redistributive effect of a tax to analyze the extent to which vertical redistribution associated with changing incomes over time is offset or reinforced by horizontal redistribution and re-ranking. He uses panel data from China and Vietnam over a period when both countries grew spectacularly as they transitioned from planned to market economies, and yet experienced smaller annual percentage increases in income inequality. The results suggest that substantial amounts of horizontal redistribution and re-ranking in both China-and to a lesser extent Vietnam-more than offset pro-poor vertical redistribution. Without the horizontal redistribution and re-ranking, the Gini coefficient for China might have fallen between 1989 and 1997-substantially so. |
| Keywords: | Poverty, Macroeconomics and growth |
| Date: | 2005–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3559&r=dev |
| By: | Dorte Verner (The World Bank) |
| Abstract: | The author addresses the labor markets in rural and semi-urban Mexico. The empirical analyses show that non-farm income shares increase with overall consumption levels and, also, with time. Rural-dwellers in lower quintiles of the consumption distribution tend to earn a larger share of their nonagricultural incomes from wage labor activities. For the poorest, low-productivity wage labor activities are important. The quantile wage regression analysis for rural Mexico shows a rather heterogeneous impact pattern of individual characteristics across the wage distribution on monthly wages. The author's findings reveal that education is key to earning higher wages, and that workers in more dispersed rural areas earn less than their peers in semi-urban rural areas (localities with less than 15,000 inhabitants). The rural non-farm sector is heterogeneous and includes a great variety of activities and productivity levels across non-farm jobs. Moreover it can reduce poverty in a couple of distinct but qualitatively important ways in rural Mexico. The analysis of non-farm employment in rural Mexico suggests that the two key determinants of access to employment and productivity in non-farm activities are education and location. |
| Keywords: | Agriculture, Poverty, Rural development, Social Development, Labor and employment, Education |
| Date: | 2005–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3561&r=dev |
| By: | Adam Wagstaff (The World Bank); Menno Pradhan (The World Bank) |
| Abstract: | The authors examine the effects of the introduction of Vietnam's health insurance (VHI) program on health outcomes, health care utilization, and non-medical household consumption. The use of panel data collected before and after the insurance program's introduction allows them to eliminate any confounding effects due to selection on time-invariant un-observables, and their coupling of propensity score matching with a double-difference estimator allows them to reduce the risk of biases due to inappropriate specification of the outcome regression model. The authors' results suggest that Vietnam's health insurance program impacted favorably on height-for-age and weight-for-age of young school children, and on body mass index among adults. Their results suggest that among young children, VHI increases use of primary care facilities and leads to a substitution away from the use of pharmacists as a source of advice and non-prescribed medicines toward the use of them as a supplier of medicines prescribed by a health professional. Among older children and adults, VHI results in a marked increase in the use of hospital inpatient and outpatient departments. The results also suggest that VHI causes a reduction in annual out-of-pocket expenditures on health and an increase in non-medical household consumption, including food consumption, but mostly nonfood consumption. The authors' estimate of the VHI-induced reduction in out-of-pocket health spending is considerably smaller than their estimate of the VHI-induced increase in non-medical consumption, which is consistent with the idea that households hold back their consumption considerably if, through lack of health insurance, they are exposed to the risk of large out-of-pocket expenditures. This is especially plausible in a country where at the time (1993), a single visit to a public hospital cost on average the equivalent of 20 percent of a person's annual nonfood consumption. |
| Keywords: | Poverty, Health and population |
| Date: | 2005–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3563&r=dev |
| By: | Mary Amiti (International Monetary Fund and CEPR); Beata Smarzynska Javorcik (The World Bank and CEPR) |
| Abstract: | The authors examine the determinants of entry by foreign firms using information on 515 Chinese industries at the provincial level during 1998-2001. The analysis, rooted in the new economic geography, focuses on market and supplier access within and outside the province of entry, as well as production and trade costs. The results indicate that market and supplier access are the most important factors affecting foreign entry. Access to markets and suppliers in the province of entry matters more than access to the rest of China, which is consistent with market fragmentation due to underdeveloped transport infrastructure and informal trade barriers. |
| Keywords: | Infrastructure, Private sector development, Transition, International economics |
| Date: | 2005–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3564&r=dev |
| By: | Nuno Limão (University of Maryland and CEPR); Marcelo Olarreaga (The World Bank and CEPR) |
| Abstract: | The proliferation of preferential trade liberalization over the past 20 years has raised the question of whether it slows down multilateral trade liberalization. Recent theoretical and empirical evidence indicates this is the case even for unilateral preferences that industrial countries provide to small and poor countries but there is no estimate of the resulting welfare costs. To avoid this stumbling block effect the authors suggest replacing unilateral preferences by a fixed import subsidy. They argue that this scheme would reduce the drag of preferences on multilateral liberalization and generate a Pareto improvement. More important, the authors provide the first estimates of the welfare cost of preferential liberalization as a stumbling block to multilateral liberalization. By combining recent estimates of the stumbling block effect of preferences with data for 170 countries and over 5,000 products they calculate the welfare effects of the United States, European Union, and Japan switching from unilateral preferences to the developing countries to the import subsidy scheme. Even in a model with no dynamic gains to trade the authors find that the switch produces an annual net welfare gain for the 170 countries ($4,354 million) and for each group: the United States, European Union, and Japan ($2,934 million), the developing countries ($520 million), and the rest of the world ($900 million). |
| Keywords: | International economics |
| Date: | 2005–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3565&r=dev |
| By: | Bernard Hoekman (The World Bank, Groupe d'Economie Mondiale, Sciences Po and CEPR); Çaglar Özden (The World Bank) |
| Abstract: | Nonreciprocal trade preferences and provisions in the GATT/WTO that allow developing countries greater leeway to retain or use protectionist policies are two of the central planks of so-called special and differential treatment (SDT) for developing countries in the multilateral trading system. The authors survey the literature on the rationales, institutional features, and economic effectiveness of SDT. A large literature has emerged on SDT in the past 50 years, by both proponents and opponents. They summarize a number of key contributions on the subject, with a special emphasis on the evaluation of the impact of SDT, especially preferential market access. The issue of SDT has become very topical again, following a period during which it was viewed as an outdated concept for the multilateral trading system. The authors therefore devote attention as well to a number of recent contributions that discuss (1) whether there is a continued need for SDT, and (2) how this might be designed from both a development (recipient) objective and from the perspective of the trading system more generally. A major theme of the survey is that most of the issues that are debated today were already being discussed in the 1960s. The authors conclude that those who questioned the value of unilateral preferences have proven to be prescient. |
| Keywords: | International economics |
| Date: | 2005–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3566&r=dev |
| By: | Harold Alderman (The World Bank); Hans Hoogeveen (The World Bank); Mariacristina Rossi (The World Bank and University of Rome "Tor Vergata", Italy) |
| Abstract: | Malnutrition is associated with an inadequate diet, poor health and sanitation services, and insufficient care for young children. A combination of income growth and nutrition interventions are therefore suggested to adequately tackle this issue, yet evidence to support this claim is often not available, especially for African settings. The authors evaluate the joint contribution of income growth and nutrition interventions toward the reduction of malnutrition. Using a four-round panel data set from northwestern Tanzania they estimate the determinants of a child's nutritional status, including household income and the presence of nutrition interventions in the community. The results show that better nutrition is associated with higher income, and that nutrition interventions have a substantial beneficial effect. Policy simulations make clear that if one intends to halve malnutrition rates by 2015 (the Millennium Development Goals objective), income growth will have to be complemented by large-scale program interventions. |
| Keywords: | Poverty, Health and population |
| Date: | 2005–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3567&r=dev |
| By: | Nicole Hildebrandt (Stanford University); David J. McKenzie (Stanford University) |
| Abstract: | The authors investigate the impact of international migration on child health outcomes in rural Mexico using a nationally representative demographic survey. They use historic migration networks as instruments for current household migration to the United States in order to correct for the possible endogeneity of migrant status. They find that children in migrant households have lower rates of infant mortality and higher birth-weights. The authors study the channels through which migration may affect health outcomes and find evidence that migration raises health knowledge in addition to the direct effect on wealth. However they also find that preventative health care, such as breastfeeding and vaccinations, is less likely for children in migrant households. These results provide a broader and more nuanced view of the health consequences of migration than is offered by the existing literature. |
| Keywords: | Rural development, Health and population |
| Date: | 2005–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3573&r=dev |
| By: | Elena Glinskaya (The World Bank); Michael Lokshin (The World Bank) |
| Abstract: | The authors use 1993-94 and 1999-2000 India Employment and Unemployment surveys to investigate wage differentials between the public and private sectors as well as workers' decisions to join a particular sector. To obtain robust estimates of the wage differential, they apply three econometric techniques each relying on a different set of assumptions about the process of job selection. All three methods show that differences in wages between public sector workers and workers in the formal-private and informal-casual sectors are positive and high. Estimates show that, on average, the public sector premium ranges between 62 percent and 102 percent over the private-formal sector, and between 164 percent and 259 percent over the informal-casual sector, depending on the choice of methodology. The authors' review of wage differentials (estimated using similar methodologies) across the world shows that India has one of the largest differentials between wages of public workers and workers in the formal private sector. The wage differentials in India tend to be higher in rural as compared with urban areas, and are higher among women than among men. The wage differential also tends to be higher for low-skilled workers. There is considerable evidence of an increase in the wage differential between 1993-94 and 1999-2000. |
| Keywords: | Private sector development, Labor and employment, Public sector management |
| Date: | 2005–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3574&r=dev |
| By: | Karla Hoff (The World Bank); Arijit Sen (The World Bank) |
| Abstract: | An institution found in many traditional societies is the extended family system (kin system), an informal system of shared rights and obligations among extended family for the purpose of mutual assistance. In predominantly non-market economies, the kin system is a valuable institution providing critical community goods and insurance services in the absence of market or public provision. But what happens when the market sector grows in the process of economic development? How do the members of kin groups respond, individually and collectively, to such changes? When the kin system "meets" the modern economy, does the kin system act as a "vehicle of progress" helping its members adapt, or as an "instrument of stagnation" holding back its members from benefiting from market development? In reality, the consequences of membership in a kin group have been varied for people in different parts of the world. Hoff and Sen characterize the conditions under which the kin system becomes a dysfunctional institution when facing an expanding modern economy. The authors first show that when there are moral hazard problems in the modern sector, the kin system may exacerbate them. When modern sector employers foresee that, they will offer employment opportunities on inferior terms to members of ethnic groups that practice the kin system. These entry barriers in the market, in turn, create an incentive for some individuals to break ties with their kin group, which hurts members of the group who stay back in the traditional sector. The authors then show in a simple migration model that if a kin group can take collective action to raise exit barriers, then even if migrating to the modern sector and breaking ties increases aggregate welfare (and even if a majority of members are expected to gain ex post, after the resolution of uncertainty about the identity of the winners and losers), a majority of agents within a kin group may support ex ante raising the exit barrier to prevent movement to the modern sector. This result is an example of the bias toward the status quo analyzed by Raquel Fernandez and Dani Rodrik in the context of trade reform. The authors do not claim that all kin groups will necessarily exhibit such a bias against beneficial regime changes. But they provide a clear intuition about the forces that can lead to the collective conservatism of a kin system facing expanding opportunities in a market economy-forces that can lead the kin group to become a poverty trap for its members. |
| Keywords: | Private sector development, Poverty, Social Development |
| Date: | 2005–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3575&r=dev |
| By: | Dorte Verner (The World Bank) |
| Abstract: | This paper analyzes poverty in rural and semi-urban areas of Mexico (localities with less than 2,500 and 15,000 inhabitants, respectively) and provides guidance on a social agenda and poverty alleviation strategy for rural Mexico. The analyses are based on INIGH and ENE data sets for 1992-2002. Monetary extreme poverty affected 42 percent of the rural dwellers in dispersed rural areas and 21 percent in semi-urban areas in 2002, slightly less than one decade earlier. Most of the rural poor live in dispersed rural areas and 13.2 million people live in poverty in rural Mexico with less than 15,000 inhabitants. It is disproportionately a feature of households whose main job is in the agricultural sector, as self-employed farmers or rural laborers, and that have at most a primary education. However, the incidence of extreme rural poverty has declined since 1996 but at a slower pace than the decline in urban poverty. Hence, the rural-urban poverty gap increased in recent years and in some places extreme poverty is at least four times higher in rural than in urban areas. Moreover, not only is the income gap in urban areas increasing, but also the gap between richer and poorer segments of the population in the rural areas is growing. Finally, the gap between rich and poor regions is still large. |
| Keywords: | Agriculture, Urban development, Poverty, Rural development, Social Development, Education |
| Date: | 2005–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3576&r=dev |
| By: | Kirk Hamilton (The World Bank) |
| Abstract: | The World Bank has been publishing estimates of adjusted net or "genuine" saving since 1999. This measure of saving treats depletion of natural resources as a type of economic depreciation. Hamilton uses recent theoretical results relating growth in saving to growth in future consumption to provide a test of genuine saving using historical data. Did measured genuine saving in 1976, for example, "predict" the observed changes in consumption over subsequent decades? The author tests four alternative measures of saving econometrically. The worst measure, in terms of explained variation, is traditional net saving. Genuine saving adjusted to reflect population growth exhibits the worst fit with theory. Both gross saving and genuine saving perform better, with good concordance with theory, while genuine saving exhibits a moderate advantage in terms of goodness of fit. |
| Keywords: | Environment, Macroeconomics and growth |
| Date: | 2005–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3577&r=dev |
| By: | Dean Yang (University of Michigan) |
| Abstract: | Millions of households in developing countries receive financial support from family members working overseas. How do the economic prospects of overseas migrants affect origin-household investments-in particular, in child human capital and household enterprises? Yang examines Philippine households' responses to overseas members' economic shocks. Overseas Filipinos work in dozens of foreign countries which experienced sudden (and heterogeneous) changes in exchange rates due to the 1997 Asian financial crisis. Appreciation of a migrant's currency against the Philippine peso leads to increases in household remittances received from overseas. The estimated elasticity of Philippine peso remittances with respect to the Philippine/foreign exchange rate is 0.60. In addition, these positive income shocks lead to enhanced human capital accumulation and entrepreneurship in origin households. Favorable migrant shocks lead to greater child schooling, reduced child labor, and increased educational expenditure in origin households. More favorable exchange rate shocks also raise hours worked in self-employment and lead to greater entry into relatively capital-intensive enterprises by migrants' origin households. |
| Keywords: | International economics |
| Date: | 2005–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3578&r=dev |
| By: | Martin Ravallion (The World Bank) |
| Abstract: | The idea that developing countries face a trade-off between poverty and inequality has had considerable influence on thinking about development policy. The experience of developing countries in the 1990s does not, however, reveal any sign of a systematic trade-off between measures of absolute poverty and relative inequality. Indeed, falling inequality tends to come with falling poverty incidence. And rising inequality appears more likely to be putting a brake on poverty reduction than to be facilitating it. However, there is evidence of a trade-off for absolute inequality, suggesting that those who want a lower absolute gap between the rich and the poor must in general be willing to see lower absolute levels of living for poor people. |
| Keywords: | Poverty |
| Date: | 2005–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3579&r=dev |
| By: | Martin Ravallion (The World Bank) |
| Abstract: | Recent literature and new data help determine plausible bounds to some key demographic differences between the poor and non-poor in the developing world. The author estimates that selective mortality-whereby poorer people tend to have higher death rates-accounts for 10-30 percent of the developing world's trend rate of "$1 a day" poverty reduction in the 1990s. However, in a neighborhood of plausible estimates, differential fertility-whereby poorer people tend also to have higher birth rates-has had a more than offsetting poverty-increasing effect. The net impact of differential natural population growth represents 10-50 percent of the trend rate of poverty reduction. |
| Keywords: | Poverty, Health and population |
| Date: | 2005–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3580&r=dev |
| By: | Mariano Bosch (The World Bank); William Maloney (The World Bank) |
| Abstract: | The authors study the dynamics of three developing country labor markets using recent advances in the estimation of continuous time Markov processes. They first examine the flows of workers among five states: three types of paid labor, unemployment, and out of the labor force. The authors find a high degree of commonality in patterns of worker flows among the three countries and attempt to compare the flexibility of the markets by examining an index of overall mobility. Second, they seek to establish whether the issues of advanced country labor markets apply to developing country markets or whether the latter constitute a different phylum. Paralleling the mainstream literature on the role of being out of the labor force as discouraged unemployment, the authors then identify some common stylized facts about the role of the informal self-employed and salaried sectors and to what degree they serve as a holding pattern versus a desirable alternative to formal sector work. In the process, the authors identify very strong differences in mobility patterns between men and women and attempt to shed some light on whether these differences arise from discrimination or perhaps instead the constraints imposed by household responsibilities. Finally, they study labor market adjustment across the business cycle in Mexico and identify patterns of job creation and destruction among the three paid sectors and confirm the mainstream view of the role of out of the labor force as a procyclical phenomenon. |
| Keywords: | Labor and employment |
| Date: | 2005–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3583&r=dev |
| By: | Joselito Gallardo (The World Bank); Korotoumou Ouattara (The World Bank); Bikki Randhawa (The World Bank); William F. Steel (The World Bank) |
| Abstract: | The authors investigate the microfinance regulatory regimes in Benin, Ghana, and Tanzania, with a view to identifying key issues and lessons on how the overall regulatory framework affects integration of microfinance institutions into the financial system. The authors find that recognizing different tiers of both regulated and unregulated institutions in a financial structure facilitates financial deepening and outreach to otherwise underserved groups in urban and rural areas. That environment promotes sustainable microfinance under shared performance standards and encourages regulatory authorities to develop appropriate prudential regulations and staff capacity. Case studies of the three countries raise important issues on promoting microfinance development vis-à-vis regulating them. Laws to regulate activities other than intermediation of public deposits into loans can result in disproportionately restrictive and unmanageable standards, even as dynamic microfinance sectors have emerged without conducive regulatory regimes. The authors use the three countries' regulatory experiences to highlight the importance of differentiating when prudential supervision is warranted and when regulatory oversight suffices, and to identify the agencies to carry out regulation. They address an important issue that has received scant attention, measuring and paying for the costs of regulating microfinance, and the need to build technical capacity of supervisory and regulatory staff. |
| Keywords: | Domestic finance, Private sector development |
| Date: | 2005–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3585&r=dev |
| By: | Youdi Schipper (Vrije Universiteit Amsterdam and The World Bank); Johannes G. Hoogeveen (The World Bank) |
| Abstract: | Existing empirical studies on the relation between inequality and growth have been criticized for their focus on income inequality and their use of cross-country data sets. Schipper and Hoogeveen use two sets of small area welfare estimates-often referred to as poverty maps-to estimate a model of rural per capita expenditure growth for Uganda between 1992 and 1999. They estimate the growth effects of expenditure and education inequality while controlling for other factors, such as initial levels of expenditure and human capital, family characteristics, and unobserved spatial heterogeneity. The authors correct standard errors to reflect the uncertainty due to the fact that they use estimates rather than observations. They find that per capita expenditure growth in rural Uganda is affected positively by the level of education as well as by the degree of education inequality. Expenditure inequality does not have a significant impact on growth. |
| Keywords: | Poverty |
| Date: | 2005–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3592&r=dev |
| By: | Philip Keefer (The World Bank) |
| Abstract: | This paper identifies systematic performance differences between younger and older democracies: younger democracies are more corrupt; exhibit less rule of law, lower levels of bureaucratic quality, and lower secondary school enrollments; and spend more on public investment and government workers. Only one theory explains the effects of democratic age on the wide range of policy outcomes examined here-the inability of political competitors in younger democracies to make credible promises to citizens. This explanation, first advanced in Keefer and Vlaicu (2004), offers a concrete interpretation of what political institutionalization might mean, and why it is that young democracies frequently fail to become older and well-performing democracies. A variety of tests support this explanation against alternatives. The effect of democratic age remains large even after controlling for the possibilities that voters are less well-informed in young democracies, that young democracies have systematically different political and electoral institutions, or that young democracies exhibit more polarized societies. |
| Keywords: | Infrastructure, Governance, Social Development, Education, Public sector management |
| Date: | 2005–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3594&r=dev |
| By: | Somik V. Lall (The World Bank); Ajay Suri (Society for Development Studies, Delhi, India); Uwe Deichmann (The World Bank) |
| Abstract: | Strategies to help the one billion people worldwide who live in informal settlements have mainly focused on slum upgrading, sites and services programs, and tenure security. In contrast, there has been less attention on what enables slum dwellers to transition into the formal housing sector, which has the dual benefits of improving service access and escaping social stigma. In this paper the authors investigate residential mobility among slum dwellers in Bhopal, India. Their analysis shows that one in five households succeeds in getting out of a slum settlement, and a major determinant is the household's ability to save on a regular basis. Due to limited outreach of institutional housing finance, most slum dwellers rely solely on household savings for purchasing a house. These findings underscore the urgent need to improve savings instruments for slum dwellers and to downmarket housing finance to reach the poorest residents of rapidly growing cities in developing countries. |
| Keywords: | Urban development |
| Date: | 2005–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3596&r=dev |
| By: | Jens Matthias Arnold (The World Bank and Bocconi University); Beata Smarzynska Javorcik (The World Bank and CEPR) |
| Abstract: | This paper uses micro data from the Indonesian Census of Manufacturing to analyze the causal relationship between foreign ownership and plant productivity. To control for the possible endogeneity of the FDI decision, the difference in differences approach is combined with a matching technique. An advantage of this novel method is the ability to follow the timing of the observed changes in productivity and other aspects of plant performance. The results suggest that foreign ownership leads to significant productivity improvements in the acquired plants. The improvements become visible in the acquisition year and continue in the subsequent periods. After three years, the acquired plants outperform the control group in terms of productivity by 34 percentage points. The data also suggest that the rise in productivity is a result of restructuring, as acquired plants increase their investment outlays, employment, and wages. Foreign ownership also appears to enhance the integration of plants into the global economy through increased exports and imports. |
| Keywords: | Private sector development, International economics |
| Date: | 2005–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3597&r=dev |
| By: | Jishnu Das (The World Bank); Stefan Dercon (Oxford University); James Habyarimana (Georgetown University); Pramila Krishnan (Cambridge University) |
| Abstract: | A large literature examines the link between shocks to households and the educational attainment of children. The authors use new data to estimate the impact of shocks to teachers on student learning in mathematics and English. Using absenteeism in the 30 days preceding the survey as a measure of these shocks they find large impacts: A 5 percent increase in the teacher's absence rate reduces learning by 4 to 8 percent of average gains over the year. This reduction in learning achievement likely reflects both the direct effect of increased absenteeism and the indirect effects of less lesson preparation and lower teaching quality when in class. The authors document that health problems-primarily teachers' own illness and the illnesses of their family members-account for more than 60 percent of teacher absences; not surprising in a country struggling with an HIV/AIDS epidemic. The relationship between shocks to teachers and student learning suggests that households are unable to substitute adequately for teaching inputs. Excess teaching capacity that allows for the greater use of substitute teachers could lead to larger gains in student learning. |
| Keywords: | Poverty, Rural development, Labor and employment, Education |
| Date: | 2005–04–26 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3602&r=dev |
| By: | Norman V. Loayza (The World Bank); Ana María Oviedo (University of Maryland); Luis Servén (The World Bank) |
| Abstract: | The authors study the effects of regulation on economic growth and the relative size of the informal sector in a large sample of industrial and developing countries. Along with firm dynamics, informality is an important channel through which regulation affects macroeconomic performance and economic growth in particular. The authors conclude that a heavier regulatory burden-particularly in product and labor markets-reduces growth and induces informality. These effects are, however, mitigated as the overall institutional framework improves. |
| Keywords: | Private sector development, Governance, Labor and employment, Macroeconomics and growth |
| Date: | 2005–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3623&r=dev |
| By: | Martin Ravallion (The World Bank) |
| Abstract: | The author critically reviews the methods available for the ex-post counterfactual analysis of programs that are assigned exclusively to individuals, households, or locations. The discussion covers both experimental and non-experimental methods (including propensity-score matching, discontinuity designs, double and triple differences, and instrumental variables). Two main lessons emerge. First, despite the claims of advocates, no single method dominates; rigorous, policy-relevant evaluations should be open-minded about methodology. Second, future efforts to draw more useful lessons from evaluations will call for more policy-relevant measures and deeper explanations of measured impacts than are possible from the classic ("black box") assessment of mean impact. |
| Keywords: | Governance, Poverty, Rural development, Social Development, Education, Health and population |
| Date: | 2005–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3625&r=dev |
| By: | Rodrigo Suescún (The World Bank) |
| Abstract: | For the evaluation of macroeconomic policies Colombian authorities rely heavily, if not exclusively, on the operational framework known as the Financial Programming Model developed by the International Monetary Fund in the 1950s. Based on this static framework, the formulation of fiscal policy in the country, just as in various Latin American countries, focuses primarily on fiscal deficit and gross debt targets. However, the type of fiscal policy advice derived from it is not useful for understanding the asset-creating nature and the inter-temporal tradeoffs involved in public investment decisions. The author develops a perfect foresight, dynamic small open economy model to provide an alternative framework for fiscal analysis and policy purposes. He shows that the two competing frameworks deliver differing paths for the expected behavior of the Colombian economy. He then uses the proposed framework to study the likely consequences of using public capital spending to achieve deficit targets since, in addition to an already high public debt, in the years ahead unfunded pension obligations will put enormous pressure on the Colombian government's solvency. The results indicate that public capital compression is costly in terms of foregone growth and very ineffective in achieving fiscal consolidation. The adoption of fiscal rules such as the golden rule or the permanent balance rule to shield public investment from undue budgetary pressures makes little sense in the presence of sustainability concerns. The author shows that a transitory capital spending increase is not self-amortizing in the long run; hence an extra peso of public capital spending deteriorates the inter-temporal fiscal position. A permanent increase largely pays for itself in terms of additional tax revenue but this effect is offset by a deterioration of infrastructure user charges, as long as public prices are determined competitively. |
| Keywords: | Infrastructure, Macroeconomics and growth |
| Date: | 2005–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3629&r=dev |
| By: | Daniel Kaufmann (The World Bank); Aart Kraay (The World Bank); Massimo Mastruzzi (The World Bank) |
| Abstract: | The authors present the latest update of their aggregate governance indicators, together with new analysis of several issues related to the use of these measures. The governance indicators measure the following six dimensions of governance: (1) voice and accountability; (2) political instability and violence; (3) government effectiveness; (4) regulatory quality; (5) rule of law, and (6) control of corruption. They cover 209 countries and territories for 1996, 1998, 2000, 2002, and 2004. They are based on several hundred individual variables measuring perceptions of governance, drawn from 37 separate data sources constructed by 31 organizations. The authors present estimates of the six dimensions of governance for each period, as well as margins of error capturing the range of likely values for each country. These margins of error are not unique to perceptions-based measures of governance, but are an important feature of all efforts to measure governance, including objective indicators. In fact, the authors give examples of how individual objective measures provide an incomplete picture of even the quite particular dimensions of governance that they are intended to measure. The authors also analyze in detail changes over time in their estimates of governance; provide a framework for assessing the statistical significance of changes in governance; and suggest a simple rule of thumb for identifying statistically significant changes in country governance over time. The ability to identify significant changes in governance over time is much higher for aggregate indicators than for any individual indicator. While the authors find that the quality of governance in a number of countries has changed significantly (in both directions), they also provide evidence suggesting that there are no trends, for better or worse, in global averages of governance. Finally, they interpret the strong observed correlation between income and governance, and argue against recent efforts to apply a discount to governance performance in low-income countries. |
| Keywords: | Governance |
| Date: | 2005–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3630&r=dev |
| By: | Aart Kraay (The World Bank); Claudio Raddatz (The World Bank) |
| Abstract: | The authors examine the empirical evidence in support of the poverty trap view of underdevelopment. They calibrate simple aggregate growth models in which poverty traps can arise due to either low saving or low technology at low levels of development. They then use these models to assess the empirical relevance of poverty traps and their consequences for policy. The authors find little evidence of the existence of poverty traps based on these two broad mechanisms. When put to the task of explaining the persistence of low income in African countries, the models require either unreasonable values for key parameters, or else generate counterfactual predictions regarding the relations between key variables. These results call into question the view that a large scaling-up of aid to the poorest countries is a necessary condition for sharp and sustained increases in growth. |
| Keywords: | Poverty, Macroeconomics and growth |
| Date: | 2005–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3631&r=dev |
| By: | Louis Kuijs (The World Bank) |
| Abstract: | The author analyzes sectoral patterns of investment and saving in China-over time and compared with other countries-to shed light on the factors driving high investment and on how saving is channeled into investment. The findings inform several policy debates. Key findings include: (1) investment by enterprises distinguishes China from other countries and explains most of the variation over time; (2) high household saving explains only a part of the large difference in national saving between China and other countries-the majority is explained by high saving of the government and enterprises (through retained earnings); and (3) only about one-third of enterprise investment is financed via the financial sector, a lower share than in the early 1990s. The author also explores explanations behind high saving of the government and enterprises. His findings have three sets of policy implications. First, the identified financing patterns put in perspective the exposure of the financial sector to investment-related risks but, against a background of concerns about suboptimal allocation of capital, bring to the fore corporate governance, dividend policy, and transparency and accountability of public funds. Second, the findings suggest policy adjustments that would help in achieving the government's goals of improving the quality of growth and increasing the role of consumption. Third, long term saving prospects and the impact of financial sector and pension policies are discussed. |
| Keywords: | Domestic finance, Governance, Macroeconomics and growth |
| Date: | 2005–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3633&r=dev |
| By: | José de Luna Martínez (The World Bank) |
| Abstract: | This paper presents the findings of a survey conducted by the World Bank of central banks in 40 developing countries across different regions in the world. The survey focused on the following topics: (1) coverage of national statistics on remittances, (2) cost of transferring and delivering remittances, (3) regulatory regime for remittance transactions, and (4) efforts of developing countries to channel remittance flows through formal financial institutions. The study finds that in most countries existing data do not reflect the full amount of remittance inflows that they receive every year. Coverage of instruments and financial institutions through which remittances take place is limited. Moreover, only a few countries measure remittances that take place through informal channels. It also finds that the scope of financial authorities in developing countries to reduce remittance fees is limited because a large part of the fees charged to customers are set by financial institutions located in the countries where transactions originate. Cooperation between sending and recipient countries is needed to reduce remittance costs. The survey finds that in several countries money transfer companies are not properly supervised. Given the increasing international concerns with money laundering and terrorism financing issues, it is important that basic registration and reporting requirements are introduced for money transfer companies. Registration and reporting requirements should be designed in such a way that they do not deter the further development of this type of financial institution. Finally, the survey finds that most countries need to establish better mechanisms that would allow them to maximize the developmental effect of remittance inflows. By establishing new savings and investment instruments for remittance recipient households, a larger part of remittance flows might be channeled to finance productive investments, thus fostering economic growth. |
| Keywords: | Domestic finance, Poverty, Labor and employment |
| Date: | 2005–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3638&r=dev |
| By: | Rinku Murgai (The World Bank); Martin Ravallion (The World Bank) |
| Abstract: | Minimum wages are generally thought to be unenforceable in developing rural economies. But there is one solution - a workfare scheme in which the government acts as the employer of last resort. Is this a cost-effective policy against poverty? Using a microeconometric model of the casual labor market in rural India, the authors find that a guaranteed wage rate sufficient for a typical poor family to reach the poverty line would bring the annual poverty rate down from 34 percent to 25 percent at a fiscal cost representing 3-4 percent of GDP when run for the whole year. Confining the scheme to the lean season (three months) would bring the annual poverty rate down to 31 percent at a cost of 1.3 percent of GDP. While the gains from a guaranteed wage rate would be better targeted than a uniform (untargeted) cash transfer, the extra costs of the wage policy imply that it would have less impact on poverty. |
| Keywords: | Poverty, Rural development, Labor and employment |
| Date: | 2005–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3640&r=dev |
| By: | Antonio Estache (INFVP); Ana Goicoechea (INFVP) |
| Abstract: | The authors present an infrastructure database that was assembled from multiple sources. Its main purposes are: (1) to provide a snapshot of the sector as of the end of 2004; and (2) to facilitate quantitative analytical research on infrastructure. The paper includes definitions, source information, and the most recent data available for 37 performance indicators that proxy access, affordability, and quality of service. Additionally, the database includes a snapshot of 15 reform indicators across infrastructure sectors. |
| Keywords: | Infrastructure |
| Date: | 2005–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3643&r=dev |
| By: | Adam Wagstaff (The World Bank) |
| Abstract: | While there is a great deal of anecdotal evidence on the economic effects of adverse health shocks, there is relatively little hard empirical evidence. The author builds on recent empirical work to explore in the context of postreform Vietnam two related issues: (1) how far household income and medical care spending responds to health shocks, and (2) how far household consumption is protected against health shocks. The results suggest that adverse health shocks - captured by negative changes in body mass index (BMI) - are associated with reductions in earned income. This appears to be only partly - if at all - due to a reverse feedback from income changes to BMI changes. By contrast, there is a hint - the relevant coefficient is not significant - that adverse BMI shocks may result in increases in unearned income. This may reflect additional gifts, remittances, and so on, from family and friends following the health shock. Medical spending is found to increase following an adverse health shock, but not among those with health insurance. The impact for the uninsured is large, equal in absolute size to the income loss associated with a BMI shock. The lack of impact for the insured points to complete insurance against the medical care costs associated with health shocks, and is consistent with the very generous coverage of Vietnam's health insurance program in this period. The question arises: have Vietnamese households been able to hold their food and nonfood consumption constant in the face of these income reductions and extra medical care outlays? The results suggest not. For the sample as a whole, both food and nonfood consumption are found to be responsive to health shocks, indicating an inability to smooth nonmedical consumption in the face of health shocks. Further analysis reveals some interesting differences across different groups within the sample. Households with insurance come no closer to smoothing nonmedical consumption than uninsured households. Furthermore, and somewhat counterintuitively, better-off households - including insured households - fare worse than poorer households in smoothing their nonmedical consumption in the face of health shocks, despite the fact that in the case of insured households there are no medical bills associated with an adverse health event. Why the poor rely on dissaving and borrowing to such an extent, and do not apparently reduce their food and nonfood consumption following an adverse health shock while the better-off do, may be because the levels of food and nonfood consumption of the poor are simply too low relative to basic needs to enable them to cut back in the face of an adverse BMI shock. |
| Keywords: | Poverty, Health and population |
| Date: | 2005–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3644&r=dev |
| By: | Santiago Herrera (The World Bank); Gaobo Pang (The World Bank) |
| Abstract: | Government spending in developing countries typically account for between 15 and 30 percent of GDP. Hence, small changes in the efficiency of public spending could have a major impact on GDP and on the attainment of the government's objectives. The first challenge that stakeholders face is measuring efficiency. This paper attempts such quantification and has two major parts. The first part estimates efficiency as the distance between observed input-output combinations and an efficiency frontier (defined as the maximum attainable output for a given level of inputs). This frontier is estimated for several health and education output indicators by means of the Free Disposable Hull (FDH) and Data Envelopment Analysis (DEA) techniques. Both input-inefficiency (excess input consumption to achieve a level of output) and output-inefficiency (output shortfall for a given level of inputs) are scored in a sample of 140 countries using data from 1996 to 2002. The second part of the paper seeks to verify empirical regularities of the cross-country variation in efficiency. Results show that countries with higher expenditure levels register lower efficiency scores, as well as countries where the wage bill is a larger share of the government's budget. Similarly, countries with higher ratios of public to private financing of the service provision score lower efficiency, as do countries plagued by the HIV/AIDS epidemic and those with higher income inequality. Countries with higher aid-dependency ratios also tend to score lower in efficiency, probably due to the volatility of this type of funding that impedes medium term planning and budgeting. Though no causality may be inferred from this exercise, it points at different factors to understand why some countries might need more resources than others to achieve similar educational and health outcomes. |
| Keywords: | Macroeconomics and growth |
| Date: | 2005–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3645&r=dev |
| By: | Priya Basu (The World Bank); Pradeep Srivastava (National Council of Applied Economic Research, India) |
| Abstract: | This paper reviews the current level and pattern of access to finance for India's rural poor and examines some of the key microfinance approaches in India, taking a close look at the most dominant among these, the Self Help Group (SHG) Bank Linkage initiative. It empirically analyzes the success with which SHG Bank Linkage has been able to reach the poor, examines the reasons behind this, and the lessons learned. The analysis draws heavily on a recent rural access to finance survey of 6,000 households in India undertaken by the authors. The main findings and implications of the paper are as follows: India's rural poor currently have very little access to finance from formal sources. Microfinance approaches have tried to fill the gap. Among these, the growth of SHG Bank Linkage has been particularly remarkable, but outreach remains modest in terms of the proportion of poor households served. The paper recommends that, if SHG Bank Linkage is to be scaled-up to offer mass access to finance for the rural poor, then more attention will need to be paid toward the promotion of high quality SHGs that are sustainable, clear targeting of clients, and ensuring that banks linked to SHGs price loans at cost-covering levels. At the same time, the paper argues that, in an economy as vast and varied as India's, there is scope for diverse microfinance approaches to coexist. Private sector microfinanciers need to acquire greater professionalism, and the government can help by creating a flexible architecture for microfinance innovations, including through a more enabling policy, legal, and regulatory framework. Finally, the paper argues that, while microfinance can, at minimum, serve as a quick way to deliver finance to the poor, the medium-term strategy to scale-up access to finance for the poor should be to "graduate" microfinance clients to formal financial institutions. The paper offers some suggestions on what it would take to reform these institutions with an eye to improving access for the poor. |
| Keywords: | Domestic finance, Poverty, Rural development |
| Date: | 2005–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3646&r=dev |
| By: | Monica Das Gupta (The World Bank); Michael Lokshin (The World Bank); Michele Gragnolati (The World Bank); Oleksiy Ivaschenko (The World Bank) |
| Abstract: | Levels of child malnutrition in India fell only slowly during the 1990s, despite significant economic growth and large public spending on the Integrated Child Development Services (ICDS) program, of which the major component is supplementary feeding for malnourished children. To unravel this puzzle, the authors assess the program's placement and its outcomes using National Family Health Survey data from 1992 and 1998. They find that program placement is clearly regressive across states. The states with the greatest need for the program - the poor northern states with high levels of child malnutrition and nearly half of India's population - have the lowest program coverage and the lowest budgetary allocations from the central government. Program placement within a state is more progressive: poorer and larger villages have a higher probability of having an ICDS center, as do those with other development programs or community associations. The authors also find little evidence of program impact on child nutrition status in villages with ICDS centers. |
| Keywords: | Poverty, Rural development, Health and population, Public sector management |
| Date: | 2005–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3647&r=dev |
| By: | Rashmi Shankar (Brandeis International Business School) |
| Abstract: | The author presents evidence that balance sheet effects are critical determinants of both the likelihood of a crisis and of income losses following a crisis. She tests the validity of "insurance" and "liquidity" models of currency crisis. Both models predict that the occurrence of a balance of payments crisis is conditional on the health of the nation's accounts in relation to the rest of the world. Problems in the balance sheet either cause a financial crisis that develops into a run on the central bank, or generate a run on the central bank once contingent liabilities exceed reserves and the yield differential moves against domestic assets. Estimations of crisis likelihoods based on several specifications of single and simultaneous equation probit models confirm that output losses following the crisis are persistent and conditional on the balance sheet indicator, that is, the ratio of the stock of gross external liabilities to assets. Measures of contingent liabilities, capital flight, and financial depth perform well as crisis predictors, and the marginal effects on the probability of a crisis are of the expected sign. The panel data set covers the time period 1973 through 2003 for 90 countries. |
| Keywords: | International economics, Macroeconomics and growth |
| Date: | 2005–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3648&r=dev |
| By: | Xubei Luo (The World Bank) |
| Abstract: | The author discusses regional development patterns in China and examines effective ways of using development aid to attain regional balanced growth through optimizing growth spillover effects. Based on provincial panel data from 1978-99 she constructs an indicator "neighborhood performance" to measure the geographic spillover effects of aggregate growth from and to different provinces according to their relative richness and geographic position. Analysis of a Solow-type growth model suggests that positive spillover effects dominate negative shadow effects at the national level as well as the regional level, and some coastal provinces provide growth pull and growth push forces for their neighbors and serve as locomotives. The results show that the rapid takeoff of the coastal provinces has the largest spillover effects on the Chinese economy, but at the expense of a widening regional gap. A policy of encouraging the growth of the non-coastal regional hubs would have strong forward and backward linkages with the inland and western regions and thus reduce the regional development gap without sacrificing much aggregate growth. The author offers support for the policy of developing inland hubs, and argues that directing development aid to Hubei and Sichuan would optimize the growth spillover impacts on inland regions. |
| Keywords: | Macroeconomics and growth |
| Date: | 2005–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3652&r=dev |
| By: | Vijay Kalavakonda (The World Bank); Olivier Mahul (The World Bank) |
| Abstract: | The authors examine the performance of the crop insurance scheme in Karnataka, a southern state of India and the second driest state in the country. Their analysis highlights weaknesses in product design, implementation challenges, and operational problems. The authors' finding is that the crop insurance scheme in its current form does not achieve its objectives, either explicit (risk management) or implicit (safety net and containment of both the central and state governments' contingent liability). The crop insurance scheme performs poorly both in terms of coverage (number of hectares insured and number of farmers purchasing insurance) and financial performance. The authors provide a framework for designing a crop insurance scheme based on the premise that insurance is a cost effective risk management techniques. They also provide some new ideas and thinking toward both improving the existing crop insurance scheme and exploring alternatives to the current product, based on an area-yield approach. |
| Keywords: | Agriculture, Rural development |
| Date: | 2005–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3654&r=dev |
| By: | Robert Cull (The World Bank); Laurie Effron (The World Bank) |
| Abstract: | Using a new database of World Bank loans to support financial sector development, the authors investigate whether countries that received such loans experienced more rapid growth on standard indicators of financial development than countries that did not. They account for self-selection with treatment effects regressions, and also use propensity score matching techniques. The authors' results indicate that borrowing countries had significantly more rapid growth in M2/GDP than non-borrowers, and swifter reductions in interest rate spreads and cash holdings (as a share of M2). Borrowers also had higher private credit growth rates than non-borrowers in treatment effects regressions, but not in standard panel regressions with fixed country effects. On the whole, however, the results indicate significant advantages for borrowers over non-borrowers in terms of financial development. |
| Keywords: | Domestic finance |
| Date: | 2005–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3656&r=dev |
| By: | Patrick Honohan (The World Bank) |
| Abstract: | An apparent temporary narrowing of income inequality has been observed during several recent banking crises. But it would be a mistake to conclude that such crises don't matter for the poor. For one thing, the correlation is not strong, and the opposite pattern has also been present. Besides, the poor are much less able to absorb a cut in income: safety-net policies are crucial during a downturn even if the gap between rich and poor has temporarily narrowed. More fundamentally, distributional shifts during the crisis may be less important than the fact that underlying financial policy and infrastructures conducive to crisis can also be associated with more unequal societies. |
| Keywords: | Domestic finance, Poverty |
| Date: | 2005–07–06 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3659&r=dev |
| By: | Pierre-Richard Agénor (University of Manchester, United Kingdom and Centre for Growth and Business Cycle Research); Mustapha K. Nabli (The World Bank); Tarik M. Yousef (Georgetown University) |
| Abstract: | The authors examine the impact of public infrastructure on private capital formation in three countries of the Middle East and North Africa-Egypt, Jordan, and Tunisia. They highlight various channels through which public infrastructure may affect private investment. Then they describe their empirical framework, which is based on a vector autoregression (VAR) model that accounts for flows and (quality-adjusted) stocks of public infrastructure, private investment, as well as changes in output, private sector credit, and the real exchange rate. The authors propose two aggregate measures of the quality of public infrastructure and use principal components to derive a composite indicator. Their analysis suggests that public infrastructure has both "flow" and "stock" effects on private investment in Egypt, but only a "stock" effect in Jordan and Tunisia. But these effects are small and short-lived, reflecting the unfavorable environment for private investment in their sample of countries. Reducing unproductive public capital expenditure and improving quality must be accompanied by policy reforms aimed at limiting investment to infrastructure capital that crowds in the private sector and corrects for fundamental market failures. This will entail privatization and greater involvement of the private sector in infrastructure investment. While infrastructure (in the form of the provision of critical telecommunications, transport, and energy services) is important, other improvements in the environment in which domestic investment is conducted are crucial. These include the need to provide financing on adequate terms and guarantee a secure and efficient justice system. |
| Keywords: | Infrastructure, Private sector development |
| Date: | 2005–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3661&r=dev |
| By: | Tomoki Fujii (The World Bank and Singapore Management University) |
| Abstract: | One of the major limitations in addressing child malnutrition is lack of information that could be used to target resources. By combining demographic and health survey (DHS) and population census data, the author disaggregates the estimates of the prevalence of child malnutrition in Cambodia from currently available 17 DHS strata into 1,594 communes. The methodology is built on the small-area estimation technique developed by Elbers, Lanjouw, and Lanjouw. The author extends it to jointly estimate multiple indicators and to allow for a richer structure of error terms. Average standard errors for the commune-level estimates in this study were about 4 percent, a magnitude comparable to those for stratum-level estimates derived from DHS only. The author demonstrates three applications of these estimates. First, he explores the relationship between malnutrition, consumption poverty, and inequality. The nonlinear effects of consumption on nutritional status of children are a key component of the relationship. Second, he conducts a decomposition analysis of health inequality and finds that the between-location share of health inequality is lower than with consumption inequality. Finally, he evaluates the potential gains from geographic targeting. The author finds that the savings in the cost of a nutrition program from commune-level targeting is on average at least two to three times higher than that from stratum-level targeting when the per capita cost of the program is fixed. |
| Keywords: | Poverty, Health and population |
| Date: | 2005–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3662&r=dev |
| By: | Somik V. Lall (The World Bank); Taye Mengistae (The World Bank) |
| Abstract: | The authors' analysis of manufacturing plants sampled from India's major industrial centers shows large productivity gaps across cities. The gaps partly reflect differences in agglomeration economies and in market access. However, they are also explained to a greater extent by differences in the degree of labor regulation and in the severity of power shortages. This is an indication that governments can help narrow regional disparities in industrial growth by fostering the "right business environment" in locations where industry might otherwise be held back by powerful forces of economic geography. There is indeed a pattern in the data whereby geographically disadvantaged cities seem to compensate partially for their natural disadvantage by having a better business environment than more geographically advantaged locations. |
| Keywords: | Infrastructure, Industry, Private sector development, Governance, Urban development, Macroeconomics and growth |
| Date: | 2005–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3664&r=dev |
| By: | Xavier Gine (The World Bank); Stefan Klonner (Cornell University) |
| Abstract: | It is generally recognized that the adoption of a new technology plays a fundamental role in the development process. However, the benefits from the introduction of the technology may be unevenly distributed among the population, especially if the markets do not function properly. While the microeconomic literature on technology adopted and diffusion focuses on "who" and "when," the macroeconomic literature has focused on the overall impact of globalization on inequality. In this paper the authors bring these two strands of the literature together by studying the diffusion of plastic reinforced fiber boats in a fishing village in Tamil Nadu and by analyzing the dynamics of income inequality during this process. |
| Keywords: | Private sector development, Rural development |
| Date: | 2005–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3665&r=dev |
| By: | Dorte Verner (The World Bank); Mette Verner (Aarhus School of Business) |
| Abstract: | The authors address the economic impact of the labor force training program (PAFPA) developed for the informal sector in Côte d'Ivoire. The data contain a subsample of the participants in the agricultural sector, tailoring sector, and the electronics sector, and a comparable control group of nonparticipants. The data have been analyzed using standard program evaluation tools, namely difference-in-difference estimators, in order to detect potential program impacts. The authors find positive economic impacts as a result of training received for some groups, namely women, the agricultural and electronics sectors, firms employing 1-3 individuals, and firms with 10 or more employees. |
| Keywords: | Governance, Poverty, Social Development, Labor and employment, Education |
| Date: | 2005–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3668&r=dev |
| By: | Jishnu Das (The World Bank); Jeffrey Hammer (The World Bank) |
| Abstract: | The quality of medical care received by patients varies for two reasons: differences in doctors' competence or differences in doctors' incentives. Using medical vignettes, the authors evaluated competence for a sample of doctors in Delhi. One month later, they observed the same doctors in their practice. The authors find three patterns in the data. First, what doctors do is less than what they know they should do-doctors operate well inside their knowledge frontier. Second, competence and effort are complementary so that doctors who know more also do more. Third, the gap between what doctors do and what they know responds to incentives: doctors in the fee-for-service private sector are closer in practice to their knowledge frontier than those in the fixed-salary public sector. Under-qualified private sector doctors, even though they know less, provide better care on average than their better-qualified counterparts in the public sector. These results indicate that to improve medical services, at least for poor people, there should be greater emphasis on changing the incentives of public providers rather than increasing provider competence through training. |
| Keywords: | Private sector development, Governance, Poverty, Health and population |
| Date: | 2005–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3669&r=dev |
| By: | Indermit Gill (The World Bank); Brian Pinto (The World Bank) |
| Abstract: | Over the past 25 years, significant levels of public debt and external finance are more likely to have enhanced macroeconomic vulnerability than economic growth in developing countries. This applies not just to countries with a history of high inflation and past default, but also to those in East Asia, with a long tradition of prudent macroeconomic policies and rapid growth. The authors examine why with the help of a conceptual framework drawn from the growth, capital flows, and crisis literature for developing countries with access to the international capital markets (market access countries or MACs). They find that, while the chances of another generalized debt crisis have receded since the turbulence of the late 1990s, sovereign debt is indeed constraining growth in MACs, especially those with debt sustainability problems. Several prominent MACs have sought to address the debt and external finance problem by generating large primary fiscal surpluses, switching to flexible exchange rates, and reforming fiscal and financial institutions. Such country-led initiatives completely dominate attempts to overhaul the international financial architecture or launch new lending instruments, which have so far met with little success. While the initial results of the countries' initiatives have been encouraging, serious questions remain about the viability of the model of market-based external development finance. Beyond crisis resolution, which has received attention in the form of the sovereign debt restructuring mechanism, the international financial institutions may need to ramp up their role as providers of stable long-run development finance to MACs instead of exiting from them. |
| Keywords: | Macroeconomics and growth |
| Date: | 2005–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3674&r=dev |
| By: | Somik V. Lall (The World Bank); Taye Mengistae (The World Bank) |
| Abstract: | How do differences in the local business environment influence location of industry within countries? How do the benefits of a good business environment compare with those from good market access and agglomeration economies from industry clustering? The authors examine these questions by analyzing location decisions of individual firms. Using data from a recently completed survey of manufacturing firms in India, they find that both the local business environment and agglomeration economies significantly influence business location choices across cities. In particular, excessive regulation of labor and of other industrial activities reduces the probability of a business locating in a city. The authors' findings imply that in order to attract industrial activity, smaller or remoter cities need to offer even more attractive policy concessions or reforms to offset the effects of their relatively adverse (economic) geography. Their methodology pays special attention to the identification of agglomeration economies in the presence of unobserved sources of natural advantage. |
| Keywords: | Infrastructure, Industry, Private sector development, Governance, Urban development, Macroeconomics and growth |
| Date: | 2005–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3675&r=dev |
| By: | Bernard Hoekman (Institut d'Etudes Politiques, Paris); L. Alan Winters (The World Bank) |
| Abstract: | The substantial literature investigating the links between trade, trade policy, and labor market outcomes-both returns to labor and employment-has generated a number of stylized facts, but many open questions remain. This paper surveys the subset of the literature focusing on trade policy and integration into the world economy. Although in the longer run trade opportunities can have a major impact in creating more productive and higher paying jobs, this literature tends to take employment as given. A common finding is that much of the shorter run impacts of trade and reforms involve reallocation of labor or wage impacts within sectors. This reflects a pattern of expansion of more productive firms-especially export-oriented or suppliers to exporters-and contraction and adjustment of less productive enterprises in sectors that become subject to greater import competition. Wage responses to trade and trade reforms are generally greater than employment impacts, but trade can only explain a small fraction of the general increase in wage inequality observed in both industrial and developing countries in recent decades. A feature of the literature survey is that the focus is almost exclusively on industries producing goods. Given the importance of service industries as a source of employment and determinants of competitiveness, the paper argues that one priority area for future research is to study the employment effects of services trade and investment reforms. |
| Keywords: | International economics, Labor and employment |
| Date: | 2005–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3676&r=dev |
| By: | Martin Ravallion (The World Bank) |
| Abstract: | It has been argued that inequality should be of little concern in poor countries on the grounds that (1) absolute poverty in terms of consumption (or income) is the overriding issue in poor countries, and (2) the only thing that really matters to reducing absolute income poverty is the rate of economic growth. The author takes (1) as given but questions (2). He argues that there are a number of ways in which the extent of inequality in a society, and how it evolves over time, influences the extent of poverty today and the prospects for rapid poverty reduction in the future. |
| Keywords: | Poverty |
| Date: | 2005–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3677&r=dev |
| By: | Michael Warlters (The World Bank); Emmanuelle Auriol (ARQADE and IDEI, Toulouse) |
| Abstract: | The authors use a computable general equilibrium model to estimate the marginal cost of public funds (MCF) for taxes on domestic goods, exports, imports, capital, and labor in 38 African countries. The resulting MCF estimates provide directions for tax reform in Africa. The authors investigate the MCFs of hypothetical taxes in the informal sector and the impact of administrative costs. Finally, they investigate the relationship between MCF dispersion and measures of tax system inefficiency. |
| Keywords: | Infrastructure, Domestic finance, Macroeconomics and growth, Public sector management |
| Date: | 2005–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3679&r=dev |
| By: | Vijayendra Rao (The World Bank) |
| Abstract: | Most economists think of common property as physical-a body of water, a forest-and as bounded within geographic space. In this paper, building on work in social theory, the author argues that common property can also be social-defined within symbolic space. People can be bound by well-defined symbolic agglomerations that have characteristics similar to common property. He calls these "symbolic public goods" (SPGs) and make the case that such constructs are central to understanding collective action. He illustrates the point by contrasting how conceptions of nationalism in Indonesia and India created SPGs that resulted in very different strategies of local development. Indonesia emphasized collective action by the poor that resulted in a form of regressive taxation, enforced by the ideology of svadaya gotong royong (community self-help) that was both internalized and coercively enforced. India emphasized democratic decentralization through the panchayat system driven by the Gandhian ideology of gram swaraj (self-reliant villages). This has resulted in an unusual equity-efficiency tradeoff. Indonesia has delivered public services much more efficiently than India did, but at the cost of democratic freedoms and voice. The author argues that the challenge for these countries is not to undermine their existing SPGs but to build on them. Indonesia should retain the spirit of svadaya gotong royong but channel it in an equitable and democratic direction, while India should build the capacity of the panchayat system by giving it fiscal teeth, while promoting underutilized institutions such as Gram Sabhas (village meetings) that encourage accountability and transparency. |
| Keywords: | Governance, Urban development, Poverty, Rural development, Social Development |
| Date: | 2005–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3685&r=dev |
| By: | Judy Baker (The World Bank); Rakhi Basu (The World Bank); Maureen Cropper (The World Bank and University of Maryland); Somik Lall (The World Bank); Akie Takeuchi (University of Maryland) |
| Abstract: | This paper reports the results of a survey of 5,000 households in the Greater Mumbai Region conducted in the winter of 2004. The goal of the survey was to better understand the demand for transport services by the poor, the factors affecting this demand, and the inter-linkages between transport decisions and other vital decisions such as where to live and work. This paper, the first of several research outputs, describes the salient facts about travel patterns in Mumbai for both poor and non-poor households. A striking finding of the survey is the extent to which all households-especially poor households-rely on walking. Overall, 44 percent of commuters in Mumbai walk to work. The proportion of the poor who walk to work is even higher-63 percent. Walking is an even higher modal share for nonwork than for work trips. A second finding is that public transit remains an important factor in the mobility of the poor, and especially in the mobility of the middle class. Overall, rail remains the main mode to work for 23 percent of commuters, while bus remains the main mode for 16 percent of commuters. The modal shares for bus are highest for the poor in zones 1-3 (21 percent of the poor in zone 2 take the bus to work), while rail shares are highest for the poor in the suburbs (25 percent of the poor in zone 6 take rail to work). Is the cost and lack of accessibility to transit a barrier to the mobility of the poor? Does it keep them from obtaining better housing and better jobs? This is a difficult question to answer without further analysis of the survey data. But it appears that transport is less of a barrier to the poor who live in central Mumbai (zones 1-3) than it is to the poor who live in the suburbs (zones 4-6). The poor who live in zones 1-3 (central Mumbai) live closer to the non-poor than do poor households in the suburbs. They also live closer to higher-paying jobs for unskilled workers. Workers in these households, on average, commute short distances (less than 3 kilometers), although a non-negligible fraction of them (one-third in zone 2) take public transit to work. It is true that the cost of housing for the poor is higher in central Mumbai than in the suburbs, but the quality of slum housing is at least as good in central Mumbai as in the suburbs. The poor who live in the suburbs of Mumbai, especially in zones 5 and 6, are more isolated from the rich than the poor in central Mumbai: 37 percent of the poor live in zones 5 and 6, whereas only one-fifth of higher income groups do. Wages for skilled and unskilled labor are generally lower in zones 5 and 6 than in the central city, and it appears that unemployment rates for poor males are also higher in these zones. The lower cost of slum and chawl housing in zones 5 and 6 may partly compensate for lower wages. However, a larger proportion of workers in poor households leave zones 5 and 6 to work than is true for poor workers in other zones. Commuting distances are much higher for poor workers in the suburbs than for poor workers in zones 1-3. |
| Keywords: | Infrastructure, Urban development, Poverty |
| Date: | 2005–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3693&r=dev |
| By: | Guido G. Porto (The World Bank) |
| Abstract: | This paper explores an empirical methodology to assess the impacts of trade reforms on household behavior in developing countries. It focuses on consumption and income responses: when price reforms take place, households modify consumption and production decisions and local labor markets adjust. The paper proposes a joint estimator of demand and wage price elasticities from survey data. The method uses an empirical model of demand to extract price information from unit values, and uses this information to estimate the response of households to price reforms. By correcting unit values for quality effects and measurement error, the method overcomes the problem of the endogeneity of unit values. By endogeneizing household income, the model corrects potential biases in the estimation of own- and cross-price elasticities in consumption. The paper applies the method to an expenditure and income survey for rural Mexico. It shows that the corrections suggested in this paper are empirically important. In particular, it shows that allowing for consumption and income responses is a key element of an accurate empirical assessment of trade policy. |
| Keywords: | Agriculture, Poverty, International economics |
| Date: | 2005–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3695&r=dev |
| By: | Branko Milanovic (The World Bank and Carnegie Endowment for International Peace) |
| Abstract: | The paper studies regional (spatial) inequality in the five most populous countries in the world: China, India, the United States, Indonesia, and Brazil in the period 1980-2000. They are all federations or quasi-federations composed of entities with substantial economic autonomy. Two types of regional inequalities are considered: Concept 1 inequality, which is inequality between mean incomes (GDP per capita) of states/provinces, and Concept 2 inequality, which is inequality between population-weighted regional mean incomes. The first inequality speaks to the issue of regional convergence, the second, to the issue of overall inequality as perceived by citizens within a nation. All three Asian countries show rising inequality in terms of both concepts in the 1990s. Divergence in income outcomes is particularly noticeable for the most populous states/provinces in China and India. The United States, where regional inequality is the least, shows further convergence. Brazil, with the highest level of regional inequality, displays no trend. A regression analysis fails to establish robust association between the usual macroeconomic variables and the two types of regional inequality. |
| Keywords: | Poverty |
| Date: | 2005–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3699&r=dev |
| By: | Caroline Freund (The World Bank); Nikola Spatafora (International Monetary Fund) |
| Abstract: | Recorded workers' remittances to developing countries have grown rapidly, to more than $100 billion in 2004, bringing increasing attention to these flows as a potential tool for development. But even these statistics are likely to significantly understate true remittances, as a large share is believed to flow through informal channels. Estimates of the importance of the informal sector vary widely, ranging from 35 percent to 250 percent of total remittances. The primary motivation of the authors is to develop the first empirical methodology to estimate informal flows. They use insights from the literature on shadow economies and empirically estimate informal remittances for more than 100 countries using historical data on the balance of payments (BOP), migration, transaction costs, and country characteristics. Their results imply that informal remittances amount to about 35-75 percent of official remittances to developing countries. There is significant regional variation: informal remittances to Sub-Saharan Africa and Eastern Europe and Central Asia are relatively high, while those to East Asia and the Pacific are relatively low. These estimates are supplemented with detailed household survey data on remittance receipts in a number of countries. The results also shed light on the determinants of recorded remittances and the associated fees in the formal sector. The authors find that the stock of migrants in OECD countries is the primary determinant of remittances. In addition, money transfer fees and the presence of dual exchange rates reduce the share of remittances reported in national accounts. In turn, transaction costs are systematically related to concentration in the banking sector, lack of financial depth, and exchange rate volatility. There is also evidence that remittances are misrecorded in the BOP as "errors and omissions." |
| Keywords: | International economics |
| Date: | 2005–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3704&r=dev |
| By: | Maurice Catin (CRERI, University of South Toulon-Var, France); Xubei Luo (The World Bank); Christophe Van Huffel (CRERI, University of South Toulon-Var, France) |
| Abstract: | Rapid development, a widening regional gap, and growing concentration of activities have characterized the Chinese economy since the reforms in the late 1970s. This paper examines the spatial disparities of the economic concentration in different stages of development from a geographic approach in the case of China. It aims at offering empirical supports on (1) how concentrated the economic activities are; (2) what factors determine the economic concentration; and (3) whether this concentration differs in the coastal and inland regions. The results show that the high-technology industries highly concentrate in the coastal provinces. The limited diffusion of the labor intensive activities within the coastal region does not significantly modify the major trend of the location and specialization of the industries in the inland region, and does not contribute to narrowing the regional disparities. The paper argues that in order to stimulate the geographic diffusion of economic activities to the inland region, it is important to appropriately alleviate internal migration control, reduce unnecessary state intervention, and further encourage domestic market integration. |
| Keywords: | Macroeconomics and growth |
| Date: | 2005–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3706&r=dev |
| By: | Rita Almeida (World Bank Research Department) |
| Abstract: | The author tests how the local economic structure-measured by a region's sector specialization, competition, and diversity-affects the technological growth of manufacturing sectors. Most of the empirical literature on this topic assumes that in the long run more productive regions will attract more workers and use employment growth as a measure of local productivity growth. However, this approach is based on strong assumptions about national labor markets. The author shows that when these assumptions are relaxed, regional adjusted wage growth is a better measure of regional productivity growth than employment growth. She compares the two measures using data for Portugal between 1985 and 1994. With the regional adjusted wage growth, the author finds evidence of Marshall-Arrow-Romer (MAR) externalities in some sectors and no evidence of Jacobs or Porter externalities in most of the manufacturing sectors. These results are at odds with her findings for employment-based regressions, which show that concentration and region size have a negative and significant effect in most of the manufacturing sectors. These employment-based results are in line with most of the existing literature, which suggests that using employment growth to proxy for productivity growth leads to misleading results. |
| Keywords: | Urban development |
| Date: | 2005–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3728&r=dev |
| By: | Xavier Giné (The World Bank) |
| Abstract: | In the 1980s the Thai government tried to legalize squatters by issuing special titles that restricted the sale and rental of the land. Using data from 2,874 farming households collected in 1997, the author finds that in places where these government titles where issued, leased plots are more likely to be titled than those that are self-cultivated. For these areas, he uses a model to estimate a 6 percent risk premium in the rental rate for untitled plots. In other areas, however, land rights play no role in the decision to lease land and the rental rate of untitled plots does not include a risk premium. The results indicate that this policy distorted the land rental market by triggering a sense of insecurity among landowners. |
| Keywords: | Rural development |
| Date: | 2005–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3734&r=dev |
| By: | Magnus Lindelow (The World Bank); Adam Wagstaff (The World Bank) |
| Abstract: | Health shocks have been shown to have important economic consequences in industrial countries. Less is known about how health shocks affect income, consumption, labor market outcomes, and medical expenditures in middle- and low-income countries. The authors explore these issues in China. In addition to providing new evidence on the general impact of health shocks, they also extend previous work by assessing the extent of risk protection afforded by formal health insurance, and by examining differences in the impact of health shocks between the rich and poor. The authors find that health shocks are associated with a substantial and significant reduction in income and labor supply. There are indications that the impact on income is less important for the insured, possibly because health insurance coverage is also associated with limited sickness insurance, but the effect is not significant. They also find evidence that negative health shocks are associated with an increase in unearned income for the poor but not the non-poor. This effect is however not strong enough to offset the impact on overall income. The loss in income is a consequence of a reduction in labor supply for the head of household, and the authors do not find evidence that other household members compensate by increasing their labor supply. Finally, negative health shocks are associated with a significant increase in out-of-pocket health care expenditures. More surprisingly, there is some evidence that the increase is greater for the insured than the uninsured. The findings suggest that households are exposed to considerable health-related shocks to disposable income, both through loss of income and health expenditures, and that health insurance offers very limited protection. |
| Keywords: | Poverty, Health and population |
| Date: | 2005–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3740&r=dev |
| By: | Magnus Lindelow (The World Bank); Adam Wagstaff (The World Bank) |
| Abstract: | The most basic argument for insurance is that it reduces financial risk. But since insurance opens up new opportunities for consuming expensive high-technology care which permits health improvements that are valued by the insured, and because in many settings the provider is able and has an incentive to exploit the informational advantage he has over the patient, it is not immediately obvious that insurance will in practice reduce financial risk. The authors analyze the effect of insurance on the probability of an individual incurring "high" annual health expenses using data from three household surveys-one a cross-section survey, the other two panel surveys. All come from China, a country where providers have until recently largely been paid fee-for-service (often according to a schedule that encourages the overprovision of high-technology care and the underprovision of basic care) and who are only lightly regulated. The authors define annual spending as "high" if it exceeds 5 percent of average income in the sample and as "catastrophic" if it exceeds 10 percent of the household's own per capita income. The estimates of the effect of insurance on financial risk allow for the possible endogeneity of health insurance in the panel datasets by allowing for a time-invariant fixed effect capturing unobserved risk that may be correlated with insurance status, and in the cross-section dataset by using instrumental variables, where availability of and eligibility for health insurance are used as instruments. The results suggest that during the 1990s China's government and labor insurance schemes increased financial risk associated with household health care spending, but that the rural cooperative medical scheme significantly reduced financial risk in some areas but increased it in others (though not significantly). From the results, it appears that China's new health insurance schemes (private schemes, including coverage of schoolchildren) have also increased the risk of high levels of out-of-pocket spending on health. Where the authors find evidence of health insurance increasing the risk of "high" out-of-pocket expenses, the marginal effect is of the order of 15-20 percent; in the case of "catastrophic" expenses, it is even larger. |
| Keywords: | Poverty, Health and population |
| Date: | 2005–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3741&r=dev |
| By: | Björn Wellenius (wellenius@attglobal.net); Isabel Neto (The World Bank) |
| Abstract: | The radio spectrum is a major component of the telecommunications infrastructure that underpins the information society. Spectrum management, however, has not kept up with major changes in technology, business practice, and economic policy during the past two decades. Traditional spectrum management practice is predicated on the spectrum being a limited resource that must be apportioned among uses and users by government administration. For many years this model worked well, but more recently the spectrum has come under pressure from rapid demand growth for wireless services and changing patterns of use. This has led to growing technical and economic inefficiencies, as well as obstacles to technological innovation. Two alternative approaches are being tried, one driven by the market (spectrum property rights) and another driven by technology innovation (commons). Practical solutions are evolving that combine some features of both. Wholesale replacement of current practice is unlikely, but the balance between administration, property rights, and commons is clearly shifting. Although the debate on spectrum management reform is mainly taking place in high-income countries, it is deeply relevant to developing countries as well. |
| Keywords: | Infrastructure, Industry, Private sector development, Governance, Public sector management |
| Date: | 2005–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3742&r=dev |
| By: | Francisca Antman (Stanford University); David J. Mckenzie (The World Bank) |
| Abstract: | The degree of mobility in incomes is often seen as an important measure of the equality of opportunity in a society and of the flexibility and freedom of its labor market. But estimation of mobility using panel data is biased by the presence of measurement error and non-random attrition from the panel. This paper shows that dynamic pseudo-panel methods can be used to consistently estimate measures of absolute and conditional mobility in the presence of non-classical measurement errors. These methods are applied to data on earnings from a Mexican quarterly rotating panel. Absolute mobility in earnings is found to be very low in Mexico, suggesting that the high level of inequality found in the cross-section will persist over time. However, the paper finds conditional mobility to be high, so that households are able to recover quickly from earnings shocks. These findings suggest a role for policies which address underlying inequalities in earnings opportunities. |
| Keywords: | Poverty, Labor and employment |
| Date: | 2005–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3745&r=dev |
| By: | Joseph F. Francois (Tinbergen Institute (Erasmus University Rotterdam) and CEPR); Hugo Rojas-Romagosa (Tinbergen Institute (Erasmus University Rotterdam)) |
| Abstract: | The inequality dataset compiled in the 1990s by the World Bank and extended by the United Nations has been both widely used and strongly criticized. The criticisms raise questions about conclusions drawn from secondary inequality datasets in general. The authors develop techniques to deal with national and international comparability problems intrinsic to such datasets. The result is a new dataset of consistent inequality series, allowing them to explore problems of measurement error. In addition, the new data allow the authors to perform parametric non-linear estimation of Lorenz curves from grouped data. This in turn allows them to estimate the entire income distribution, computing alternative inequality indexes and poverty estimates. Finally, the authors use their broadly comparable dataset to examine international patterns of inequality and poverty. |
| Keywords: | Poverty, International economics, Social development |
| Date: | 2005–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3748&r=dev |
| By: | Pierre-Richard Agénor (University of Manchester and Center for Growth and Business Cycle Research); Nihal Bayraktar (The World Bank and Penn State University); Emmanuel Pinto Moreira (The World Bank); Karim El Aynaoui (The World Bank and Central Bank of Morocco) |
| Abstract: | The authors present an integrated macroeconomic approach to monitoring progress toward achieving the Millennium Development Goals (MDGs) in Sub-Saharan Africa. At the heart of their approach is a macroeconomic model that captures key linkages between foreign aid, public investment (disaggregated into education, infrastructure, and health), the supply side, and poverty. The model is linked through cross-section regressions to indicators of malnutrition, infant mortality, life expectancy, and access to safe water. A composite MDG indicator is also calculated. The functioning of the framework is illustrated by simulating the impact of an increase in aid and a debt write-off for Niger at the MDG horizon of 2015, under alternative assumptions about the degree of efficiency of public investment. The authors' approach can serve as the building block of Strategy Papers for Human Development (SPAHD), a more encompassing concept than the current "Poverty Reduction" Strategy Papers. |
| Keywords: | Macroeconomics and growth |
| Date: | 2005–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3750&r=dev |
| By: | Eli Berman (University of California, San Diego and National Bureau of Economic Research); Rohini Somanathan (University of Michigan and Indian Statistical Institute); Hong W. Tan (The World Bank) |
| Abstract: | Most high and middle-income countries showed symptoms of skill-biased technological change in the 1980s. India-a low income country-did not, perhaps because India's traditionally controlled economy may have limited the transfer of technologies from abroad. However the economy underwent a sharp reform and a manufacturing boom in the 1990s, raising the possibility that technology absorption may have accelerated during the past decade. The authors investigate the hypothesis that skill-biased technological change did in fact arrive in India in the 1990s using panel data disaggregated by industry and state from the Annual Survey of Industry. These data confirm that while the 1980s were a period of falling skills demand, the 1990s showed generally rising demand for skills, with variation across states. They find that increased output and capital-skill complementarity appear to be the best explanations of skill upgrading in the 1990s. Skill upgrading did not occur in the same set of industries in India as it did in other countries, suggesting that increased demand for skills in Indian manufacturing is not due to the international diffusion of recent vintages of skill-biased technologies. |
| Keywords: | Private sector development |
| Date: | 2005–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3761&r=dev |
| By: | Roberto Chang (Rutgers University); Linda Kaltani (American University); Norman Loayza (The World Bank) |
| Abstract: | The authors study how the effect of trade openness on economic growth depends on complementary reforms that help a country take advantage of international competition. This issue is illustrated with a simple Harris-Todaro model where output gains after trade liberalization depend on the degree of labor market flexibility. In that model, trade protection may ameliorate the problem of underemployment (and underproduction) in sectors affected by labor market distortions. Hence, trade liberalization unambiguously increases per capita income only when labor markets are sufficiently flexible. The authors then present some panel evidence on how the growth effect of openness depends on a variety of structural characteristics. For this purpose, they use a non-linear growth regression specification that interacts a proxy of trade openness with proxies of educational investment, financial depth, inflation stabilization, public infrastructure, governance, labor-market flexibility, ease of firm entry, and ease of firm exit. They find that the growth effects of openness are positive and economically significant if certain complementary reforms are undertaken. |
| Keywords: | International economics, Macroeconomics and growth |
| Date: | 2005–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3763&r=dev |
| By: | Francisca Antman (Stanford University); David J. McKenzie (The World Bank) |
| Abstract: | Theories of poverty traps stand in sharp contrast to the view that anybody can make it through hard work and thrift. However, empirical detection of poverty traps is complicated by the lack of long panels, measurement error, and attrition. This paper shows how dynamic pseudo-panel methods can overcome these difficulties, allowing estimation of non-linear income dynamics and testing for the presence of poverty traps. The paper explicitly allows for individual heterogeneity in income dynamics to account for the possibility that particular groups of individuals may face traps, even if the average individual does not. These methods are used to examine the evidence for a poverty trap in labor earnings, income, and expenditure in Mexico and are compared to panel data estimates from a short rotating panel. The results do find evidence of nonlinearities in household income dynamics and demonstrate large bias in the panel data estimates. Nevertheless, even after allowing for heterogeneity and accounting for measurement error, the paper finds no evidence of the existence of a poverty trap for any group in the sample. |
| Keywords: | Poverty, Labor and employment, Macroeconomics and growth |
| Date: | 2005–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3764&r=dev |
| By: | Louis Kuijs (The World Bank); Tao Wang (International Monetary Fund) |
| Abstract: | The authors study the sources and pattern of China's impressive economic growth over the past 25 years and show that key issues currently of concern to policymakers-widening inequality, rural poverty, and resource intensity-are to a large extent rooted in China's growth strategy, and resolving them requires a rebalancing of policies. Using both macroeconomic level and sector data and analyses, the authors extend the growth accounting framework to decompose the sources of labor productivity growth. They find that growth of industrial production, led by a massive investment effort that boosted the capital/labor ratio, has been the single most important factor driving GDP and overall labor productivity growth since the early 1990s. The shift of labor from low-productivity agriculture has been limited, and, hence, contributed only marginally to overall labor productivity growth. The productivity gap between agriculture and the rest of the economy has continued to widen, leading to increased rural-urban income inequality. Looking ahead, the authors calibrate two alternative scenarios. They show that continuing with the current growth pattern would further increase already high investment and saving needs to unsustainable levels, lower urban employment growth, and widen the rural-urban income gap. Instead, reducing subsidies to industry and investment, encouraging the development of the services industry, and reducing barriers to labor mobility would result in a more balanced growth with an investment-to-GDP ratio that is consistent with the medium-term saving trend, faster growth in urban employment, and a substantial reduction in the income gap between rural and urban residents. |
| Keywords: | Labor and employment, Macroeconomics and growth |
| Date: | 2005–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3767&r=dev |
| By: | Hippolyte Fofack (The World Bank) |
| Abstract: | This paper investigates the leading causes of nonperforming loans during the economic and banking crises that affected a large number of countries in Sub-Saharan Africa in the 1990s. Empirical analysis shows a dramatic increase in these loans and extremely high credit risk, with significant differences between the CFA and non-CFA countries, and substantially higher financial costs for the latter sub-panel of countries. The results also highlight a strong causality between these loans and economic growth, real exchange rate appreciation, the real interest rate, net interest margins, and interbank loans consistent with the causality and econometric analysis, which reveal the significance of macroeconomic and microeconomic factors. The dramatic increase in these loans is largely driven by macroeconomic volatility and reflects the vulnerability of undiversified African economies, which remain heavily exposed to external shocks. Simulated results show that macroeconomic stability and economic growth are associated with a declining level of nonperforming loans; whereas adverse macroeconomic shocks coupled with higher cost of capital and lower interest margins are associated with a rising scope of nonperforming loans. These results are supported by long-term estimates of nonperforming loans derived from pseudo panel-based prediction models. |
| Keywords: | Domestic finance, Macroeconomics and growth |
| Date: | 2005–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3769&r=dev |
| By: | Nicolai Kristensen (The World Bank); Dorte Verner (The World Bank) |
| Abstract: | The authors investigate the extent and nature of distortions in the labor market in the Republic of Côte d'Ivoire by using quantile regression analysis on employer-employee data from the manufacturing sector. They find that the labor markets in Côte d'Ivoire do not seem to be much distorted. Unions may influence employment through tenure but do not seem to influence wages directly except for vulnerable minorities that seem protected by unions. Establishment-size wage effects are pronounced and highest for white-collar workers. This may be explained by the efficiency wage theory, so that, even in the absence of unions, segmentation and inefficiencies will still be present as long as firms seek to retain their employees by paying wages above the market clearing level. The inefficiency arising from establishment-size wage effects can be mitigated by education. Furthermore, the authors find that the premium to education is highly significantly positive only for higher education, and not for basic education, indicating that educational policies should also focus on higher education. |
| Keywords: | ??? |
| Date: | 2005–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3771&r=dev |
| By: | Elena Ianchovichina (The World Bank); Pooja Kacker (The World Bank) |
| Abstract: | The authors present real per capita GDP growth forecasts for all developing countries for the period 2005-14. For 55 of these countries, representing major world regions and accounting for close to 80 percent of the developing world's GDP, they forecast the growth effects of the main forces underpinning growth, assuming that these evolve following past trends. The authors find that for the average developing country the largest growth dividend comes from continued improvement in public infrastructure, followed by the growth contributions of rising secondary school enrollment, trade openness, and financial deepening. The joint contribution of these four growth determinants to average, annual per capita GDP growth in the next decade is estimated to be 1 percentage point. Failure to keep improving public infrastructure alone could reduce this growth dividend by 50 percent. The forecasted growth contributions differ by country qualitatively and quantitatively. |
| Keywords: | ??? |
| Date: | 2005–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3775&r=dev |
| By: | Luis de la Plaza (The World Bank); Sophie Sirtaine (The World Bank) |
| Abstract: | The authors review the series of events that led to the 2002 Uruguayan banking crisis, assess the current status of the Uruguayan banking sector, and analyze the policy responses undertaken by the Uruguayan authorities to counteract the crisis. The main conclusion from their analysis is that although the immediate trigger for the crisis was caused by contagion resulting from Argentina's financial crisis, the spread and magnification of the crisis that engulfed the Uruguayan economy was amplified by certain weaknesses of the Uruguayan economy in general, and the domestic banking sector in particular. The authors also believe that the policy responses adopted by the Uruguayan authorities were mostly adequate, allowing Uruguay to successfully counteract simultaneous banking and public debt crises. Most important, the Uruguayan authorities were able to overcome a severe crisis while preserving the necessary trust in banking contracts, achieving a high level of social stability and political cohesion, and maintaining a fluid dialogue with multilateral financial institutions and all affected parties. The cooperative and consensual approach taken by the authorities created the necessary conditions to overcome some of the important obstacles to the recovery of the domestic banking sector. |
| Keywords: | ??? |
| Date: | 2005–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3780&r=dev |
| By: | Carsten A Holz (Hong Kong University of Science & Technology) |
| Abstract: | Views of the future China vary widely. While some believe that the collapse of China is inevitable, others see the emergence of a new superpower that increasingly poses a threat to the U.S. This paper examines the economic growth prospects of China over the next two decades. Extrapolating past real GDP growth rates into the future, the size of the Chinese economy surpasses that of the U.S. in purchasing power terms between 2012 and 2015; by 2025, China is likely to be the world's largest economic power by almost any measure. The extrapolations are supported by two types of considerations. First, China’s growth patterns of the past 25 years since the beginning of economic reforms match well those identified by standard economic development and trade theories (structural change, catching up, and factor price equalization). Second, decomposing China’s GDP growth into growth of labor and other variables, the near-certain information available today about the quantity and quality of Chinese laborers through 2015, if not several years after, allows inferences about future GDP growth. Short of some cataclysmic event, demographics alone suggests China’s continued economic rise. If talent is randomly distributed in the world population and if agglomeration of talent is important, then the odds are strongly in China’s favor. |
| Keywords: | economic growth, growth accounting, growth forecasts, development theories, human capital formation, education (all: China) |
| JEL: | O1 O10 O11 O4 O40 O47 O53 J11 O3 I21 |
| Date: | 2005–12–02 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpdc:0512002&r=dev |
| By: | Diego Winkelried (St John's College, Cambridge) |
| Abstract: | This paper studies the role of income distribution as a determinant of the size of the informal sector in an economy by relying on a channel whereby inequality affects the behaviour of aggregate demand and thus influences the incentives a firm has to become informal. It is further postulated that income distribution affects the response of the informal sector to different fiscal policies, either demand or supply-orientated. The main findings are that high inequality leads to a large informal sector, and that redistribution towards the middle class decreases the size of the informal sector and increases the capacity of fiscal instruments to reduce informality. Empirical evidence for Mexican cities is provided. |
| Keywords: | Income distribution, market size, informal sector. |
| JEL: | D31 O11 O17 |
| Date: | 2005–12–06 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpdc:0512005&r=dev |
| By: | Tewodaj Mogues (International Food Policy Research Institute) |
| Abstract: | This paper uses household survey panel data of 416 rural households to study livestock asset dynamics in the north-east of Ethiopia. The period under examination (1996-2003) was marked by severe environmental shocks, including a series of droughts. Using as point of departure the literature on the evolution of productive assets in the presence of risk, which relates asset paths to initial endowments, we test the hypothesis of wealth divergence and the existence of asset poverty traps. Results indicate rather that livestock asset dynamics are marked by convergence over time. Examining the role of social capital in recovery and growth of households’ endowments, both local social relationships as well as ‘bridging’ social capital seem to have a positive effect on asset holdings directly, as well as indirectly by mitigating the impact of income shocks on livestock capital. |
| Keywords: | Ethiopia; Social capital; Shocks; Livestock assets; Dynamic analysis |
| JEL: | O P |
| Date: | 2005–12–09 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpdc:0512006&r=dev |
| By: | Deepak Shah (Gokhale Institute of Politics & Economics, B.M.C.C. Road, Deccan Gymkhana, Pune 411004, Maharashtra, India) |
| Abstract: | An analysis encompassing two case studies conducted in forward and backward regions of Maharashtra (India) has shown deterioration in the financial health of central level credit cooperatives (Sangli District Central Cooperative Bank (SDCCB)) in forward region and gross inefficiency in their functioning (Buldana District Central Cooperative Bank (BDCCB)) in the backward region of the state, due mainly to their mounting NPAs or overdues’. Because of substantially high NPAs, the fixed expenses of these institutions have been adversely affected, which in turn have grossly affected the break-even levels of loan advances and deposits of these credit institutions, so much so that there has been huge gap between the break-even levels of loan advances and deposits and the actual loan advances and deposits. In the case of BDCCB, the deficit between actual and the break-even levels are so high (about 60 per cent) that it will be well-nigh impossible for it to overcome this situation. High transaction costs, poor repayment performance, and mounting NPAs are the root causes of the moribund state of rural credit delivery through these cooperatives. Further, it is to be noted that the estimated trend over the past two decades in Maharashtra shows a slower growth in institutional finances through credit cooperatives and also in their membership during the decade of economic reforms (1991-2000) as against the decade preceding it (1980-1990). On the other hand, the outstanding loans of these cooperatives have grown at much faster rate as compared to their loan advances during both pre- and post economic reform periods. The slower growth in institutional finance through credit cooperatives during the decade of 1991-2000 is mainly due to adverse environment created by the financial sector reforms. Due to unfavourable policy framework, much of the deposits of the credit cooperatives are going into investments, instead of advancing loans to the farming sector. As a result, the C-D ratios of these credit cooperatives have been adversely affected. With a view to revive agricultural credit delivery through cooperatives, the need of the hour is to adopt innovative approaches like linking of SHGs and NGOs with mainstream financial institutions, including cooperatives. Such linkages are reported to have not only reduced transaction costs but also ensured better repayment performance. In brief, in order to rejuvenate rural credit delivery system through cooperatives, the root problems facing the system, viz., high transaction cost, poor recovery performance, and NPAs, need to be tackled with more fiscal jurisprudence reserving exemplary punishment for willful defaults, especially by large farmers, and the individual cases who have borrowed credit from these institutions. In fact, insofar as rural credit delivery through credit cooperatives is concerned, the focus should be on strategies that are required for tackling issues such as sustainability and viability, operational efficiency, recovery performance, small farmer coverage and balanced sectoral development. |
| Keywords: | Financial Health of Credit Cooperatives in India |
| JEL: | G |
| Date: | 2005–12–07 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpfi:0512007&r=dev |
| By: | Carsten A Holz (Hong Kong University of Science & Technology) |
| Abstract: | Data on physical capital are an indispensable part of economic growth and efficiency studies. In the case of China, economy-wide fixed asset series are usually derived by aggregating gross fixed capital formation (net of depreciation) over time, and sectoral/ownership-specific series by correcting the limited official fixed asset data available. These procedures, to varying degrees, ignore that (i) gross fixed capital formation does not equal investment, (ii) investment does not equal the value of fixed assets newly created through investment, (iii) depreciation is an accounting measure that bears no necessary relation to changes in the production capacity of fixed assets, (iv) official fixed asset data, where available, incorporate significant revaluations in the 1990s, and (v) “net fixed assets” do not measure the contribution of fixed assets to production. This paper derives economy-wide fixed asset values for 1953-2003, correcting for these shortcomings. It uses both the traditional, cumulative approach and a new, so far unexplored method of combining economy-wide depreciation values and an economy-wide depreciation rate to directly yield economy-wide fixed assets. The derived fixed asset time series are evaluated in a comparison with each other as well as with series in the literature, leading to the recommendation of a specific choice of fixed asset time series. |
| Keywords: | Capital, investment, national income accounting, production function estimations, Chinese statistics, fixed assets, measurement of economic growth |
| JEL: | E22 C80 D24 O47 P23 P24 |
| Date: | 2005–12–02 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0512001&r=dev |
| By: | Loren Brandt (University of Toronto); Carsten Holz (Hong Kong University of Science & Technology) |
| Abstract: | Prices differ across space: from province to province, from rural (or urban) areas in one province to rural (or urban) areas in another province, and from rural to urban areas within one province. Systematic differences in prices across a range of goods and services in different localities imply regional differences in the costs of living. If high- income provinces also have high costs of living, and low-income provinces have low costs of living, the use of nominal income measures in explaining such economic outcomes as inequality can lead to misinterpretations. Income should be adjusted for costs of living. We are interested in the sign and magnitude of the adjustments needed, their changes over time, and their impact on economic outcomes in China. In this article, we construct a set of (rural, urban, total) provincial- level spatial price deflators for the years 1984-2002 that can be used to obtain provincial-level income measures adjusted for purchasing power. We provide illustrations of the significant effect of ignoring spatial price differences in the analysis of China’s economy. |
| Keywords: | spatial deflators, inequality, income differences, regional absolute price levels, China |
| JEL: | D3 D31 C43 D63 O18 O53 |
| Date: | 2005–12–02 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpmi:0512001&r=dev |
| By: | Rajashri Chakrabarti (Harvard University) |
| Abstract: | This paper analyzes the impact of a redrawing of political boundaries on voting patterns. It investigates whether secession of states leads to gains in terms of better conformity of the electorate's political preferences with those of the elected representatives. We study these issues in the context of reorganization of states in India. Madhya Pradesh, the biggest state in India before the reorganization, was subdivided into Madhya Pradesh and Chhattisgarh in 2000, the latter accounting for less than one-fourth of the electorate of undivided Madhya Pradesh. Using socio-economic composition and traditional voting patterns, we argue that there were differences in political preferences between Madhya Pradesh and Chhattisgarh. However, in electoral democracies, the amount of transfers that a constituency gets depends crucially on whether the local representative belongs to the ruling party. Under these circumstances, we show in a theoretical context that when it is part of the same state, the smaller region would vote strategically to elect representatives with preferences more closely aligned to those of the bigger region. Once it constitutes a separate state however, this motive would no longer operate. Exploiting detailed data on state elections in Madhya Pradesh and Chhattisgarh in 1993, 1998 and 2003 and a difference-in-differences estimation strategy, we show that these predictions are validated empirically - there is a significant divergence in voting behavior between the two regions in 2003 compared to the pre-reorganization period. |
| Keywords: | Political boundaries, Voting, Redistribution |
| JEL: | P16 H0 O1 |
| Date: | 2005–12–02 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpot:0512002&r=dev |
| By: | Yesim Kustepeli (Department of Economics, Faculty of Business, Dokuz Eylül University) |
| Abstract: | Using a panel data analysis, the relationship between government size and economic growth is investigated for the 1994-2001 period. The results show that relatively small sizes of government are detrimental to economic growth, while medium sized government affects it positively. |
| Keywords: | government size, economic growth, panel data, new European Union members and candidates |
| JEL: | E62 O40 |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:deu:dpaper:0605&r=dev |