22682 September 2000 The World Bank Research A bstracts Program of Current Studies 2000 C FILE COPY The World Bank Research Program 2000 Abstracts of Current Studies Definition of World Bank Research Research at the Bank encompasses analytical work designed to produce results with wide applicability across countries or sectors. Bank research, in contrast to academic research, is directed toward recognized and emerg- ing policy issues and is focused on yielding better policy advice. Although motivated by policy problems, Bank research addresses longer-term concerns rather than the immediate needs of a particular Bank lending opera- tion or of a particular country or sector report. Activities classified as research at the Bank do not, therefore, include the economic and sector work and policy analysis carried out by Bank staff to support operations in particular countries. Economic and sector work and policy studies take the product of research and adapt it to specific pro- jects or country settings, whereas Bank research contributes to the intellectual foundations of future lending oper- ations and policy advice. Both activities-research and economic and sector work-are critical to the design of successful projects and effective policy. Copyright C) 2000 International Bank for Reconstruction and Development/THE WORLD BANK 1818 H Street NW, Washington, D.C. 20433, U.S.A. All rights reserved. First printing September 2000 Manufactured in the United States of America ISSN 0258-3143 ISBN 0-8213-4854-X This report has been prepared by the staff of the World Bank. The judgments expressed do not necessarily reflect the views of the Board of Executive Directors or of the governments they represent. Contents Introduction 1 Studies by Subject Area 3 Abstracts of Current Studies 9 Poverty and Social Welfare 11 Education and Labor Markets 44 Environmentally Sustainable Development 55 Infrastructure and Urban Development 71 Macroeconomics 89 International Economics 99 Domestic Finance and Capital Markets 120 Transition Economies 132 Private Sector Development and Public Sector Management 138 Bank Research Output 155 iii Introduction As reflected in the range of studies described in this Policymakers spoke highly of the Bank's research volume, World Bank research is intended to serve many program, which they believe provides valuable and rel- purposes. It seeks to enhance the understanding of evant information on important topics. Most believe poverty, improve the design of Bank-financed projects that Bank studies address the important problems they and programs, increase the effectiveness of aid, recognize face as policymakers. emerging problems and respond to crises, and support The survey confirmed that policymakers value the capacity to conduct policy-oriented research in devel- research. Three-quarters of respondents reported that oping and transition economies. Bank research is used their agencies conduct research, and more than 80 per- by a variety of audiences, including policymakers, teach- cent of the agencies had contracted with others to con- ers and researchers, and the Bank's own lending program duct research. staff. To find out how useful each of these groups finds its How Can the Bank Improve the Impact research, the Bank has conducted a series of analyses and of Its Research? surveys. In 1995 it analyzed the impact of its research in the academic and research community. In 1997 it inves- To help identify ways to improve its research, the Bank tigated the influence of its research on Bank lending asked respondents how its studies could be made more programs and projects. Most recently, in 1999, the useful. The main concern-expressed by about two- Bank examined how well its research is meeting the thirds of respondents-was the need for greater involve- needs of policymakers in developing and transition ment by country nationals in Bank research. economies. The Bank has increasingly recognized the benefits of To do so, the Bank surveyed more than 270 high- working with local partners. In 1999 more than half its level policymakers in 36 economies. Participating coun- research projects involved local researchers, up from less tries represented the full range of the Bank's clients-and than a quarter in 1995-and as the abstracts in this vol- participating policymakers the range of topics on which ume show, that share remains high. Through such part- the Bank works. nerships, researchers in developing and transition economies learn state-of-the-art analytical techniques. In Bank Research Contributes to Policymaking turn, they provide information on local conditions and insights into the implications of research findings for The results of the survey show that Bank research is local policy. Moreover, the collaboration helps create clearly having an influence among policymakers. An and sustain networks of researchers, improving access to overwhelming majority of those surveyed-84 percent- data, new techniques, and future partners. reported using the Bank's analytical reports. In fact, A second area for improvement identified by respon- respondents cited the Bank more often than any of the dents is access to research findings. Sixty percent cited 16 other national and international sources in the survey. a need for better access to information, data, and find- The results of Bank studies are finding their way into ings. Greater dissemination, more translation, and less the policy dialogue and influencing decisionmaking. technical exposition of research techniques and find- Fully 80 percent of respondents using Bank research ings could all help. reported that it has contributed to policy development, The Bank translates many research reports into one and half of those that it has had an important effect on or more languages, but as the appendix on Bank research policymaking. output reveals, it publishes most only in English. Trans- lating more reports would increase access, but given * Education and labor markets. declining research funding, doing so would mean scal- * Environmentally sustainable development, includ- ing back research efforts. The decision to translate reports ing energy, agriculture, natural resources, and environ- is thus not a simple one. mental economics. The Bank also seeks to address the need for less * Infrastructure and urban development. technical and more accessible reports of research find- * Macroeconomics, including adjustment and mone- ings, through such channels as the World Bank Research tary and fiscal policy. Observer and World Bank Policy and Research Bulletin (see * International economics, including debt, trade, and below for more information on these publications). But finance. the survey results suggest that more such channels of dis- * Domestic finance and capital markets. semination may be needed. * Transition economies. Access to the Bank's research findings could be * Private sector development and public sector man- increased dramatically if use of the Internet were wide- agement, including regulation, institutions, privatiza- spread. But Internet use remains uncommon in many tion, political economy, and industrial organization. developing and transition economies. So until telecom- The appendix lists reports and publications produced munications systems and access improve in the poorest from Bank research and explains how to obtain them. countries, the Bank will continue to produce and dis- tribute paper reports to disseminate the findings of its How to Get More Information research. This volume is among those that serve that purpose. This is the annual compendium of current Bank research. Readers interested in obtaining more frequent and up- What Research Is Now Under Way at the Bank? to-date information on Bank research projects and their findings may wish to subscribe to the quarterly Policy and This volume reports on research projects initiated, under Research Bulletin. Each issue includes information on way, or completed in fiscal 2000 (July 1, 1999, through recent World Bank publications and working papers, June 30, 2000). The abstracts in the volume describe, for abstracts of newly initiated research projects and sum- each project, the questions addressed, the analytical maries of recent research findings, a column identifying methods used, the findings to date, and their policy electronic information available from the Bank, and a form implications. Each abstract also identifies the expected for ordering reports featured in that issue. The bulletin completion date, the research team, and any reports or is available free of charge. For information on how to sub- publications produced. To make it easier to obtain infor- scribe, see the subscription request form at the back of mation and data, each abstract gives the email address this volume. for the research project's supervisor. The bulletin, Abstracts of CurrentStudies, articles from The abstracts cover 173 research projects from the Bank's two journals-the WorldBank Research Observer throughout the Bank, grouped under nine major headings: and World Bank Economic Review-and a host of reports * Poverty and social welfare, including equity, demo- and publications from Bank research projects are avail- graphics, and health and nutrition. able on the Web at www.worldbank.org/research. 2 Studies by Sub ject Area Poverty and Social Welfare 11 Inequalities in Child Health: Comparing the Living Standards Measurement Study Survey and the Demographic and Health Survey 11 Information, Incentives, and Antipoverty Interventions: Devilish Details on the Road to Poverty Reduction 12 Sustainable Banking with the Poor 12 The Impact of Adult Deaths on Child Health in Northwestern Tanzania 14 Policies for Poor Areas 15 Poverty and Policy in Latin America and the Caribbean 16 Crime in Latin American Cities 17 Democracy, Redistribution, and Inequality 18 Gender, Old Age, and Social Security: Evidence from Chile and Argentina 19 The Impact of Population Aging on Health Care Systems 20 Inequality in Malaysia 20 Links between Income Growth and Malnutrition 21 The Impact of the Financial Crisis on the Farm Sector in Thailand 21 Technology and Poverty Alleviation 22 The Derivation of World Income Distribution in 1988-93 Based on Household Survey Data 23 How Do the Poor Cope with a Widespread Natural Disaster? A Study of the 1998 Flood of Rural Bangladesh 24 Long-Term Impacts of Microcredit Programs: A Study of the Grameen Bank and Other Programs in Bangladesh 25 Poverty and the International Economy: What Are the Links? 25 A New Approach to Valuing Mortality Risk Reductions: What Are Older People Willing to Pay to Reduce Their Risk of Dying? 26 Evaluation of the Impact of Investments in Early Child Development on Nutrition and Cognitive Development 27 The Impact of Prices, Taxes, Subsidies, and Stipends on Poverty 28 A New Analytical Framework for Evaluating Social Programs 28 Africa Nutrition Database Initiative 29 The Dynamics of Urban Poverty in Rio de Janeiro and Implications for Public Policy 30 The Economics of Malaria 31 The Methodology of Poverty Assessments 31 Optimal Policies for Controlling Infectious Diseases 32 Private Transfers in a Cross-Section of Developing Countries 33 3 The Public Economics of Health Reform 33 Safety Nets in an Emerging Market Economy 34 ,/Welfare Impacts of Policy under Conditions of Inequality 35 Patterns of Inequality and Government Intervention 35 Poverty and Health 36 Social Exclusion and Poverty 37 The Impact of Deworming Treatment on Primary School Performance in Busia, Kenya 38 The Economics of Political and Criminal Violence 39 World Poverty Monitoring 40 Urban Poverty, Risk Management, and Social Capital 41 The Living Standards Measurement Study, Phase 3 41 Social Capital 42 Education and Labor Markets 44 Labor Demand and Reform 44 Income Support for the Unemployed: Mandatory Severance Pay in Peru 45 Job Turnover and Total Factor Productivity: Microeconomic Evidence from Taiwan (China) 45 Gender, Law, and Development 46 Policy Research Report on Gender and Development 47 Does Microcredit Empower Women? A Study of Grameen Bank, BRAC, and the RD-12 Project in Bangladesh 49 Gender Data and Labor Markets 49 Improving Primary Education in Kenya: A Randomized Evaluation of Different Policy Options 50 Migration and Poverty in Latin America 51 The Impact of Labor Market Policies and Institutions on Economic Performance 51 Public Sector Retrenchment, Phase 2 53 Environmentally Sustainable Development 55 Agricultural Expansion in Forest Villages in Chiang Mai, Thailand 55 Health, Environment, and the Economy 55 The Role of the Nonfarm Rural Sector and Periurban Agriculture in Tanzania's Rural Development 56 Commodity Marketing Systems 57 Pricing Carbon Offset Projects 58 Market Development and Allocative Efficiency: Irrigation Water in the Punjab 58 Markets for Agricultural Inputs and Outputs in Sub-Saharan Africa 59 Brazil Global Overlay Study 59 Economic Instruments for Conservation 60 Environmental Data Accounting 61 4 Studies by Subject Area Land Markets, Gender, and Access to Land in Latin America 61 Land Reform 62 Land Rental Markets and Agricultural Efficiency in Ethiopia 63 Nature Tourism's Contribution to Economic Development and Conservation Finance 63 Institutional Means of Controlling Administration and Reducing Corruption in Transition Economies: A Comparative Study of Environmental Regulation in Bulgaria and Hungary 64 Making Long-Term Growth and Development More Sustainable 65 Guidelines for Pricing Irrigation Water Based on Efficiency, Implementation, and Equity Considerations 65 Sending Farmers Back to School: An Econometric Evaluation of the Farmer Field School Extension Approach 66 Strategic Planning and Implementation of Public Involvement in Environmental Decisionmaking 67 Understanding and Improving the Environmental Performance of China's Township-Village Industrial Enterprises 67 Land Tenure in Rural China 68 Measuring the Economic Value of Environmental Protection Projects: Methodology and Application to Armenia's Lake Sevan 69 Infrastructure and Urban Development 71 Infrastructure and Growth: A Multicountry Panel Study 71 Competitive Cities: Urban Primacy and Growth 72 Financing of Private Hydropower Projects 73 The Effects of Telecommunications Infrastructure on Investment: An Empirical Analysis 73 The Sustainable Financing of Investments in Municipal Infrastructure: Cost Recovery for Solid Waste Management in the Philippines 74 Comparative Study of Water Institutions and Their Impact on Water Sector Performance in Selected Countries 74 The Impact of Regulatory Risk on the Cost of Private Debt for Infrastructure Projects in Emerging Markets 75 Privatization and Basic Infrastructure Services for the Urban Poor 76 Community Comanagement of Urban Environmental Quality: Water, Sanitation, and Water Pollution Control 77 Enhanced Telecommunications and Road Freight Logistics: Competition and Innovation 78 Infrastructure Productivity: Direct and Indirect Effects 78 Institutions, Politics, and Contracts: Private Sector Participation in Urban Water Supply 79 Yardstick Competition across Ports: An Illustrated Guide for Regulators 80 Sludies by Subject Area 5 Efficient Network Access Pricing Rules for Developing and Transition Economies 81 Energy Services and Programs for the Poor 82 Competition and Privatization in Urban Water Supply 82 The Impact of Rural Roads 83 The Macroeconomics of Infrastructure in Latin America 83 Rural Roads: Welfare Impact Evaluation 84 Motorization and the Pricing of Externalities 85 Privatization of Telecommunications in Sub-Saharan Africa 86 Economic and Engineering Evaluation of Alternative Strategies for Managing Sedimentation in Storage Reservoirs 86 Emergence from Subsistence: Infrastructure, Location, and Development in Nepal 87 Database on Infrastructure Privatization 88 Macroeconomics 89 The Role of Agriculture in Repuiblica Bolivariana de Venezuela's Economic Rise and Decline 89 Monetary Policy and Monetary Indicators during Banking Crises 89 The Quality of Growth 90 Can Africa Claim the 21st Century? 91 Economic Growth, Social Capability, and Preindustrial Development 92 Fiscal Decentralization in Developing Countries 92 The Impact of Public Spending in Uganda 93 S-ubnational Data Initiative 94 Fiscal Decentralization in Latin America 94 Geography, Growth, and Comparative Advantage in Sub-Saharan Africa 96 Joint Development Research Group-Africa Region Work Program on African Development 96 Structural Adjustment Participatory Review Initiative 97 International Economics 99 Implementation of Uruguay Round Commitments: The Development Challenge 99 Market Access Advances and Retreats: The Uruguay Round and Beyond 99 Global Development Network: Researching the Researchers 100 The Influence of World Bank Research on Policy in the Developing World 101 Pricing of Bonds and Bank Loans in the Market for Developing Country Debt 102 Commodity Risk Management 103 Current Account Sustainability 104 The Political Economv of Trade Policy 105 Innovative Mechanisms for Raising Development Finance 106 Regional Trade Integration: The Andean Group-Evolution, Performance, and the Remaining Agenda 107 6 Studies by Subjetl Area Regionalism and the Terms of Trade 107 Aid and Reform in Africa 108 The Dynamic Impact of Trade Liberalization in Developing Countries 109 Financial Development and Contagion 110 International Capital Flows 112 Micro Foundations of International Technology Diffusion 113 Mutual Funds in Emerging Markets 114 Preparing for the WTO 2000 Negotiations 115 Database on Measures Affecting Trade in Services 117 Trade, Standards, and Regulatory Reform 118 Agriculture and the New Trade Agenda in the WTO 2000 Negotiations: Economic Analyses of Interests and Options for Developing and Transition Economies 118 Domestic Finance and Capital Markets 120 Benchmarking Financial Systems 120 Financial Structure and Economic Development 120 Operating Costs and Investment Returns of Pension Funds 121 The Political Economy of Pension Reform 122 Primary Financial Markets: Macroeconomic Conditions and Market Development 123 The Costs and Benefits of Business Group Formation 1 24 Deposit Insurance: Issues of Principle, Design, and Implementation 125 Policy for Small Financial Systems 126 Financial Liberalization 126 Institutional Investors 127 Corporate Governance, Corporate Finance, and Economic Performance in Developing Countries 127 Bank Insolvency 128 Measuring Financial Regulation and Supervision 128 Weather-Based Index Insurance 129 Bank Privatization in Developing Countries 130 Financing of Small and Medium-Size Enterprises 130 Transition Economies 132 Chinese State-Owned Enterprises in the 1980s 132 Pension Reform in China: Implicit Pension Debt and Transition Costs 132 The Political Economy of Social Policy in Transition Economies 133 Agriculture in Transition: Land Reform and Farm Restructuring in Formerly Socialist Countries 134 Evaluation of Active Labor Market Programs in China 135 Studies by Subjeci Area 7 Privatization and Corporate Governance in Transition Economies 136 Trade Policy in Transition Economies 136 Private Sector Development and Public Sector Management 138 The Role of Interfirm Linkages in Emerging Industrial Clusters 138 Does More Intense Competition Lead to Higher Growth? 138 Corruption 139 Delivery of Social Justice in Decentralized Arrangements: A Study of the Uganda Situation 140 The Causes of Corruption 141 The Regulation of Entry 141 Corporate Governance in East Asia 143 The Economics of Ethnicity and Entrepreneurship in Africa 144 An Empirical Study of the Surgical Instrument Cluster of Sialkot, Pakistan 144 Government-Business Consultative Mechanisms and Economic Governance: A Three-Country Comparison 145 An Analysis of Use Patterns of Latin American Judiciar-es 146 The Quality of Growth: Capital Subsidies, Public Expenditure, and Endogenous Policies 147 The Introduction of Pharmaceutical Product Patents in India 147 Agency Independence and Political Institutions 148 Database on Institutions for Government Decisionmaking 149 East Asia Competitiveness Study 149 Firm Analysis and Competitiveness Research 151 The Impact of Institutions 151 Regional Program on Enterprise Development in Africa 152 Service Delivery 153 8 Studies by Subject Area Abstracts of Current Studies Poverty and Social Welfare Inequalities in Child Health: Comparing the the Russian Federation, South Africa, Vietnam, and Living Standards Measurement Study Survey Zambia. and the Demographic and Health Survey The results indicate that, in all countries, poor chil- dren are less well nourished than better-off children. The World Bank, along with a number of other devel- However, the degree of inequality between poor and non- opment agencies, has been giving increased emphasis to poor children can vary substantially across countries, improving health and nutrition outcomes among the even at similar levels of development (although many of world's poor. There is, however, a shortage of data on dif- the intercountry comparisons are not statistically signif- ferences between the poor and the nonpoor in terms of icant). Results also indicate that in many-but not all- these measures. The broad aim of this study was to help instances, whether equivalent consumption or the fill this information gap for a specific set of health and wealth index based on principal components analysis is nutrition outcomes, namely, those pertaining to child used for ranking only slightly affects the picture that health. The narrower aim was to assess the usefulness of emerges on cross-country differences in malnutrition. consumption and wealth proxies in order to determine These results suggest that both levels of development whether the use of such proxies (survey data that do and average health and nutrition outcomes may be poor not include consumption data, such as the Demographic indicators of how the poor fare in such outcomes and that and Health Survey [DHS]) paints a reliable picture assessing poor-nonpoor differences using a synthetic of poor-nonpoor differences in health and nutrition wealth index is useful where consumption data are outcomes. unavailable. The methods used involve the computation of mal- Among the main products of the study are compara- nutrition measures of child health-stunting, under- ble data on poor-nonpoor differences in malnutrition weight, and wasting-for five economic status quintiles. and child mortality, based on both consumption and the These measures were then compared using concentra- synthetic wealth index. Coupled with the DHS-based tion curves that plot the cumulative percentage of, say, data being commissioned from Macro International by children born, ranked by economic status, against the the Health, Nutrition, and Population Network's Poverty cumulative percentage of, say, underweight children. A Thematic Group, these data will enable Bank staff concentration index was then computed, analogous to the preparing country assistance strategies and poverty assess- Gini coefficient, indicating the extent to which adverse ments to understand how the poor within each country outcomes are concentrated among the poor. Standard fare. These data will also help researchers identify the errors were computed for these indexes, enabling their causes of poor-nonpoor differences in malnutrition, the significance to be assessed and the significance of cross- impacts of the various determinants, and the inequali- country differences to be determined. Economic status ties in these determinants. Such work will help Bank staff was measured by two alternative measures: equivalent assess the returns to different policies and projects in household consumption and an index of "wealth" con- terms of their ability to improve health and nutrition out- structed by applying principal components analysis to data comes among poor children. on house characteristics, durable ownership, and land A draft paper bringing together all the results has cultivation. Countries studied include Bangladesh, Brazil, been prepared and is currently being revised for sub- Burkina Faso, China, Cote d'lvoire, Egypt, Ghana, mission to a journal. The results will also be disseminated Guatemala, Guyana, Indonesia, Morocco, Nepal, within the Bank through a seminar and on the Web at Nicaragua, Pakistan, Peru, the Philippines, Romania, www.worldbank.org/poverty/health. 11 Responsibility: Human Development Network, Health, Responsibility: World Development Report Office-Ravi Nutrition, and Population Team-Adam Wagstaff Kanbur (rkanbur@worldbank.org). With John Hoddinott (awagstaff@worldbank.org), Helen Saxenian, and Naoko and Lawrence Haddad, International Food Policy WAatanabe. Research Institute; and Timothy Besley, London School (ompletion date: December 1999. of Economics and Political Science. (ompletion date: December 1999. Information, Incentives, and Antipoverty Interventions: Devilish Details on the Road Report to Poverty Reduction Adato, Michelle, limothy 13esley, Lawrence Haddad, and John Hoddinott. 1999. "Participation and Poverty Reduction: Issues, This study examined the relationship between com- 'I'heory and New Evidence from South Africa." 13ackground munity participation and the efficacy of interventions paper for World D)evelopment Report 20012001. International designed to reduce poverty. It developed some simple Food lPolicy Research Institute and World 13ank, Washington, analytics that were used to structure a review of the D.C. extant literature and motivate the analysis of the impact of participation on the efficacy of public work interven- Sustainable Banking with the Poor ions in South Africa. These analytics suggest that because communities have informational advantages not available This research project was aimed at improving the to outsiders, community participation has the potential ability of donors, governments, and practitioners to design to lower the cost of antipoverty interventions. Where the and implement policies and programs for building sus- outcomes of interventions are difficult to measure, com- tainable financing institutions that are effective in reach- munity participation is attractive because it is more likely ing the poor. The project carried out a series of case to produce a set of outcomes actually desired by the studies of microfinance institutions in Africa, Asia, community. This does not imply, however, that these out- and Latin America that have pioneered innovative comes are those desired by all members of the commu- approaches for reducing the costs and risks of providing nity nor by those who finance the interventions. financial services to a large number of low-income clients. These arguments are supported both by a review of The case studies covered a wide range of institutions, the extant literature and by a multivariate analysis of the including commercial banks, specialized banks, impact of community participation on public work pro- nongovernmental organizations, nonbank financial jects in South Africa. This analysis used data from a spe- institutions, and government development finance cially conducted survey combining household-level data institutions. on beneficiaries and institutional data on the interven- The project drew on several disciplines-economics, tions to allow characterization of the degree of partici- finance, and anthropology-and used both quantitative pation. It found that increasing community participation and qualitative approaches to analyze why some pro- lowers the ratio of project wages to local wages; increases grams have successfully delivered financial services to the the labor intensity of projects that provide roads, sewers, poor while others have fallen short. It defined success by or community buildings; and lowers the cost of creating financial sustainability and by access and outreach. It mea- employment and of transferring funds to poor individu- sured financial sustainabilitiy in terms of key financial per- als. It found no evidence that community-participation formance indicators, including the Subsidy Dependence increases cost overruns in these projects. Index widely used in the World Bank. It measured access The results of the research should help to improve the and outreach by assessing how far beyond the "frontier understanding and design of institutional arrangements of finance" a program has gone to reach those who have in antipoverty interventions. been unable to use formal financial services-whether Early results were presented at the World Bank's because of gender, income, illiteracy, ethnic identity, Summer Research Workshop on July 6-8, 1999. geographic location, or lack of collateral. l2 'Poverty and Sociol Welfore On the basis of the case studies, the project produced Responsibility: South Asia Region, Social Development Sec- documents providing lessons for policy formulation, pro- tor Unit-Lynn Bennett (lbennett@worldbank.org); gram design, and implementation. These include an Africa Region Technical Families, Private Sector integrated analysis and critical review of the role of non- Finance-Carlos E. Cuevas and Sangae Sherman; and governmental organizations in microfinance and a thor- Private Sector Development Department, Knowledge ough analytical assessment of the current state and Management Unit-Korotoumou Ouattara, and Small potential of credit union outreach to the poor. In col- Enterprise Development Unit-Jacob Yaron. With Tom laboration with the Consultative Group for Assisting the Dichter; Joanna Ledgerwood; Julia Paxton; J. D. von Poorest (CGAP), the project produced the "Microfi- Pischke; Jeffrey Poyo; Gloria Almeyda; Stephanie Chari- nance Practical Guide" (C6cile Fruman and Michael tonenko; Jorge Rodriguez-Meza; Development Part- Goldberg, World Bank, Washington, D.C., 1997), ners, United States; CEPES, Peru; Inversiones designed to assist Bank task managers in formulating and Nacionales de Turismo, Peru; Silvia Dorado; Nancy implementing microfinance activities. The guide presents McGaw; and Ali Jaffrey. Funding for the research was con- a step-by-step approach to designing a microfinance loan tributed by the Swiss Agency for Development and or loan component and provides extensive advice on Cooperation; the Royal Ministry of Foreign Affairs, Nor- such nonlending activities as policy dialogue and tech- way; and the Ford Foundation. nical assistance. Completion date: December 1999. Targeted to a wider audience, the Microfinance Hand- book (Joanna Ledgerwood, Washington, D.C.: World Reports Bank, 1998) is a technical guide aimed at client country Almeyda, Gloria. 1998. "Colombia: Cupocr6dito Credit Union." governments, financial institutions, donor agencies, and Case Studies in Microfinance. (Also issued in Spanish.) practitioners. The handbook offers a comprehensive -. 1999. "Colombia: Solidarios Financial Cooperative (Cali)." overview of the main issues in microfinance and an update Case Studies in Microfinance. (Also issued in Spanish.) on the lessons learned and best practices in the field. Almeyda, Gloria, and Brian 13ranch. 1999. "Ecuador: OSCUS Comparative analyses of case studies were presented (Ambato) and l'rogreso (Quito) Credit Unions." Case Studies at three regional conferences (two in Africa and one in in Microfinance. (Also issued in Spanish.) Latin America) and at professional meetings in Latin - .1999. "Guatemala: The Case of Uni6n Popular and Uni6n America. The project established a World Bank seminar Progresisca Amatitlaneca (UlPA) Credit Unions." Case Studies series to disseminate best practice and to discuss issues in Microfinance. (Also issued in Spanish.) and problems emerging in the rapidly growing field of B3enjamin, McDonald, and Joanna Ledgerwood. 1999. "Domini- microfinance. By June 30, 1999, 35 seminars had been can Republic: ADEMI." Case Studies in Microfinance. held 'The project also organized regional dissemination Burnett, Jill, Carlos Cuevas, and Julia Paxton. 1999. "Peru-The workshops in collaboration with partners: in Thailand in Cajas Municipales de Ahorro y Credito." Case Studies in Micro- November 1997, in Zimbabwe in February 1998, in finance. Benin in May 1998, and in Peru in June 1999. These Charitonenko, Stephanie, C6cile Fruman, and Glen Pederson. regional conferences, each gathering more than 100 pol- 1999. "Kenya: KREP." Case Studies in Microfinance. icymakers and practitioners, conveyed key messages on Charitonenko, Stephanie, Richard H. Patten, and Jacob Yaron. building regulatory frameworks and institutions for micro- 1998. "Indonesia: Bank Rakyat Indonesia Unit Desa, 1970-96." finance and rural finance. In addition, the project estab- Case Studies in Microfinance. lished a Web site to disseminate case studies and other Churchill, Craig. 1998. "South Africa: Get Ahead Foundation." Case publications (www-esd.worldbank.org/html/esd/agr/sbp). Studies in Microfinance. The project's outputs have had a substantial influence Cuevas, Carlos. 1997. "Servicios financieros y desarrollo rural." In on the design and implementation of microfinance pro- CEPES, ed., AMeradorsfinanm-ieros turales en Am6rica L.alina. jects supported by the Bank, helping to ensure that they - . 1999. "Credit [Inions in Latin America: Recent I'erfor- reflect best practice. mance and Emerging Challenges." (Also issued in Spanish.) Poverly and Social Welfare 13 D)ichter,'lom. 1997. "Fgypt:'I'he Alexandria Business Association .1997. "An Inventory of Microfinance Institutions in East, Small and Microenterprise Project." Case Studies in Microfi- Central, and South Africa." nance. - 1997. "An Inventory of Microfinance Institutions in South - . 1998. "IPakistan: Aga Khan Rural Support Program, Asia." 1982-94." Case Studies in Microfinance. - . 1998. "Colombia: Women's World Banking." Case Stud- - 1998. "Philippines-TSPI." Case Studies in Microfi- ies in Microfinance. (Also issued in Spanish.) nance. . 1998. "Costa Rica: FINCA Village Banking." Case Stud- - 1999. "NGOs in Microfinance: 1Past, IPresent, and Future- ies in Microfinance. (Also issued in Spanish.) An Fssay." . 1998. "An Inventory of Microfinance Institutions in Latin Fidler, lPeter. 1998. "lBolivia: Assessing the Performance of 13anco America and the Caribbean." (Also issued in Spanish.) Solidario." Case Studies in Microfinance. (Also issued in Span- . 1998. "An Inventory of Microfinance Institutions in West- ish.) ern and West Central Africa." (Also issued in French.) Fidler, IPeter, and Mohini Malhotra. 1997. "Zimbabwe: Zambuko - . 1998. "A Worldwide Inventory of Microfinance Institu- 'I'rust." Case Studies in Microfinance. tions." (Also issued in French and Spanish.) Fruman, Cecile. 1997. "Benin: FECECAM." Case Studies in - 1999. "Balancing Outreach and Sustainability: E-vidence Microfinance. (Also issued in French.) from 12 Latin American Financial Institutions." - 1998. "Mali: Self-Managed Village Savings and Loan . 1999. "Colombia: B3anco Caja Social." Case Studies in B3anks." Case Studies in Microfinance. (Also issued in French.) Microfinance. (Also issued in Spanish.) FrIman, Cecile, and Michael Goldberg. 1997. "Microfinance Prac- Paxton, Julia, and Cecile Fruman. 1997. "Outreach and Sustain- tical Guide." ability: A Comparative Analysis of Savings-First and Credit-First Kantor, Paula, and Christine Robinson. 1997. "Financial Sustain- Financial Institutions in Africa." (Also issued in French.) ability for Credit Programs: A 'I'ravel Survival Guide." Poyo, Jeffrey, and Carlos Cuevas. 1999. "Credit tJnions in Micro- Kantor, Paula, Alicia Robb, and Christine Robinson Parajuli. 1998. finance: Current State and Prospects." Draft. "La autosuficiencia financiera: una guia basica para programas de micro-credito en America Latina." The Impact of Adult Deaths on Child Health Lapenu, Cecile. 1998. "Indonesia's Rural Financial System: 'I'he in Northwestern Tanzania Role of the State and Private Institutions." (Also issued in French.) In many Sub-Saharan African countries the AIDS Ledgerwood, Joanna. 1998. MiirrofinanteHandhook:An Instituijonal epidemic is dramatically increasing mortality among adults and k'inan,'ial Perspe&ive. Sustainable 13anking with the Poor of prime working age, with potentially severe conse- Series. Washington, D).C.: World Bank. quences for surviving family members. Most of these - 1999. "Albania: Albanian )evelopment Fund (AD)F)." Case effects have not been quantified. Using a longitudinal Studies in Microfinance. household data set from the Kagera region of Muraki, 'I'etsutaro, Leila Webster, and Jacob Yaron. 1998. "'I'hai- Tanzania-an area hit hard by the AIDS epidemic-this land: BAACI-The Thai Bank for Agriculture and Agricultural study examined the impact of the mortality of prime-age Cooperatives." Case Studies in Microfinance. adults on the morbidity, height for age, and weight for age Ouattara, Korotoumou, Mayada 13aydas, and Julia Paxton. 1998. of children under five. The data, from the Kagera Health "Niger: Credit Llnions (Caisses populaires d'epargne et de and Development Survey, were collected in 1991-94. credit)." Case Studies in Microfinance. Controlling for individual characteristics, household Paxton, Julia. 1997. "Burkina Faso: Le projet de promotion du petit assets, and community variables, the study found that credit rural-PPI'CR." Case Studies in Microfinance. orphanhood (resulting from the death of one or both - . 1997. "Guatemala: CARE Village B3anks." Case Studies parents) and recent deaths of adults in the household in Microfinance. (Also issued in Spanish.) (who may or may not have been parents) have inde- - 1997. "An Inventory of Microfinance Institutions in East pendent effects on the morbidity and height for age of Asia and the Placific." children under five. Children from the poorest house- 14 Poverty and Social Welfare holds, those whose parents are or were uneducated, and ernments play in creating poor areas and what part fac- those with the least access to health care are the most tors such as residential differentiation (whereby people severely affected. The impact of an adult death on height who lack "personal capital" end up being spatially for age is delayed (not appearing for four to six months) concentrated) play. By identifying specific policy but substantial. The study found no significant rela- interventions-or their immediate outcomes in terms tionship between adult mortality (or most other explana- of community-level attributes-the analysis assessed tory variables) and weight for height. the gains from poor-area policies and projects and While an unknown share of the excess morbidity and considered the implications for the design of future malnutrition due to adult deaths can be attributed to HIV projects. infection in the children, the study shows that three The project examined the dynamics of the geography important health interventions-measles immunization, of poverty from a microeconomic perspective in order to oral rehydration salts, and access to health care-are help understand how various governmental and non- important in mitigating the impact of adult deaths. Not governmental area-based actions, as well as other factors, only do these programs disproportionately improve health affect households' prospects of escaping poverty. The outcomes for the poorest children, among the poor they approach-a microeconometric investigation of the eco- disproportionately benefit children affected by adult nomic geography of poverty in selected countries of Asia mortality. and Latin America-entails a significant increase in the Responsibility: Development Research Group, Poverty and number of policy-relevant variables included in micro- Human Resources-Martha Ainsworth (mainsworth economic empirical models of poverty. @worldbank.org). With Innocent Semali, University of Responsibility: Development Research Group, Poverty and Dar es Salaam. The Danish Agency for Development Human Resources-Martin Ravallion (mravallion Assistance and the U.S. Agency for International Devel- @worldbank.org), Shaohua Chen, Emanuela Galasso, opment contributed funding for the Kagera Health and Jyotsna Jalan, and Quentin Wodon. Development Survey. Completion date: March 2000. Completion date: January 2000. Reports Report Galasso, Emanuela, and Martin Ravallion. 2000. "Distributional Ainsworth, Martha, and Innocent Semali. 2000. "'rhe Impact of Outcomes of a Decentralized Welfare Program." Policy Research Adult )eaths on Children's Health in NorthwesternT'anzania." Working Paper 2316. World Bank, Development Research Plolicy Research Working Paper 2266. World Bank, Develop- Group, Washington, D.C. ment Research Group, Washington, D.C. Jalan, Jyotsna, and Martin Ravallion. 1998. "Are There Dynamic Gains from a Poor-Area Development Program?" Journal of Policies for Poor Areas Public Economics 67: 65-85. - "Geographic Poverty Traps? A Micro Model of Con- Most countries have regions in which the incidence of sumption Growth in Rural China." World 13ank, Development absolute poverty is high by national standards. Govern- Research Group, Washington, D.C. ments and donors are regularly called on to do something Lanjouw, Peter, and Martin Ravallion. 1999. "Benefit Incidence about these lagging poor areas, and area-based inter- and the Timing of Program Capture." World Bank Economic ventions are now found in most countries. The World Review 13(2): 257-73. Bank has assisted more than 300 area development projects 1'radhan, Menno, and Martin Ravallion. 2000. "Measuring Poverty since the early 1950s, most designed to develop rural areas Ulsing Qualitative Perceptions of Welfare." Reviewa of Eronom- for the benefit of poor people. Other agencies also provide ics and Statiotics 82(3): 1-1(0. substantial support for such development programs. Ravallion, Martin. 1998. "Does Aggregation Hide the Harmful This project was aimed at understanding what part lack Effects of Inequality on Growth?" Economics Letters 61(1): of geographic capital and the performance of local gov- 73-77. Poverty and Social Welfare 1S - 1998. "Poor Areas." In DavidGiles and Aman UlIah,eds., implemented. And it developed a number of new IZhe H1andliook of App/liedf l conornu Sta/istic.f New York: Marcel research techniques (including an index of income mobil- Dekkar. ity, a methodology for estimating the economic cost of - 1998. "Reaching Poor Areas in a Federal System." Policy child labor, and tools for analyzing the relative welfare Research Working lPaper 1901. World B3ank, Development impact of targeting beneficiaries of social programs and Research Group, Washington, D).C. allocating program benefits among beneficiaries). - .1999. "Are Poorer Srates \Norse atTl'argeting'l'heir l)oor?" Some of the main empirical findings of the study: IEc>onomicr Letters 65: 373-77. * In Latin America and the Caribbean in 1996, one of 1 1999. "is More'l'argering Consistent with Less Spending?" every six people (16.1 percent) was extremely poor, and International'Lx and Public Finane 6: 411-19. one of three (36.7 percent) was poor. These poverty 2000. "Are the P)oor Protected from Budget Cuts? 'l'he- rates show progress since the early 1990s, but are still ory and Evidence for Argentina." Policy Research Working higher than those in the mid-1980s. Simulations for 1998 Paper 2391. World Bank, LDevelopment Research Group, Wash- suggest a small reduction in poverty since 1996. ington, D).C. * Inequality remains high, with the weighted average - . 2000. "On the Urbanization of loverty." World 13ank, of the national Gini coefficients at 0.56 in 1996. Inequal- Development Research Group, Washington, I).C. ity increased in the late 1980s, and then declined, but not Forthcoming. "On D)ecomposing Changes in Poverty into as much as poverty did. The high inequality is due in part Growth and Redistribution Components." Journal of Quantitative to the extensive self-employment and high level of LEonomis. income mobility in the region. Ravallion, Martin, and Gaurav Datt. 1999. "When Is Growth Pro- * The elasticity of poverty to growth is unitary: a I per- Ploor? Fvidence from the Diverse Ixperience of India's States." cent increase in mean per capita income results in a 1 per- Plolicy Research Working laper 2263. World Bank, Develop- cent reduction in poverty. Growth also helps improve ment Research Group, Washington, D.C. nonmonetarv indicators of welfare, such as infant mor- Ravallion, Martin, and Jyotsna Jalan. 1996. "Growth Divergence tality, life expectancy, secondary school enrollment, adult l>ue to Spatial Externalities." Ec.onomies l.etters 53(2): 227-32. illiteracy, and access to safe water. 1999. "China's Lagging Poor Areas." Ameri.an Economic * IEducation helps to increase earnings, but the effect Revier, 89(May): 301-05. is not enough to pull a household from poverty if only Ravallion, Martin, and Quentin Wodon. 1997. "B3anking on the Ploor? one member is working. The returns to education have 13ranch Pluacement and Nonfarm Rural Development in changed little over time. There is substitution between Bangladesh." P'olicy Research Working lPaper 1858. World child labor and schooling: the children working now will B3ank, I)evelopmenr Research Group, Washington, I).C. have lower future incomes and thus a higher probabil- - 1999. "Poor Areas, orJust Poor People?" Journalof Regional ity of being poor. Science 39(4): 689-711. * The high level of poverty in the region is due in part - 2000. "D)oes Child Labor D)isplace Schooling? Evidence to the adverse impact of macroeconomic shocks. Safety on Behaviora1 Responses to an Enrollment Subsidy." Ec onomic nets should be countercyclical, but there is evidence Journal llO(March): C158-76. that they are pro-cyclical, with the poor hurt during crises by cuts in spending for targeted programs. Many Poverty and Policy in Latin America existing safety nets need improvements in targeting and and the Caribbean performance. * There is evidence that the poor are socially excluded This study analyzed the evolution of poverty and inequal- and that state institutions are not sufficiently pro-poor. ity in Latin America and the Caribbean from 1986 to 1996, By contrast, promoting participation can have positive with projections to 1998. It reviewed the policies that have effects, as demonstrated by social funds. been advocated (such as in World Bank poverty assess- Findings were presented and discussed at a World ments) for reducing poverty and those that have been Bank review meeting in November 1999; at Bank sem- 16 Poverty and Social Welfare inars (Latin American and Caribbean Chief Economist lic security forces allocate their resources more effi- seminar in July 1999, Latin American and Caribbean ciently. The best crime mapping technology cannot urban upgrading workshop in September 1999, and The- ensure that accurate information will be introduced into matic Group on Inequality seminars in September and the system, however. The quality of information can be November 1999); at the Latin American and Caribbean compromised by many factors, including the technical Economic Association conference in Santiago, Chile, in abilities of those in charge of recording complaints and October 1999; and at the 12th Regional Seminar on Fis- citizens' confidence in the police forces to whom they cal Policy in January 2000, also in Chile. must report crimes. Periodic victimization surveys that Responsibility: Latin America and the Caribbean Region, include questions about the quality of police services can Poverty Sector Unit-Quentin Wodon (qwodon help improve both crime maps and the behavior of local @worldbank.org), Norman Hicks, and William Maloney, authorities. and Public Sector Unit-Robert Ayres. With Matias The project's reports have been widely disseminated Barenstein; Kihoon Lee; Pia Peeters; Corinne Siaens; and through the Web (www.worldbank.org/laccrime) and at Shlomo Yitzhaki. a Bank-sponsored international conference held in Completion dote: March 2000. Bogota, Colombia, May 4-5, 2000. An edited volume is being prepared that will include shortened versions of Report the five Latin American case studies. Wodon, Quentin, with contributions from Robert Ayres, Matias The project's reports and ideas are already affecting Barenstein, Norman Hicks, Kihoon Lee, William Maloney, Pia the Bank's policy dialogue with clients. A pilot project l'eeters, Corinne Siaens, and Shlomo Yitzhaki. 2000. Povernv and has been established in Argentina to set up crime and vio- Poliy in l.atin America and the Garibbean. World 13ank Ilechni- lence monitoring systems in four provincial locations. Dis- cal Plaper 467. Washington, D.C. cussions have been held with the government of Ecuador, and in El Salvador the case study has become the cen- (rime in Latin American Cities terpiece of the dialogue on crime and violence. Responsibility: Latin America and the Caribbean Region, Homicide rates in the typical Latin American country are Poverty Reduction and Economic Management Sector higher than in the typical country in any other region of Unit-Daniel Lederman (dlederman@worldbank.org). the world. And conversations with the poor in Latin With Norman Loayza, Central Bank of Chile; Pablo America reveal that personal security is the most impor- Fajnzylber, Federal University of Minas Gerais, Brazil; tant developmental challenge facing them. This research Funsalud (Mexican Health Foundation); Instituto attempted to identify the main causes of crime and vio- APOYO, Lima, Peru; Instituto Universitario de Opinion lence in Latin American cities. Case studies of Brazil, Publica, Universidad Centroamericana, El Salvador; Colombia, El Salvador, Mexico, and Peru based on house- Leandro Piquet Carnerio, University of Sao Paulo; and hold surveys confirm that economic conditions are impor- Centro de Investigacion sobre Salud y Violencia, Uni- tant determinants of crime in the region. These studies versidad del Valle, Cali, Colombia. show that employed, high-income, and educated men are (ompletion date: May 2000. more likely than other members of the community to be victims of violent crime. However, economics tells only Reports part of the story. Family structure, the presence of police, Cruz, Jose Miguel, Alvaro 'l'rigueros Arguello, and Francisco Gon- youth gangs, illicit drug trade, and the availability of zalez. 2000. "The Social and Economic Factors Associated weapons are also important risk factors in some countries. with Violent Crime in El Salvador." lIaper presented at the con- The case studies reveal that local authorities face a ference Crime and Violence: Causes and Policy Responses, lJni- severe obstacle: the lack of reliable information about the versidad de los Andes and World Bank, Bogota, May 4-5. magnitude and geographic distribution of crime. Accu- Eyzaguirre, Hugo, and others. 2000. "Criminal Violence Study in rate crime maps for major urban centers could help pub- the Cities of l,atin America: 'T'he Case of Peru." Paper presented Poverty and Social Welfare 17 at the conference Crime and Violence: Causes and Policy massively redistribute economic resources in their favor, Responses, [Iniversidad de los Andes and World 13ank, Bogora, which should reduce inequality. This study looked at the May 4-5. link between democracy and inequality and assessed Fajnzylber, Pablo, Daniel l,ederman, and Norman Loayza. 1998. how and through what mechanisms democracy affects Zhe Determinants of Cnime Rates in l.ain A meriai and the World: income distribution. It examined whether democratic An EmpiricalAssessment. Latin American and Caribbean Stud- countries really redistribute more income to the poor and ies Series. Washington, I).C.: World Blank. whether income distribution in these countries tends to - 1999. "Inequality and Violent Crime." World Bank, Latin be more equal. America and the Caribbean Region, Office ofthe Chief Econ- The study-which drew on data on democracy and omist, Washington, D.C. inequality from the World Bank and data on redistribu- Gaitan, Fernando, and Santiago Montenegro. 2000. "tln analisis tion and social spending from the United Nations, the critico de estudios sobre la violencia en Colombia." Paper pre- World Bank, and the Luxembourg Income Study- sented at the conference Crime and Violence: Causes and Pol- comprised two parts. The first part consisted of a cross- icy Responses, tJniversidad de los Andes and World 13ank, country (panel data) analysis covering more than 100 Bogota, May 4-5. countries over the period 1960-95. This research used Lederman, Daniel, Ana Maria Menendez, and Norman Loayza. new indicators of democratization (the database of polit- 1999. "Violent Crime: loes Social Capital Matter?" World ical institutions developed at the World Bank), the level Bank, Latin America and the Caribbean Region, Office of the of redistribution, the degree of inequality, and the dom- Chief Economist, Washington, D.C. inant ideology or religion. It examined whether democ- Piquet, Leandro. 2000. "Pesquisa de vitimiza,ao regiao metro- ratization is linked to greater equality, hypothesizing politana de Sao IPaulo." Paper presented at the conference that the effect is influenced by the dominant ideology Crime and Violence: Causes and Policy Responses, [Jniversi- or religion. That is, countries with the same level of dad de los Andes and World Bank, Bogota, May 4-5. democracy and all other variables may end up with dif- Shrader, Elizabeth. 2000. "Methodologies to Measure the Gender ferent levels of inequality depending on the prevalent D)imensions of Crime and Violence." Plaper presented at the social preference for inequality (as expressed by the conference Crime and Violence: Causes and Policy Responses, dominant ideology or religion). lUniversidad de los Andes and World Bank, Bogota, May 4-5. The second part of the study tested the median voter VWlez, Luis Fernando, Victoria Eugenia Fspitia, Harold Banguero, hypothesis. lt used, for the first time, the correct Fabian Mendez, Edgar Munoz, William Rotawinsky, Gildardo specification-that is, it compared the income gain of the Van6gas, and Rafael Espinorza. Z000. "Victimization in Colom- lowest decile (or quintile or bottom 50 percent of the pop- bia: IThe City of Cali-An Exploratory Analysis." Paper pre- ulation) in each country when individuals are ranked by sented at the conference Crime and Violence: Causes and their market (factor) income. The assumption was that Policy Responses, UIniversidad de los Andes and World Bank, individuals base the decision on how much to redistrib- Bogota, May 4-5. ute on their market income. Lack of data on the distri- Zurita, Beatriz. 2000. "Trends and Empirical Causes of Violent bution of market, gross, and disposable income had Crime in Mexico." Paper presented at the conference Crime prevented use of this specification before. Results for 19 and Violence: Causes and Policy Responses, UIniversidad de los advanced democracies for the 1980s and 1990s show Andes and World 13ank, 13ogota, May 4-5. that countries whose market income was more unequally distributed did redistribute more. The bottom segment Democracy, Redistribution, and Inequality of the population (ranked by market income) ended up with the same share of disposable income-regardless of Current thinking about the relation between the distri- its initial position. The median voter hypothesis thus bution of political power and the distribution of eco- seems to find strong support in this research. nomic resources has invariably led to the conclusion that Responsibility: Development Research Group, Poverty and when the poor acquire political power, they use it to Human Resources-Branko Milanovic (bmilanovic 18 Poverly and Sotiol Welfare @worldbank.org). With Mark Gradstein, University of by their families, as families break down, women may be Pennsylvania and Ben Gurion University, Beersheva, in trouble because they tend to outlive their spouses and Israel; and Yvonne Ying, Oxford University. to lack labor market experience and pensions of their own. (ompletion date: June 2000. If the family system changes faster than women's labor market participation, this may become a social problem. Reports Even under the extended family system older men gen- Gradstein, MNark, and 13ranko Milanovic. 2000. "Does Libert6 = erally bring monetary assets and add to their family's mean Egalite? A Survey of the Empirical Evidence on the Links per capita consumption, while older women lead to a between Political Democracy and Income Inequality." Center decline in per capita consumption. This suggests that for Economic Studies Working Paper 261. U niversity ofMunich. older men's bargaining power within the household and Gradstein, Mark, Branko Milanovic, and Yvonne Ying. 2000. their ability to consume may exceed that of older women, "Democracy, Ideology, and Inequality." World l3ank, Devel- but this may be beyond the capability of household sur- opment Research Group, Washington, D.C. veys to observe. Milanovic, 13ranko. 1999. "Do More UJnequal Countries Redis- Another important finding is that different categories tribute More? Does the Median Voter Hypothesis Hold?" Pol- of women fare differently when social security is icy Research Working Paper 2264. World Bank, Development reformed. This heterogeneity makes it as important to Research Group, Washington, D.C. (Also forthcoming in Euro- compare across different categories of women as it is to pean Journal of Polilizarl Economy.) compare men and women as two aggregate groups. For example, systems that tie benefits closely to contributions Gender, Old Age, and Social Security: will give large payoffs to women in the labor market, while Evidence from Chile and Argentina women who work at home may fare better under systems without such close ties. These payoffs obviously have This research project analyzed the relative living con- equity implications, but they also constitute rewards for ditions of older men and women and the impact of alter- certain behaviors and thus have output and efficiency native social security arrangements on their income and implications as well. So countries need to think about consumption. Since women live longer than men, the very which set of behaviors they wish to encourage when old are disproportionately women-who often do not designing a social security system. have assets, labor market experience, or pensions of Once all three country papers are completed, a cross- their own. country paper comparing the results and generalizing the The research used econometric analysis of house- conclusions will be produced. The full set of papers, hold and employment survey data to estimate the labor together with the cross-cutting analysis, will be distrib- market experience and age-earnings profiles of men and uted as a volume of working papers and disseminated women with different levels of education. This required broadly through seminars and conferences. the development of synthetic employment histories of Responsibility: Development Research Group, Poverty men and women, by education level, which were used and Human Resources-Estelle James (ejames3 to simulate how they will fare under different defined @worldbank.org); and Latin America and the Caribbean benefit formulas and under defined benefit compared Region, Gender Sector Unit-Maria Correia. With Ale- with defined contribution plans. The project focused on jandra Cox-Edwards, California State University; Rebeca Argentina and Chile, but compared results with Mexico. Wong, Georgetown University; and Susan Parker, Pro- The objective was to develop recommendations for gresa, Mexico. second-generation pension reforms that will treat both (ompletion date: June 2000. men and women fairly and have beneficial effects on the broader economy. Reports An immediate finding is that while under extended Cox-Edwards, Alejandra. "Pension Projections for Chilean Men family systems older women live with and are supported and Women: Estimates from Social Security Contributions." Poverty and Social Welfare 19 P'arker, Susan, and Rebeca Wong. "Welfare of rhe Elderly in Mex- Reporis ico: A Comparative iPerspectivc." Chernichovsky, Dov, and Sara Markowitz. "T'he Aging of the Israeli Population: Implications for the Health Care System." The Impact of Population Aging Draft. on Health Care Systems Sapelli, Claudio. "Chile: Effects of Old Age on Health Services tlti- lization and Consequences for System D)esign." Draft. This research project analyzed the relationship between Wong, Rebeca. "Health, tltilization of Health Care, and Aging in population aging and health care systems, with particu- Mexico." Draft. lar reference to five countries-Brazil, Chile, Israel, Mexico, and Vietnam. Not surprising, the country stud- Inequality in Malaysia ies found that age is an important determinant of indi- viduals' use of health care services except in the poorest Income distribution in Malaysia exhibited major changes country examined, Vietnam. The study of Brazil showed between 1973 and 1995. Real average per capita income that 30 percent of hospitalizations in public facilities are increased 2.5 times, the absolute poverty rate fell from for people over age 60, putting heavy pressure on both more than 50 percent of the population to less than 8 per- family and public resources. In Chile age strongly influ- cent, and income inequality decreased. This record has erices insurance choice as well as utilization, since pub- caused Malaysia to be cited as a successful case of growth lic insurance subsidizes groups with high expected with redistribution. expenditures, while private insurance does not. The During this 22-year period income inequality first Israeli study showed behavioral differences between old declined (1973-89) and then rose (1989-95). Because the and young with regard to interaction effects of income changes in inequality in both periods were modest rel- and education. The study of Mexico underscored the ative to the magnitude of economic growth, poverty in impact of insurance, which covers different age groups Malaysia fell dramatically and continuously throughout differently (adults of prime working age and their fam- the entire period. ilies are more likely to be covered by social security This project used the large, nationally representative facilities than are others). Household Income Surveys from 1984,1989, and 1997 to A major product of this exploratory study is a carefully study two topics. The first part of the research investigated conceived proposal for a much larger research project, one how important different factors were in accounting for the that would use household-level data to estimate age- changes in income inequality between 1984 and 1989 utilization profiles and determine how these profiles are and between 1989 and 1995. These two periods were influenced by socioeconomic variables and health insur- chosen because they are about the same length, because ance systems that differ across countries and time. This income inequality fell in the first period and rose in the approach would allow analysis of the impact on health second by almost equal amounts, and because Malaysia care systems of simultaneous demographic and eco- adopted a national development policy beginning in 1991. nomic change. Past research has found a number of factors to be Papers on Brazil and Vietnam are in progress. important determinants of inequality in Malaysia- Responsibility: Development Research Group, Poverty among them, ethnicity, the demographic composition of and Human Resources-Estelle James (ejames3 the household, education and occupation of the house- @worldbank.org). With Len Nichols, UJrban Institute; hold head, the sector of employment, and the region of Denisard de Oliveira Alves, Sao Paulo University; Dov the country and state. Factors examined in this study Chernichovsky, Ben Gurion University of the Negev; include changes in households' demographic character- Rebeca Wong, Georgetown University; and Claudio istics and productive assets, individuals' labor force par- Sapelli. The Pan-American Health Organization partic- ticipation and labor hours decisions, and the structure of ipated in the research. returns to various characteristics in wage employment and (ompletion dote: June 2000. self-employment. 20 Poverty and Social Welfare The second part of the research studied changes in income are smaller when fixed effects estimates, which inequality of earnings, the determinants of earnings, and hold infrastructure constant, are used. But in the long run how earnings were influenced by the changes in supply income growth should lead to improved infrastructure and and demand for different types of labor over the 1984-97 an income response half again as large as the short-run period. Between 1984 and 1997 real per capita GDP response measured in the cross-country estimates. With increased about 70 percent in Malaysia, and real wages per capita income growth of 5 percent, malnutrition rates of manufacturing workers rose 30 percent. These may drop by a third by 2020. increases were accompanied by changes that look almost These estimates suggest that the goal of halving child like a stylized picture of rapid development. Labor force malnutrition in the first two decades of this century-a participation rates for both men and women increased for goal set by the 1990 World Summit for Children and the all age groups, the average number of years of schooling 1996 World Food Summit-is unlikely to be met through rose from 8.0 to 9.2 years, and the share of wage work- income growth. Thus a combination of income growth ers in the working-age population increased. Growth and nutrition programs will be needed. seems to have been fueled principally by increased labor The study's results were presented at the annual force participation, longer working hours, and improved meetings of the United Nations Administrative Com- education. The study looked at the interaction between mittee on Coordination, Subcommittee on Nutrition, in labor demand and labor supply, estimated the rate of April 2000. They are also discussed in a World Bank return to education, and examined gender and ethnic source book on poverty reduction strategy papers and in earning biases. an International Food Policy Research Institute policy Responsibility: Development Research Group, Poverty and briefing. Human Resources-Branko Milanovic (bmilanovic Responsibility: Development Research Group, Rural Devel- @worldbank.org) and Milos Jovicic. With Gary Fields, opment-Harold Alderman (halderman@worldbank.org). Cornell University; and Sergei Soares, Instituto de With Lawrence Haddad and Yisehac Yohannes, Inter- Pesquisa e Planejamento Econ6mico, Rio de Janeiro. national Food Policy Research Institute; Simon Apple- Completion date: June 2000. ton, University of Bath; and Lina Song, University of Nottingham. Reports (omplelion date: June 2000. Fields, Gary, and Sergei Soares. 2(N00. "'I'he Macroeconomics of Changing Income l)istribution in Malaysia." Report Milanovic, l3ranko. 20(X0. "Inequality and Determinants of Earn- Alderman, Harold, Simon Appleton, Lawrence Haddad, Lina ings in Malaysia, 1984-97." World Bank, D)evelopment Research Song, and Yisehac Yohannes. 2000. "Reducing Child Malnu- Group, Washington, D.C. trition: How Far Does Income Growth 'Iake UJs?" World Bank, Development Research Group, Washington, D.C. [www. Links between Income Growth and Malnutrition worldbank.org/foodpolicy]. How rapidly will child malnutrition respond to GNP The Impact of the Financial Crisis growth? This study explored that question using data on the Farm Sector in Thailand from Living Standards Measurement Study surveys in 12 countries as well as panel data from the World Health This study identified and measured the short- and long- Organization on malnutrition rates since the 1970s for 63 term impacts of the shocks from the recent financial cri- countries. sis on the well-being of rural households in Thailand. It The two analyses yielded similar results. The same developed reliable information on crisis-induced changes rates of increase in income at the household level and in agricultural employment, rural credit, rural infra- nationally imply similar rates of reduction in malnutri- structure, agricultural land use patterns, farm invest- tion. Both approaches indicated that the responses to ment, output, and consumption. It also identified and Poverly and Social Welfare 21 measured the impacts of the different crisis-induced The results were presented at a seminar held in shocks on farm household behavior and well-being in Bangkok June 22, 2000, attended by the minister, senior order to design effective interventions to mitigate the officials, and staff of the Ministry of Agriculture and adverse social impacts of the crisis. Finally, it aimed to Cooperatives, as well as representatives of the World build a national consensus on short- and medium-term Bank, the Mekong Environment and Resources Institute, measures to restore equitable and sustainable rural Asia-Europe Meeting (ASEM) affiliates, other donors, growth. local nongovernmental organizations and universities, Two data sources were used: a detailed, nationwide, and other elements of civil society. Some preliminary farm household survey conducted by the Ministry of results of this work were shared with the World Bank res- Agriculture and Cooperatives in 1996, a year before the ident mission in Thailand for use in preparing a poverty onset of the crisis, and a follow-up survey of a large sub- strategy note. All survey data from this research will be sample of the same households, conducted with the publicly released. assistance of a ministry research team. These panel data Conducted in response to a request from the gov- were used to analyze how different shock indicators are ernment of Thailand, this study provided essential agro- related to changes in household input expenditures, economic information to help the Thai government, the land use, investment, output, and consumption. The World Bank, and elements of civil society formulate a distribution of these crisis impacts across poor and non- more effective and equitable program to respond to lin- poor rural households was also examined. gering effects of the crisis and ensure sustainable rural The main findings of the study are as follows: development in the medium to long term. These con- * There is little sign of massive urban to rural migra- cerns lie at the heart of the country assistance strategy tion, although there appears to have been a slowdown in approved by the Bank's Board in June 1998. rural emigration. Responsibility: Development Research Group, Rural Devel- * Although net remittances declined for all but the opment-Gershon Feder (gfeder@worldbank.org), Jaime richest households, the poor are less reliant on remittances Quizon, and Hanan Jacoby. With Tongroj Onchan, than the rich. However, overall off-farm income (includ- Charles Mehl, and Anthony Zola, Mekong Environment ing remittances) declined for the poor, but not for the rich. and Resources Institute, Thailand; and Fabrizio Bresciani, * The central region performed much better in terms University of Maryland. The ASEM Trust Fund con- of consumption and income than the northeast or the tributed funding for the research. north, which was particularly hard hit. (ompletion date: August 2000. * The poor have borne the brunt of the crisis, with their expenditures and income (farm and off-farm) falling, Technology and Poverty Alleviation both in real terms and relative to those of the rich. These findings are consistent with the fact that the poor derive This project assesses the relative magnitudes of direct most of their income from the labor market (which per- and indirect reductions in poverty as a result of post-green formed badly) rather than from farming (which generally revolution technological change. It also assesses the performed well), while richer farmers derive most of potential contributions of recent advances in biotech- their income from farming. nology for reducing poverty in the future. * No evidence of a credit crunch was found: out- The relative importance of direct effects (income or standing loans did not decline substantially. consumption of adopting households) and indirect effects The key policy conclusion is that interventions that (food price, wage, employment, and sectoral linkages) is influence farmgate prices or enhance the availability of assessed by estimating computable general equilibrium credit will probably have limited impact on the poor. By models for archetypal poor countries in Asia and Sub- contrast, well-targeted social programs designed to fill Saharan Africa. These models characterize sources of gaps in the safety net will do more to alleviate rural income to identify the real income effects of technolog- poverty. ical advances, distinguishing the effects that come through 22 Poverty and Social Welfare a decline in food prices from those that come through an to other producers and other countries. The institutional improvement in farm income. requirements for turning this potential into a reality are The potential of biotechnology to alleviate poverty is highly demanding, however. The critical factor deter- assessed by identifying the main features of agricultural mining failure or success will be not progress in the bio- biotechnology research that can have direct and indirect logical sciences but the ability to put in place the effects on poverty (which crops, which traits, and for necessary institutions for the generation, transfer, deliv- which environments); analyzing the patterns of genera- ery, and adoption of biotechnological innovations that can tion and ownership of Bacillus thuringiensis (Bt) patents; reduce poverty. and developing a simulation model of the determinants Results of the study were presented at a workshop of adoption of Bt seeds by small landholders to assess organized by the World Bank in Malaysia May 10-12, which households are best placed to adopt the technol- 1999; at the Bank's Summer Research Workshop on ogy and which are likely to be excluded from using it. poverty in Washington, D.C., July 6-8, 1999; and at a con- In addition, a household survey was administered in the ference, The Shape of the Coming Agricultural Biotech- northern highlands of Peru to assess the direct impacts nology Transformation: Strategic Investment and Policy of modern potato varieties on poverty. Data from the sur- Approaches from an Economic Perspective, at the Uni- vey are being used to analyze the determinants of adop- versity of Rome, June 17-19, 1999. The initial findings tion and diffusion of new potato varieties by households were used as inputs in the preparation of the World and measure the impact of technology adoption on house- Bank's World Development Report 2000/2001: Attacking hold income and consumption. Poverty (New York: Oxford University Press, 2000). The The relative importance of direct and indirect effects research results will also inform the ongoing effort by the varies widely with the structure of the economy and the World Bank's Biotechnology Task Force to define guid- incidence of poverty. In a typical African context, where ing principles, strategies, and priorities that support the agricultural sector is large and the bulk of the poor capacity building in agricultural biotechnology to enhance are smallholders, direct effects are very important. Tar- its impact on poverty alleviation. geting technological change toward poor farmers is thus Responsibility: Development Research Group, Rural Devel- essential to reduce aggregate poverty. In contrast, in opment-Rinku Murgai (rmurgai@worldbank.org) and Asia, where most of the poor are rural landless, income Gershon Feder. With Oscar Ortiz and Rebecca Nelson, gains for the rural poor derive mainly from indirect effects International Potato Center, Peru; Alain de Janvry and captured by the labor market. Targeting technological Erin McCormick, University of California at Berkeley; change toward employment creation is thus critical for and Paul Winters, University of New England, Armidale, reducing poverty. In Latin America, where poverty is Australia. largely urban and land is concentrated in the hands of (ompletion date: September 2000. large farmers, the rural poor derive most of their real income gains through indirect effects, captured mainly The Derivation of World Income Distribution through falling food prices. In this case the main role of in 1988-93 Based on Household Survey Data technological change is to lower the price of food, which may occur in the fields of large farmers. Interest in income inequality has been growing for Agricultural biotechnology has great promise for reduc- the past decade. Until recently, however, it was not pos- ing poverty, through both direct and indirect effects. It sible to derive a world income distribution, because also has the flexibility to strike different balances between detailed household income or expenditure data were the two sets of effects to reduce aggregate poverty based not available for much of the world's population. This has on country characteristics. Failing to capture the poten- changed during the past decade as data on transition tial of agricultural biotechnology would represent an economies have become more readily available and important missed opportunity, and it could cause small- household surveys have been developed in many African holders in developing countries to be weakened relative countries. Poverly and Social Welfore 23 This study uses recently collected national data from ernmental and other agencies could improve the coping more than 200 surveys-covering more than 90 percent mechanisms of the poor. To do so, this project created oftheworld'spopulationand95percentofworldGDP- a survey that collected detailed information at the to generate a world income distribution. The results household and village level on the extent of flood reveal a high level of inequality and an increase in the damage, coping mechanisms available to and adopted by level between 1988 and 1993, the two years examined. households, and the speed of recovery. The survey- (The choice of years was determined by the availability which included detailed questions on assets before of purchasing power parity data from the two most recent and after the flood as well as information on distress rounds of the International Comparison Program.) The sales of assets, credit market activity, intrahousehold world Gini coefficient increased from 62 to 66 over the transfers, and temporary and permanent migration- period. The increase in inequality was driven by rising was administered as part of the household survey con- intercountrv differences, particularly by increasing dif- ducted under the research project Long-Term Impacts ferences in income between the populous rural areas of of Microcredit Programs: A Study of the Grameen Bank Bangladesh, China, and India and the rich OECD coun- and Other Programs in Bangladesh (see the abstract in tries. Rising rural-urban disparities in China also con- this volume). tributed significantly to world inequality. The study Major issues examined by the study include the decomposes world inequality into intracountry and inter- following: country differences in mean income and simulates *What effect did the flood have on household assets, changes in world inequality under different income and labor supply, migration, distress sales of assets, and labor? population growth scenarios. * What kind of assistance did households in flood- Responsibility: Development Research Group, Poverty and affected areas receive from the government, from non- Human Resources-Branko Milanovic (bmilanovic governmental organizations, and from other sources, ?worldbank.org) and Costas Krouskas. including family transfers from abroad and other places? Completion dale: December 2000. * How did the flood affect consumption, prices, invest- ment, transfers, and productive activity in areas not Reports directly affected by the flood? \lilanovic, 13ranko. 1999. "True \Vorld Income Distribution, * To what extent did the interventions of the gov- 1988 and 1993: First Calculations, Ilased on Household ernment and of nongovernmental organizations substi- Surveys Alone." Policy Research Working Plaper 2244. tute for informal coping mechanisms? What sorts of World 13ank, I)evelopment Research Group, Washington, D.C. interventions were most effective? 20(0). "How Great Is World Inequality?" WIDER Angle * How important has the income diversification fos- (l nited Nations llniversity, Helsinki). tered by nongovernmental organizations and micro- credit institutions been in smoothing consumption of the How Do the Poor Cope with a Widespread poor both before and after the flood? Natural Disaster? A Study of the 1998 The data have been entered and are being cleaned. Flood of Rural Bangladesh Analysis will begin once clean data are available. Responsibility: World Bank Institute, Economic Policy and Large shocks such as floods, cyclones, and earthquakes Poverty Reduction Division, and Development Research have dramatic effects on the well-being of rural house- Group, Rural Development-Shahidur R. Khandker holds, particularly poor households. Bangladesh wit- (skhandker@worldbank.org); and Development Research nessed one of the worst floods of the 20th century in 1998. Group, Rural Development-Hussain Samad. With Two-thirds of the country remained under water for Mark Pitt, Brown University; and M. Abdul Latif and more than four months, causing severe human suffering. Binayak Sen, Bangladesh Institute of Development The flood provided a unique opportunity to study how Studies. the poor respond to a catastrophic event and how gov- Completion dote: December 2000. 24 Poverty and Social Welfare Long-Term Impacts of Microcredit Programs: rediuction is possible with microcredit. By quantifying the A Study of the Grameen Bank and Other effect of the group, the study is expected to help in Programs in Bangladesh understanding the necessity of the group mechanism in microcredit. And by quantifying the noncredit effects of Providing affordable credit to the poor and improving microcredit programs, the study should shed light on institutions that deliver such credit have long been the importance of providing noncredit inputs through important objectives of World Bank operations. Recent these programs. experience with microcredit programs shows that with Responsibility: World Bank Institute, Economic Policy and proper incentives and monitoring, loan defaults can be Poverty Reduction Division, and Development Research kept to a minimum and affordable credit can be deliv- Group, Rural Development-Shahidur R. Khandker ered to the poor and to women, even if they lack phys- (skhandker@worldbank.org); and Development Research ical collateral. Group, Rural Development-Hussain Samad and Ger- An earlier study based on a household ancl commu- shon Feder. With Mark Pitt, Brown University; and nity survey in Bangladesh in 1991-92 found that micro- Binayak Sen and M. Abdul Latif, Bangladesh Institute credit programs have a substantial effect in reducing of Development Studies. poverty and that credit given to women has a substan- Completion date: December 2000. tially larger effect than credit given to men. But how sus- tainable are microcredit programs, and how sustainable Poverty and the International Economy: are their benefits? Building on the findings of the ear- What Are the Links? Iier study, this project explores these and related issues by resurveying the households and communities sur- This research investigates the effects of increased eco- veyed in 1991-92. nomic openness on the welfare of very poor people by The study addresses the following questions: Do the analyzing the implications for the prices of goods and labor estimated effects of microcredit programs remain over and then assessing the implications of these price changes time? Are there diseconomies of scale in villages as for the welfare of poor households. It explores this issue microcredit programs expand over time? Do microcredit with a particular focus on Indonesia and South Africa. The programs have any spillover effects? Do they have non- Indonesian study investigates how the price changes credit effects? Does the group play an essential role in that occurred during the East Asian financial crisis group-based microcredit? affected the very poor, and the South African study looks The survey will try to revisit all 1,798 households at how the price changes that might come about as trade surveyed earlier in 72 program villages and 15 control vil- is liberalized will affect groups defined by race and lages. A few new control villages may have to be added income. to the survey if programs have moved into some of the Both the Indonesian and the South African studies use original control villages. A few more villages will be detailed household survey data. The Indonesian study added to the original program villages to allow compar- matches the household data with very recent (1997-98) ison between program impacts in old and new program and disaggregated price data organized by province. The villages. And in each program village a few new partici- South African data come from detailed household income pants will be interviewed to allow a comparison of impacts and expenditure surveys and the 1996 census. The between old and new participants. Indonesian study relies principally on nonparametric The study is expected to contribute to the under- and descriptive econometric methods, while the South standing of the role of microcredit in poverty reduction, African study uses a more traditional demand analysis and human capital development, economic growth, and thus nonparametric methods. the overall development process. Knowledge about the Findings for Indonesia show that the very poor are not long-term effects of microcredit on income and other wel- so poor as to be essentially insulated from the economic fare indicators will help in analyzing how much poverty shocks of the financial crisis. The very poor-especially Poverty and Social Welfare 25 those in urban areas-were severely affected by the A New Approach to Valuing Mortality Risk price changes that resulted. The findings also highlight Reductions: What Are Older People Willing the mutingeffect of self-production by the rural poor and to Pay to Reduce Their Risk of Dying? the substantial geographic variation in the impact of the crisis. The results provide guidance on where aid might In most industrial countries the mortality benefits of be targeted in Indonesia (both by region and by income environmental programs accrue primarily to older peo- qlkss) to mitigate the impact of the crisis on the very poor. ple. In the case of air pollution controls the age distrib- The South African study shows that different racial ution of statistical lives saved parallels the age distribution groups have very simnilar demand parameters, although con- of deaths, implying that 75 percent of people saved are sumption baskets differ. Initial results suggest that price over 65 years old. Yet the most common method of valu- and tax reforms will induce similar demand responses ing these risk reductions is to use compensating wage dif- across different racial groups. As trade liberalization results ferentials from the labor market. become available, they will allow better estimates of who To remedy this difficulty, this study has developed a will most suffer and who will most benefit from South survey that asks people ages 40-75 what they would pay Africa's continued integration into the global economy. to reduce their risk of dying. Specifically, it asks respon- Using recent census data, the project also investigates dents what they would pay for a drug (not covered by who is working and where, by occupation and industry. health insurance) that, if taken for the next 10 years, The project has added a study of Mexico, taking would reduce their chances of dying over this period by advantage of newly available household data with rela- a stated amount. This question is preceded by exercises tively good information on household income generation to familiarize respondents with the concept of risk of as well as the living costs typically emphasized in house- dying and with their own baseline risk of dying over the hold surveys. next 10 years. Also preceding it is a section discussing To place the results of these studies in perspective and measures that people ages 40-75 commonly undertake to provide guidance for both policy formulation and future prolong their lives (such as cancer screening tests and drug research, a conference will held in October 2000. Lessons therapy for high blood pressure or high cholesterol) and the from the research will be summarized in a paper. quantitative risk reductions that such measures provide. Responsibility: Development Research Group, Trade-Will Pretests of the survey have been conducted in the Martin (wmartinl@worldbank.org), Alessandro Nicita, United States, and the survey has been administered to Isidro Soloaga, and David Tarr, Public Economics- 930 people in Canada and 600 people in Japan. In late Shantayanan Devarajan, and Poverty and Human 2000 the survey will be administered to a random sam- Resources-Martin Ravallion and Dominique van der ple of 1,200 people in the United States and to 900 peo- Mensbrugghe. With Steven Berry, Yale University; Anne ple in Prince George's County, Maryland. Case, Princeton University; and James Levinsohn, Wei Results from the Canadian survey imply values for a Fan, Jed Friedman, Anderson Ichwan, and Edwin Pranad- statistical life of between $800,000 and $2.5 million (U.S. jaja, University of Michigan. The Swedish International dollars), lower than the values currently used by either Development Cooperation Agency and the Swedish Health Canada or the U.S. Environmental Protection Ministry of Foreign Affairs are contributing funding for Agency. The reason for these lower estimates is not, the research. however, the age of the respondents. The study has Completion date: December 2000. found that the willingness to pay to avoid the risk of death eventually falls with age, but this effect is modest: at age Report 70 it is 65 percent of the peak willingness to pay, which Levinsohn, James, Steven 13erry, and Jed Friedman. 1999. "Impacts occurs at age 54. The lower willingness-to-pay value is of the Indonesian Economic Crisis: Price Changes and the consistent with the results of other stated preference IPoor." NBER Working Paper 7194. National Bureau of Eco- surveys, which tend to produce values for a statistical life nomic Research, Cambridge, Mass. lower than those in revealed preference studies. 26 povermy and Soial Weliore Interestingly, a chronic health condition has no impact the effect of early child stimulation and coaching on the on willingness tO pay. But a respondent's mental health age of school enrollment and on indicators of cognitive score (based on a standardized health questionnaire) is development. They also relate indicators of early cog- a significant correlate of willingness to pay: other things nitive development to early primary school grade pro- equal, people with higher mental health scores are will- gression and performance. The research also assesses the ing to pay more to increase their life expectancy. suitability of measures of cognitive development and Responsibility: Development Research Group, Infrastruc- achievement for project evaluation. ture and Environment-Maureen L. Cropper (Imcropper The case studies include both home-based (center- @worldbank.org). With Anna Alberini, University of Col- based) and parental education approaches to child stim- orado, Boulder; Ronald Goeree and Bernard O'Brien, ulation. Moreover, because Bolivia is considering the McMaster University, Ottawa; Alan Krupnick, Resources sustainability of its day care program, which operates in for the Future, Washington, D.C.; and Nathalie Simon, the homes of service providers but functions as a center- U.S. Environmental Protection Agency. Funding for this based program, that case study compares the cost- project has come in part from a grant by the National Sci- effectiveness of that approach with the cost-effectiveness ence Foundation and U.S. Environmental Protection of new, indirect approaches that will be implemented on Agency to Resources for the Future; Health Canada a pilot basis. funded the administration of the Canadian survey. Bolivia has operated an early child development pro- Completion date: January 2001. gram (Proyecto Integral de Desarrollo Infantil) with World Bank support since 1993. The program aims to Evaluation of the Impact of Investments improve children's health and cognitive development by in Early Child Development on Nutrition providing day care in centers located in the homes of and Cognitive Development women living in the target areas. These women have been given training in child care as well as a combination of Early child development projects account for a rapidly grants and loans (up to $500) to upgrade the facilities in growing share of World Bank lending. These programs their homes. The full-day program provides food combine nutrition, health care, and cognitive develop- intended to supply 70 percent of a child's nutritional ment to offset the disadvantages of growing up in poverty. needs. In addition, the centers monitor the children's Substantial evidence shows that poor health and an inad- health and nutrition and provide programs to stimulate equate early learning environment lead to handicaps their social and intellectual development. Each center difficult to reverse later in life. Many children may never has up to 15 children and two or three staff. About 15,000 go to primary school without interventions that reach children are enrolled. them in their early years. If they do attend primary A recent evaluation shows an unambiguous improve- school, they may be at high risk of dropping out early or ment in the cognitive development of program partici- repeating grades. That lowers the return to both public pants relative to the control groups. Because the program and private schooling. So early child development pro- selected children of low height, those who have been in grams may both increase the efficiency of a range of the program a short time are smaller than their counter- other investments in human capital and promote equity parts. But as the length of time in the program increases, in the population they serve. the gap diminishes. The program appears to be partic- Through early coordination with Bank operations, ularly effective in preventing severe malnutrition. this research is evaluating the impact of investments in While the program is expensive-costing more than early child development in three projects: the Bolivian $40 a child a month, including donated food-the analy- Integrated Child Development Project, the Uganda sis found that the benefits exceeded costs by up to 70 Nutrition and Early Child Development Project, and the percent. These benefits include the expected increase Philippine Early Childhood Development National in earnings directly due to higher cognitive develop- Investment Program. All three case studies investigate ment and greater physical stature, and the indirect impact Poverty and Sociol Welfare 27 on years of schooling mediated by improved health and The Impact of Prices, Taxes, Subsidies, learning capacity. Finally, the program appears to be and Stipends on Poverty well targeted to the poorest households in the selected communities. Policies affecting the prices of goods have important The Uganda case study will evaluate separately the effects on the poor. There are many such policies, imple- impact of deworming on children under the age of six. mented through such instruments as import tariffs; sales While deworming programs worldwide are targeted to and other indirect taxes; price subsidies for, say, food, school-age children, for whom worm loads are highest, energy, or transport; and stipends, for example, for increas- work in progress in Lucknow, India, shows the potential ing retention rates in schools. for dramatic increases in weight for younger children The tools available for evaluating the poverty impact following a mass deworming campaign. As no compara- of changes in such policies have limits. They rely on par- ble evaluation has been undertaken for this age group in ticular measures of poverty (such as those of the Foster- other countries or for other indicators, the Uganda exper- Greer-Thorbecke class), particular poverty lines, and iment will be particularly informative. particular indicators of well-being (such as per capita The deworming pilot in Uganda will follow a standard income) without taking into account differences in need experimental methodology in which there will be a ran- (as measured, for example, through alternative equiva- dom assignment of treatment and control communities. lence scales). That is, the tools do not provide tests for Both the treatment and the control groups will be cho- the robustness of the analysis-and thus the policy sen from communities deemed especially at risk based conclusions-to alternative value judgments relating to on results of a survey of parasites undertaken as part of the poverty measure, indicator of well-being, and poverty the project in 1998. But this project, like the other two, line. With different assumptions and methodologies, the includes components that are demand-driven (with com- ranking of alternative pricing policies might be reversed. munities selecting the programs they will support). So Without tests for robustness, an analyst suggesting pol- longitudinal data and community fixed effects will be icy changes to benefit the poor might end up proposing used to address selection bias. The baseline data have a regressive policy. been collected, and the child health days and other ser- The goal of this research project is to provide new ana- vices will be launched in September 2000. lytical tools that can contribute to the design of robust Implementation of the Philippine project has been policies relating to prices, taxes, subsidies, stipends, and delayed. However, the collection of baseline data is related instruments. These new tools will be developed under way, and service delivery is expected to begin by theoretically and applied empirically to household-level the end of 2000. data for several Latin American countries. Responsibility: Rural Development Department-Harold Responsibility: Latin America and the Caribbean Region, Alderman (halderman@worldbank.org); and Develop- Poverty Sector Unit-Quentin Wodon (qwodon ment Research Group, Poverty and Human Resources- @worldbank.org). With Jean-Yves Duclos, Universite Elizabeth King. With Jere Behrman, Yingmei Cheng, and Laval, Quebec; and Paul Makdissi, Vrije Universiteit, Petra Todd, University of Pennsylvania; Patrice Engle, Amsterdam. California Polytechnic State University; Donald Bundy, (ompletion date: March 2001. Oxford University; and N. B. Kabatereine, Vector Con- trol Division, Uganda. A New Analytical Framework (ompletion date: March 2001. for Evaluating Social Programs Report World Bank staff are constantly confronted with the dif- 13ehrman, Jere, Yingmei (heng, and Petra 'lbdd. "'I'he Impact of ficult problem of evaluating social programs and policies. the Bolivian Integrated '111)1' Preschool Program." UIniversity This research is developing a new analytical framework of l'ennsvlvania, Philadelphia. for performing such evaluations. The framework takes 28 Poverty and Social Welfare into account not only flexible distributional weights Responsibility: Latin America and the Caribbean Region, for translating individual welfare gains into aggregate Poverty Sector Unit-Quentin Wodon (qwodon social gains but also the targeting performance of @worldbank.org). With Shlomo Yitzhaki, Hebrew Uni- programs and the allocation of benefits among program versity, Jerusalem. participants. (ompletion date: March 2001. The use of distributional weights is rarely made explicit in Bank work or in the broader literature, in part Africa Nutrition Database Initiative because the implications for policy may be disturbing. Yet the fact that policy reforms are evaluated using Lack of access to good-quality nutrition information for poverty measures implies that such distributional weights Africa has constrained the formulation of effective nutri- are being used. One problem with distributional weights tion policies and strategies and impeded proper planning, based on standard poverty measures of the Foster-Greer- monitoring, and evaluation of nutrition programs. To Thorbecke class is that they place no weight at all on the address this problem, the Africa Nutrition Database Ini- welfare of the nonpoor. The framework being devel- tiative (ANDI) was launched in February 1997. This oped in this project will provide an alternative in which initiative was aimed at creating a user-friendly database the gains to all members of society are taken into account, on the Web covering anthropometric measures, micronu- albeit with different weights. Starting from a well-known trient deficiencies, food security, demography, and social welfare function, two summary parameters (one for poverty. The ANDI Web site (www.africanutrition.net) growth, one for redistribution) are estimated for each pro- allows users to compare African countries on several gram or policy to assess the impact on social welfare. The indicators and to access subnational-level information. parameters are flexible enough to take into account Because ANDI uses data that are already available and weighting schemes with various degrees of emphasis are continuously updated by the participating agencies, placed on poor members of society. the maintenance costs are expected to be negligible. The summary parameters providing the necessary The World Bank served as a catalyst for the initiative, information on the impact of a program or policy on wel- proposing the effort and funding work on the technical fare consist of a growth term (the mean benefit of the pro- aspects of developing the interagency database. The gram) and a distributional term (who is covered by the United Nations Administrative Committee on Coordi- program and in what amount). The distributional com- nation, Subcommittee on Nutrition is coordinating the ponent can be decomposed into several components. work of the participating UN agencies. A memorandum The first measures the targeting performance of the pro- of understanding for database sharing has been signed gram (that is, who is participating and who is not). The by the Food and Agriculture Organization, UNICEF, second measures the impact of the allocation rules for the and the World Bank, with UNESCO and the World distribution of the benefits among program participants. Health Organization as cooperating partners. The third takes into account the fact that some nonpar- ANDI has developed a novel approach to databases ticipants have measures of welfare in the range of par- that has the potential to yield savings in both cost and ticipants, which means that if targeting is not perfect, a time in obtaining good-quality information. The database loss will be incurred. functions through an update engine and a query engine, The study will apply the framework to various social with each participating agency responsible for main- programs and policies using household-level data from taining and updating a set of indicators and ensuring several Latin American countries (including Bolivia, quality. At regular intervals the update engine extracts Guatemala, Honduras, and Mexico). The results will key indicators from the agencies' databases and puts show how the overall performance of various programs them in a standard electronic format in a common data- depends on both targeting and allocation rules and how base. The common database is then copied to the local the choice between programs can be given a welfare area network of each agency. The query engine placed interpretation by using distributional weights. in each agency's local area network then accesses the com- Poverty and Social Welfare 29 mon database to produce specific outputs (such as tables, Brazil over the same period, shedding new light on the graphs, and maps). The query engine is programmed to effects of public policies, including some (such as state ensure data comparability. Thus ANDI allows users to housing programs) specifically targeted to the poor. go to a single site rather than to the separate sites of the The study also explores the survival strategies of participating agencies. And it provides access to households and the effectiveness of community and reliable, good-quality data that are automatically updated. nongovernmental organizations as resources and as medi- In 2001 ANDI will be reviewed by the UN agency ators of the effects of policy and economic and political partners to determine whether it should continue as a change. separate operation or be integrated into other data Few, if any, longitudinal survey data of this quality exist initiatives. anywhere, and they are expected to illuminate new areas ANDI has provided a good foundation for preliminary of impact by national and local policy aimed at helping work on models for in-country nutrition information sys- the poor. Many government and Bank policies operate tems in three pilot countries: Eritrea, Mali, and Zambia. with the received wisdom that improved access to A nutrition information system is being operationalized education and tenure will help lift the poor from poverty. in Mali, and discussions on doing so in Eritrea are under But preliminary data appear to indicate that this may not way. These efforts will build local capacity to use the infor- be the case. These data will be used to address such mation for better research and more effective planning, important issues as the effectiveness of community- monitoring, and evaluation of nutrition programs. based resources in coping with crisis, the role of educa- Responsibility: Africa Region Technical Families, Human tion in improving welfare among the poor, and the Development 2-Richard Seifman (rseifman importance of community facilities and tenure. Infor- @worldbank.org), and Institutional and Social Policy- mation on these questions can help inform Bank policy Antoine Simonpietri. The Italian Trust Fund is con- and assistance relating to basic sanitation, squatter set- tributing funding for the initiative. tlement upgrading, primary education, and primary (ompletion date: June 2001. health care. The findings of the first phase of work, completed in The Dynamics of Urban Poverty in Rio de Janeiro the fall of 1999, were presented at a Bank seminar in and Implications for Public Policy November 1999. Findings of the main phase of work will be disseminated through working papers and a book. This study takes advantage of high-quality data Responsibility: Private Sector Development and Infrastruc- gathered 31 years ago to shed light on the intergenera- ture Vice Presidency, Urban Development Division- tional persistence of urban poverty. The baseline data Tim Campbell (tcampbell@worldbank.org). With Janice consist of interviews conducted with 750 residents of Perlman, Trinity College; Andre Urani, secretary of labor, squatter settlements in Rio de Janeiro in 1969. The City of Rio de Janeiro; Carlos Vainer, and Pedro Abramo, interviews formed the basis of Janice Perlman's award- Federal University of Rio de Janeiro; and Jorge Fiori, Uni- winning book The Myth of Marginality (Berkeley: Uni- versity College London. The Tinker Foundation has versity of California Press, 1976). This project tracked contributed funding for this research. down more than half of the original respondents and Completion dote: June 2001. administered a specially structured interview tied to the original. It also interviewed past and present community Report leaders. Ierlman, Janice, Carlos Vainer, Pledro Abramo, Rick Huber, and Data from the interviews make it possible to con- Tim Campbell. 1999. "'I'he Dynamics of Ulrban Poverty and struct life trajectories of the families, trajectories that trace Implications for Public Policy: 'I'he Case of Rio de Janeiro, their fortunes and the main events in their lives over the 1969-99." World Bank, Private Sector D)evelopment and Infra- past 30 years. The study maps these trajectories against structure Vice Presidency, [Jrban Development Division, W^ash- the major political and economic transformations in ington, D.C. 30 Poverly and Social Welfare The Economics of Malaria nomic behavioral parameters to assess the sensitivity of policy recommendations to assumptions about these This study is aimed at contributing to the renewed effort parameters. to fight malaria, which, according to recent estimates, Responsibility: Development Research Group, Poverty causes between 1.5 and 2.7 million deaths and around 600 and Human Resources-Deon Filmer (dfilmer million clinical cases a year. The study examines eco- @worldbank.org), Mead Over, Maureen Cropper, and nomic aspects of malaria and malaria control, with the goal Varun Gauri; and South Asia, Health, Population, and being to improve policy recommendations. Nutrition Sector Unit-Emmanuel Jimenez. With The project has several components. The first is an Christie Poulos, University of North Carolina; Lakshmi analysis of the relationship between the incidence of K. Raut, Yale University; and Fadi Balesh, McGill Uni- fever and its treatment in Sub-Saharan Africa. One branch versity. of this analysis uses Demographic and Health Survey data Completion date: June 2001. from more than 20 Sub-Saharan African countries to explore the geographic relationship between poverty The Methodology of Poverty Assessments and the incidence of fever, as well as the household-level relationship between household wealth, the incidence of Policies to fight poverty rely increasingly on data about fever, and treatment seeking behavior. Early results the living conditions of the poor, as reflected in a poverty show that poverty and the incidence of fever tend to be profile. But constructing a poverty profile that can be only weakly related, but that treatment seeking behav- relied on to guide policy choices is often difficult. And ior is strongly influenced by a household's economic sta- the data and methods used can matter greatly for the tus. Another branch of this analysis extends earlier work choice of policies. At their worst, poorly devised poverty on malaria in Eritrea by analyzing the links between profiles can misdirect poverty reduction efforts-for household income, the reported incidence of malaria, and example, by channeling scarce resources to cities when its treatment. poverty is worse in rural areas, or vice versa. The second component is an analytical review of What methods are available for constructing poverty social and epidemiological conditions for malaria and profiles? What are their strengths and weaknesses? This how differences in these conditions might affect policy research project seeks to answer those questions by prescriptions. This review has led to several early find- investigating the theoretical and empirical foundations ings. First, epidemiological and ecological situations do of the methods used in constructing poverty profiles. Typ- not have a one-to-one relationship with economic situ- ically, too little work goes into assessing the robustness ations, so public sector interventions need to incorporate of poverty comparisons as the underlying measurement information on both of these in order to promote malaria assumptions change. Many of the data routinely used in control. Second, strengthening the health care sector poverty analysis are full of errors-a situation unlikely and improving the regulatory effectiveness of government to change. There also are unavoidable value judgments are key to improving outcomes. Third, economic analy- underlying measurement practices. The quality of the ses should incorporate information on the behavior of World Bank's policy assessments and prescriptions may households and the functioning of the health sector, or may not depend on these errors and assumptions. An aspects that typically are not incorporated in cost- important task is to find out just how confident analysts benefit and cost-effectiveness analysis. Finally, addi- can be in forming poverty comparisons. tional research is needed to ascertain which determi- The project examines the properties of the measures nants of demand for and supply of malaria control have used for assessing individual welfare, including the prac- the greatest impact in improving the efficiency of malaria tices used in comparing the welfare of different demo- control. graphic groups (such as large and small households). It The third component of the study is a modeling exer- also investigates the different methods used for setting cise that combines epidemiological models with eco- poverty lines and how much they matter to the policy con- Poverty and Social Welfare 31 clusions drawn. And it studies ways of making better use . 1994. "IPoverty Rankings UJsing Noisy Data on Living of such nonincome indicators of welfare as health and Standards." Economicru Letters 45: 481-85. education indicators. . 1996. "How Well Can Method Substitute for Data? Five A new strand of the research is investigating the prop- Experiments in Poverty Analysis." lVorldB?ankReseardh Observer erties of subjective welfare indicators, such as self-rated 11(2): 199-221. assessments of the minimum income needed to make . 1998. Poverty l.ines in Iheory and Practice. Living Stan- ends meet, of consumption adequacy, and of whether the dards Measurement Study Working laper 133. Washington, respondent is poor or not. A series of case studies (includ- [).C.: World 13ank. ing Jamaica, Nepal, and the Russian Federation) are - . 2000. "Should Poverty Measures Be Anchored to the examining these methods as potential complements to National Accounts?" Economic and Political llVeekly (August). more conventional, objective methods of measuring F.Forthcoming. "On Decomposing Changes in loverty into poverty and welfare. Growth and Redistribution Components." Journal of Quantitative The research project is tailored to the problems Economits. faced by World Bank staff undertaking poverty assess- Ravallion, Martin, and 13enu Bidani. 1994. "How Robust Is a ments, and there is an active program of training and Poverty lProfile?" ltorld Bank Eronomic-Review, 8(1): 75-102. dissemination. Ravallion, Martin, and Michael Lokshin. 1999. "Subjective Eco- Responsibility: Development Research Group, Poverty and nomic Welfare." P'olicy Research Working Paper 2106. World Human Resources-Martin Ravallion (mravallion Bank, Development Research Group, Washington, D.C. C@worldbank.org), Peter Lanjouw, Michael Lokshin, and .2000. "Who Wants to Redistribute? Russia's'lunnel Effect Menno Pradhan. in the 1990s." Journal of Pu/i/ic Economics 76(1): 87-104. .ompletion dale: June 2001. . Forthcoming. "Identifying Welfare Effects from Subjec- tive Questions." Economica. Reports Ravallion, Martin, and Shankar Subramanian. 1996. "Welfare Mea- Chaudhuri, Shubham, and Martin Ravallion. 1994. "How Well surement with and without Substitution." World 13ank, IPolicy I)o Static Indicators Identify the Chronically Poor?" Journalof Research D)epartment, Washington, D.C. Public Economics 53(March): 367-94. Lanjouw, Jean O., and Peter Lanjouw. 1996. "Aggregation- Optimal Policies for Controlling Infectious Diseases Consistent lPoverty Comparisons: 'I'heory and Illustrations." World B3ank, lPolicy Research Department, Washington, D.C. This project is designed to generate and describe the Lanjouw, l'eter, and Martin Ravallion. 1994. "IPoverty and House- essential features of the optimal paths of preventive and hold Size." Economi Journal 105(November). (Also issued as curative interventions for the control of infectious dis- P'olicy Research Working Paper 1332, World B3ank, Policy eases. It merges two distinct literatures: the mathemat- Research D)epartment, Washington, D.C., 1994.) ical epidemiology literature that models the process of I,okshin, Michael, and Martin Ravallion. Forthcoming. "Welfare disease transmission with sets of differential equations Impacts of Russia's 1998 Financial Crisis and the Response of and the literature on the optimal control of such sets of the Public Safety Net." 1Economics of Thansition. equations widely used in economics. Previous work by l'radhan, Menno, and Martin Ravallion. 1998. "Measuring Poverty the researchers has shown that general analytical solutions Using Qualitative Perceptions of Consumption Adequacy." to the problem are difficult to obtain. Further progress lPolicy Research Working Paper 2011. World l3ank, D)evelop- requires numerical analysis of alternative specifications. ment Research Grotip, Washington, I).C. The research strategy is to select a few common mod- Ravallion, Martin. 1994. "A Better Way to Set loverty Lines." Out- els of disease transmission that are amenable to differ- reach 15. World Bank, IPolicy Research D)epartment, Wash- ent control strategies. These models will then be solved, ington, D.C. and the timing and intensity of the policies involved 1 994. Fundamentas of Pure andAppliedconomits. Vol. 56, will be examined. The first models will be of directly Poverty (,'omparicons.. Chur, Switzerland: Harwood Academic. transmittable diseases (such as tuberculosis or sexually 32 Poverly and Social Welfare transmitted diseases) and common vector-borne diseases private transfers and income; analyzing the responses to (such as malaria or schistosomiasis). the same questions across countries will improve the Earlier policy-oriented analyses of these models were accuracy of the analysis and yield insights into the under- flawed because the characterizations of policy and behav- lying differences in behavior. The evidence should help ior were overly simple. To correct this, this project will assess the extent of crowding out of private transfers for analyze differences in the scale economies of control countries at different stages of development. technologies and individual behavior in preventing ill- Responsibility: South Asia Region, Education Sector Unit- ness and in seeking care once ill. Emmanuel Jimenez (ejimenez2@worldbank.org). With Responsibility: Development Research Group, Public Eco- Emanuela Galasso; and Don Cox, Boston College. nomics-Jeffrey S. Hammer (jhammer@worldbank.org). Completion date: June 2001. With Mark Gersovitz, Johns Hopkins University. Completion date: June 2001. The Public Economics of Health Reform Private Transfers in a Cross-Section This project encompasses research efforts that apply of Developing Countries standard techniques of public economics-and develop and apply extensions to these techniques-to the prob- Comparisons of private transfers across countries can lems of the health sector in developing countries. The provide insights into the relation between country- approach is to formulate the problems of the sector in a specific institutions and private transfers (private trans- way that is consistent with a public expenditure review- fers from adult children to their elderly parents, for that is, to examine the equity, efficiency, and imple- example, might be less important in countries with more mentability of policies and expenditure regimes in the generous public pensions). But most studies of private sector. transfers examine a single country. This study departs * Equity. This component is based on analyses of from the single-country case study approach by building about 60 Demographic and Health Surveys. These sur- a database of several developing countries from differ- veys do not include direct measures of income or con- ent regions of the world. sumption but do have a battery of questions relating to The study begins with the simple question: To what housing characteristics and ownership of consumer extent are patterns in private transfers similar around the durables. In the context of sector work in Brazil and world? It then highlights differences in private transfer India, the project developed an index of "wealth" from behavior, particularly with respect to age patterns. The these questions using principal components analysis. ultimate goal of the research is to make inferences about This index is used to examine the relationship between the relation between public and private transfers on a health measures (infant and child mortality, nutritional cross-country basis. status, incidence of disease) and family wealth. The ana- The main data sources are the World Bank Living lytic technique is a design-adaptive nonparametric regres- Standards Measurement Study (LSMS) surveys. Coun- sion. Results for infant and child mortality show tries covered include Albania, Bulgaria, Jamaica, Kaza- pronounced nonlinear relationships, with the mortality khstan, the Kyrgyz Republic, Nepal, Nicaragua, Panama, rate falling steeply relative to "wealth" at various points Peru, the Russian Federation, and Vietnam. The exten- in the wealth distribution in most countries. sive coverage of the LSMS surveys provides a unique For a subset of countries for which data are available on opportunity to perform a consistent cross-country econo- the distribution of income or consumption in terms of pur- metric analysis of the determinants and magnitude of pri- chasing power parity U.S. dollars, the wealth index has vate transfers. These surveys overcome one of the main been scaled to that distribution to yield a common criticisms in the literature, namely, the difficulty of defin- consumption standard. The relative contribution of ing interhousehold transfers. The questionnaire design country-specific and common patterns is then assessed. In and data quality controls allow comparable definitions of an interesting result, most countries exhibit a pronounced Poverty ond Social Welfare 33 "kink" in the graph of height-for-age as a function of this Belli, I'aolo, and Jeffrey S. Hammer. 1999. "Reimbursement Sys- measure of income: nutritional status improves rapidly tems for Medical Care Providers." World 13ank, D)evelopment with income, then levels off sharply at a distinct point. Research Group, Washington, D.C. The research has also examined the principal deter- Hammer, Jeffrey S., and Maria Eugenia 13onilla-Chacin. 1999. minants of health status. Results thus far confirm the "Life and Death among the Poorest." World Bank, I)evelop- results in the literature on the importance of the mother's ment Research Group, Washington, D.C(. education as a determinant of child mortality and show Jack, William G., and Jeffrey S. Hammer. 2000. "Incentives for that there is often a strong relationship with water and Poverty Alleviation in Decentralized Systems." World Bank, sanitation. Results also point to a tight link between Development Research Group, Washington, D.C. wealth and access to water and sanitation services. In the surveys that include data on the availability of public Safety Nets in an Emerging Market Economy health care, it is difficult to find any relationship between that and health status. Vietnam's transition to a market economy has stimu- Efficiency. The private health care sector is charac- lated strong growth. Continued broad-based growth will terized by two major types of market failure and the help raise living standards for most people. But many peo- interaction between them: the principal-agent problem ple will continue to be poor, and most will remain vul- associated with a medical care provider's knowledge, nerable to risk. Under the former command economy, lack and the general absence of insurance markets, due pri- of mobility ensured community and family solidarity, marily to adverse selection and moral hazard. This part and households belonged to local cooperatives that pro- of the project attempts to develop tools for modeling mar- vided for the welfare of their members. Developing a reli- kets with these characteristics, measuring the welfare loss able and effective system of redistributive transfers and from the lack of insurance and assessing the effect of dif- safety nets to replace these faltering institutions is an ferent payment systems (fee for service, capitation, important part of the successful transition to a market salaried positions) on health care. economy. * Implementability. Partly as a result of the efficiency This project consists of two parts. The first uses Viet- problems, the public sector has always been a major nam as a case study with which to assess the strengths provider of medical services. For standard public eco- and weaknesses of an existing safety net program. nomics reasons-the inherent market failures-public Because of the lack of good data, the study provides a intervention is warranted. But the quality of public pro- broad qualitative assessment, identifying key issues on vision has ranged from good to horrendous. This part of which more needs to be learned. A paper presents a crit- the project will look at alternative incentive arrange- ical overview of existing public safety net programs, ments for the delivery of public services, focusing initially describes the principal sources of household vulnera- on decentralization and contracts with nongovernmen- bility, and summarizes what is known about coping strate- tal organizations. gies. It also includes an agenda for strengthening the Responsibility: Development Research Group, Public Eco- design and implementation of the main safety net nomics-Jeffrey S. Hammer (jhammer@worldbank.org) programs. and Varun Gauri. With Paolo Belli, Harvard University; The recently released 1998 Vietnam Living Stan- William G. Jack, Georgetown University; and Maria dards Survey provides previously unavailable data on Eugenia Bonilla-Chacin, Johns Hopkins University. policy coverage across communes and, in some cases, (ompletion dole: June 2001. households. Quantitative analytical work can now be performed to better understand and assess the perfor- Reports mance of programs aimed at reducing poverty and pro- 13elli, lPaolo. 1999. "T'he Effects of Adverse Selection in the Health viding insurance to poor households. Information on Insurance Market." World 13ank, Development Research Group, who the poor are can now be combined with information Washington, D.C. on needs, program participation, levels of social relief dis- 34 Poverty and Sotial Welfare bursements, and outcomes. In addition, the new survey's results show that differences in returns to productive char- coverage of many of the same households and commu- acteristics are an important explanation for ethnic inequal- nities that were interviewed in the 1992 survey creates ity, particularly in areas where both groups reside. There a panel that can be used to test and monitor the perfor- is evidence of compensating behavior on the part of mance of interventions. minorities. The second part of the project examines whether The results suggest that it is not enough to target equally poor communes in different provinces are treated poor areas to redress ethnic inequality. Policies need to equally and evaluates how well the safety net and its com- reach minority households within poor areas and to ponents perform dynamically. It assesses how well the explicitly recognize behavioral patterns that have served safety net protects people against poverty, as opposed to the minorities well in the short term but intensify eth- promoting them out of poverty. The determinants of nic differentials in the longer term. The majority group's consumption changes over time will be modeled as a func- model of income generation can serve as a guide on how tion of (among other things) program placement at the to fight poverty among ethnic minority groups. household level. Poverty transition matrices will then be This research has been disseminated through semi- compared with and without safety net programs, in order nars at the World Bank (August 1999); Delta-INRA, to assess the performance of the safety net. Paris (December 1999); ARQADE, Universit6 de Responsibility: Development Research Group, Public Eco- Toulouse (October 1999); and Tinbergen Institute, Ams- nomics-Dominique van de Walle (dvandewalle terdam (March 2000). @worldbank.org). Responsibility: Development Research Group-Dominique (ompletion date: June 2001. van de Walle (dvandewalle@worldbank.org). With Dileni Gunewardena, University of Peradeniya, Sri Lanka. Reports Completion date: June 2001. van de Waile, IDominique. 1999. "Protecting the Poor in Viet- nam's Imerging Market Economy." Vietnam's Socioeconomic Report Development: A Social Scienre Review 19: 59-80. van de Walle, Dominique, and Dileni Gunewardena. 2(XN). "Sources 1999. "Safety Nets in an Emerging Market Economy." In of Ethnic Inequality in Vietnam." Policy Research Working jennie 1. Litvack and D)ennis A. Rondinelli, eds., Market Reform Paper 2297. World Bank, Development Research Group, Wash- in Vietnam:.Building nstitutionsforl)evelopment. Westport, Conn.: ington, D.C. Quorum 13ooks. Patterns of Inequality and Government Welfare Impacts of Policy under Conditions Intervention of Inequality The Deininger-Squire database on income distribution This study examines the welfare impact of policies on has become a standard source in cross-country analysis the poor and disadvantaged when there is inequality of the relationship between inequality and growth. This among groups, such as ethnic and gender groups. The project aims to update and improve the database, thus project examines the sources of inequality among eth- increasing its usefulness. nic groups in Vietnam, where ethnic minorities tend to Taking advantage of the large number of microeco- be concentrated in remote rural areas and typically have nomic data sets that have become available since the data- lower standards of living than the ethnic majority. The base was first put together, the project will increase both research examines how much of minorities' lower living the number of countries and the observations covered by standards is attributable to poor economic characteristics the database. It will incorporate data on decile income and how much is due to low returns to characteristics and shares and a rural-urban disaggregation. And it will add whether a self-reinforcing culture of poverty exists, data on access to key social services by income decile, reflecting patterns of current and past discrimination. The facilitating more comprehensive analysis of changes in Poverty and Social Welfare 35 the welfare of the poor, their access to economic oppor- sumption in almost all countries studied, and that tunities, and the role of government programs in expand- although the poor-nonpoor inequalities appear to vary ing these opportunities. across countries, the levels of inequality are often not sig- Responsibility: Development Research Group, Rural Devel- nificantly different from one another. Egypt and Vietnam opment-Klaus Deininger (kdeininger@worldbank.org), repeatedly emerge as countries with the least pro-rich dis- and Development Economics Senior Vice Presidency, tributions, while Morocco, Nicaragua, and Peru emerge Global Development Network-Lyn Squire. With with the most unequal distributions. The work on the Kihoon Lee, University of Maryland; and Changquing causes of health inequalities has shown that in both the Sun, University of California at Berkeley. countries studied to date, inequalities in education and (ompletion dote: July 2001. in income are the biggest sources of health inequalities. By contrast, inequalities in access to medical care appear Poverty and Health to account for much less of the inequality in health out- comes. This research project takes as its starting point the two The research on the impoverishing effects of adverse principal objectives of the World Bank's Health, Nutri- health and nutrition outcomes initially involves examining tion, and Population Network: to improve health and the reduction in living standards associated with out-of- nutrition outcomes for the world's poor and to reduce the pocket payments for health services, both as a proportion impoverishing effects of adverse outcomes. Using data of household consumption and relative to a poverty line; from household surveys, this research aims to shed light seeing how these vary at different points in the con- on a number of questions raised by these objectives: sumption distribution; and determining the extent to For example, how large are the poor-nonpoor gaps in which out-of-pocket payments contribute to poverty. health and nutrition outcomes in different countries? Regression models will be developed to examine the role Why do the gaps exist, and what explains the differ- of insurance and prepayment schemes in cushioning ences in such gaps across countries and over time? What households from the impoverishing effects of out-of- effects have specific programs and policies had on poor- pocket payments. nonpoor differences in health and nutrition outcomes? Results from this research thus far indicate that the To what extent do adverse outcomes impoverish house- impact of out-of-pocket payments on poverty appears to holds, and how do the effects vary across countries? vary across countries, with large impacts in such coun- What role do health insurance and prepayment schemes tries as Bangladesh and China, and smaller impacts in play in cushioning households from the impoverishing such countries as Bulgaria and Egypt. The point of effects of adverse outcomes? impact also seems to differ. In Bangladesh the poverty New research to measure poor-nonpoor inequalities impact appears to reflect increased poverty among house- in health and nutrition outcomes has applied methods holds that would not have been poor had they not spent based on concentration indexes. New research on the so much on health services, while in China it largely causes of such inequalities has developed decompositions reflects the increased poverty of households that would of the concentration index measure of outcome have been poor even in the absence of out-of-pocket inequalities-a decomposition for levels of inequality and payments. another for changes or differences in inequality. Both Findings have been presented at the International involve linking regression-based estimates of the elas- Health Economics Association Congress in Rotterdam ticities of health and nutrition outcomes with respect to in June 1999; the U.K. Department for International their causes with data on inequalities in these causes. Development in London in October 1999; the Rocke- The research on poor-nonpoor inequalities in health feller Foundation's Global Health Equity Initiative in and nutrition outcomes has produced a number of find- Puyuhuapi, Chile, in November 1999; the Pan- ings. For example, work on malnutrition has shown that American Health Organization in Washington, D.C., in rates of malnutrition decline with rising household con- November 1999; an interagency meeting on poverty and 36 Poverty and Sociol Welfore health in London in January 2000; and an Argentine and . 2000. "Measuring and 'Iesting for Inequity in the Deliv- Latin American health economics associations conference ery of Health Care." Journal of Human Resources 35(4). in Iguazu, Argentina, in April 2000. Findings and meth- Wagstaff, Adam, and Naoko Watanabe. 2000. "Socioeconomic ods are also discussed in the Bank's source book on Inequalities in Child Malnutrition in the Developing Vorld." poverty reduction strategy papers. World Bank, Human Development Network, Washington, Responsibility: Human Development Network, Health, D.C. Nutrition, and Population Team-Adam Wagstaff Wagstaff, Adam, PI Paci, and H. Joshi. 2000. "Inequalities in Health: (awagstaff@worldbank.org). The Belgian and Japanese Who You Are? Where You Live? Or Who Your Parents Were? Trust Funds contributed funding for the research. Fvidence from a Cohort of 13ritish 33-Year-Olds." World Bank, Completion date: August 2001. Human Development Network, Washington, D.C. Wagstaff, Adam, Eddy van Doorslaer, and others. 1999. "Equity Reports in the Finance of Health Care: Some Further International Com- van l)oorslaer, Eddy, Adam Wagstaff, and others. 1999. "The parisons." Journal of Health Economics 18(3): 263-90. Redistributive Effects of Health Care Finance in 12 OFCD Wagstaff, Adam, Eddy van Doorslaer, and others. 1999. "Redis- Countries." Journal of Health Economics 18(3): 291-314. tributive Effect, Progressivity, and Differential 'Iax Trreatment: van D)oorslaer, Eddy, Adam Wagstaff, and others. Forthcoming. Personal Income T'axes in Twelve OECI) Countries." Journal "Equity in the Delivery of Health Care: Further International of Public Economics 72: 73-98. Comparisons." Journal of Health Economics. Wagstaff, Adam. 1999. "What )o Poor Children Die From? Some Social Exclusion and Poverty Evidence from Cebu, I'hilippines." World Bank, Human Devel- opment Network, Washington, D).C. This project examines how social exclusion prevents - 2000. "If the Health of the Poor Matters More: Child people from participating in and benefiting from the Survival Inequalities in Nine Developing Countries." World opportunities provided by human development pro- 13ank, Human D)evelopment Network, Washington, D).C. grams and economic growth. It looks at how social insti- - 2000. "Research on Equity, Poverty, and Health: Lessons tutions interact with formal institutions to shape for the Developing World." World Bank, Human Develop- development outcomes in poor communities. And it ment Network, Washington, D.C. [wwwworldbank.org/poverty/ investigates how policies can be reshaped to reduce health/library/technote_a.pdfl. social exclusion and increase synergies between informal - . 2(2000. "Socioeconomic Inequalities in Child Mortality: and formal institutions. Comparisons across Nine Developing Countries." Bulletin ofthe Several studies served as background tothe World IVorld Health Organization 78(1): 19-29. Bank's World Development Report 2000/2001: Attacking - 2000. "tlnpacking the Causes of Inequalities in Child Poverty (New York: Oxford University Press, 2000): a Survival: I'he Case of Cebu, Plhilippines." World Bank, Human theoretical analysis of social exclusion, a study of the ram- D)evelopment Necwork, Washington, D.C. ifications of gender-based exclusion for poverty and Wagstaff, Adam, and Eddy van Doorslaer. 1999. "Inequalities in development, a cross-country study of how land and Health: Methods and Results for Jamaica." In E. Greene, J. other agrarian reforms interact with changes in local Zevallos, and R. Suarez, eds., Health Systems Inequalities and administrative institutions to generate state-community Poverly in LatinAmeri.w andtheCariibean. Washington, D.C.: lan- synergies for development, and an analysis of the links American Health Organization and World Bank. between social exclusion, poverty, and health. Two addi- .20). "Equity in Health (Care Finance and Delivery." In tional studies are under way-an analysis of social exclu- A.J. Culyer and J.P Newhouse, eds., Handbook in Health Ero- sion in the context of urban poverty and a study of public nomits. Amsterdam: North Holland. health programs, which provide a public good and are - 2000. "Income Inequality and Health: What Does the therefore intrinsically targeted toward the poor. Literature 'I'ell lls?" Annual Reviews of Public Health 21: The research draws on extensive analysis of secondary 543-67. source material as well as analyzing existing data sets and Poverty and Social Welfare 37 collecting new data. It has been conducted in close col- on such characteristics was collected through oral inter- laboration with major institutions (such as Harvard Uni- views of pupils and through direct observations by field versity), government agencies (All-India Institute of interviewers. The study then estimated the relationship Medical Sciences), and research institutions in developing between observed characteristics and infection. Through countries (Institute of Economic Growth and National this modeling, it calculated the "propensity scores" of Council of Applied Economic Research, both in New infection for all pupils. The propensity score is the con- Delhi). ditional probability of being moderately or heavily Responsibility: Development Research Group, Rural Devel- infected given a pupil's observed characteristics. opment-Gershon Feder (gfeder@worldbank.org), Mon- The present study is evaluating the effect of mass ica Das Gupta, and Michael Woolcock, and Poverty and deworming treatment (treating all students in a school) Human Resources-Vijayendra Rao and Ananya Basu. on education outcomes in Busia District. The deworm- With Kameshwar Prasad, All-India Institute of Medical ing treatment is being phased in at 75 primary schools Sciences, New Delhi; Debendra Gupta, National Coun- (with an enrollment of about 15,000 students). The treat- cil of Applied Economic Research, New Delhi; and ment is being provided to randomly assigned schools, Paolo Belli, Harvard University. The Netherlands Trust while the schools not selected for treatment serve as a Fund has contributed funding for the research. control group. The propensity score method will be used Completion date: December 2001. to identify pupils likely to be moderately or heavily infected in the control schools without the need to col- Reports lect medical and parasitological information in these D)as Gupta, Nlonica. 1999. "Social Exclusion and Poverty: Pre- schools. Iiminary'I'houghts for the World l)evelopment Repor 200012001." In the first phase of the project, in 1998, deworming Plaper presented at the consultation on IVorl¢DevelopmentReport treatment was provided to 25 of the 75 schools. The 200012001, 1erlin, February. remaining 50 were a control group. During the second Das Gupta, Monica, Helene Grandvoinnet, and Mattia Romani. and third years of the project, 1999 and 2000, treatment 2000. "State-Community Synergies in Development: Laying is being provided to the initial 25 schools plus an the Basis for Collective Action." Policy Research Working additional 25. Twenty-five schools will thus remain llaper 2439. World lank, Development Research Group, Wash- as a control group. This experimental design will ington, D.C. allow an unbiased estimation of the impact of deworm- lrasad, Kameshwar, Paolo Betii, and Monica Das Gupta. 1999. ing treatment on education outcomes-school atten- "Social Exclusion, Health, and Poverty." 13ackground paper for dance, grade progression, dropout rates, and academic lVorid Development Report2000/2001. All-India Institute of Med- performance. ical Sciences, New Delhi; and World Bank, Washington, D.C. Preliminary results show that after one year of treat- Woolcock, Michael, and Hilary Silver. 1999. "Social Exclusion ment students are less likely to be absent or to drop out. and Social Cohesion." 13ackground paper for WVorldDevelopment In contrast, these preliminary results show no impact of Report 2000/2001. World 13ank, Washington, D.C. treatment on student performance on academic tests. The findings from this study will be disseminated The Impact of Deworming Treatment on Primary through published papers and through seminars at the School Performance in Busia, Kenya World Bank and the Oxford University Centre for the Epidemiology of Infectious Disease. This research project follows a preliminary feasibility Responsibility: Development Research Group, Poverty study that measured the prevalence and intensity of par- and Human Resources-Paul Glewwe (pglewwe asitic infection among children in 25 schools in Busia Dis- @worldbank.org) and Sylvie Moulin; and Human Devel- trict, Kenya, and determined whether such characteristics opment Network, Education Team-Donald Bundy. as socioeconomic status, access to sanitation, and personal With Edward Miguel and Michael Kremer, Harvard Uni- hygiene are correlated with infection status. Information versity; Simon Brooker, Oxford University Centre for the 38 Poverty and Social Welfare Epidemiology of Infectious Disease; Alfred Luoba, from such countries; during the case study phase it will Kenya Division of Vector Borne Diseases; and Interna- pair U.S.-based researchers with scholars in the countries tionaal Christelijk Steunfonds, Nairobi. studied. It has also built a strong network of researchers Completion date: April 2002. through its Web site, using it to disseminate information and research findings and to facilitate communication Report among researchers around the world who are interested Miguel, Edward, and Michael Kremer. "TI'he Educational Impact in this topic. of l)eworming in Kenya." Harvard University, Department of The project was launched with a workshop in Feb- Economics, Cambridge. Mass. ruary 1999. Since then it has held a conference at Prince- ton University to present findings on the causes of civil The Economics of Political and Criminal Violence war. The papers presented at that conference will be pub- lished as a special issue of the Journal of ConflictResolu- This research seeks to answer the following questions: tion. Two more conferences are planned-one on war Why do civil wars occur? What are the determinants of duration and postconflict issues, at the London School violent crime? What are the economic causes and con- of Economics and Political Science, and another to pre- sequences of political and criminal violence? Can we sent final results, in Olso, Norway. predict and prevent these phenomena? What economic Papers and data from the project are posted on its Web policies are appropriate in countries that have undergone site, at www.worldbank.org/research/conflict/index. periods of large-scale violence and political conflict? htm. The project uses several methodologies, including Responsibility: Development Research Group, Office of the game-theoretic modeling, econometric modeling, and Director-Paul Collier (pcollier@worldbank.org), Pub- hypothesis testing. Its multidisciplinary approach com- lic Economics-Shantayanan Devarajan, Ibrahim bines perspectives from law, economics, criminology, Elbadawi, and Nicholas Sambanis, Macroeconomics and sociology, and political science. Growth-Norman Loayza, William Easterly, and David The project has developed a large database on crime Dollar, Trade-Maurice Schiff and Roberta Gatti, and and violence in 161 countries, including most develop- Poverty and Human Resources-Emmanuel Jimenez ing countries, combining social, economic, and political and Vijayendra Rao; and Latin America and the indicators. To build this database, the project has drawn Caribbean Region, Poverty Reduction and Economic on other World Bank databases and on related projects Management Sector Unit. With Anke Hoeffler, Oxford in academic institutions. University; Jeffrey Herbst and Michael Doyle, Prince- The project's findings are expected to contribute to ton University; Patrick Regan, Binghamton University; the Bank's advice on the microeconomic and macroeco- Robert Bates and Edward Glaeser, Harvard University; nomic management of countries under risk of civil war Nadeem ul Haque, International Monetary Fund; Gre- and on policies during postconflict reconstruction. In gory Hess, Oberlin College; Njuguna Ndung'u, Uni- addition, it is hoped that the project will identify sets of versity of Nairobi; Jean-Paul Azam, Universite de optimal policies for countries under different levels of risk Toulouse; Barbara Walter, University of California at of war and for countries with different backgrounds of San Diego; James Fearon and Stephen Stedman, Stan- conflict. Toward this goal, the project has developed a ford University; Joshua Epstein, Miles Parker, and John close working relationship with the Bank's Postconflict Steinbruner, Brookings Institution; Steve Levitt, Uni- Unit and has begun to develop a set of conflict indica- versity of Chicago; Pablo Fajnzylber, Federal University tors that Bank country teams will be able to use to deter- of Minas Gerais; Ann Piehl, University of California at mine the optimal allocation of funds among countries that Berkeley; Mauricio Rubio and Oriana Bandiera, Uni- are or may be affected by violent conflict. versidad Carlos III de Madrid; Nils Peter Gledisch, Indra The project has built a strong local research capacity de Soysa, and Havard Hergre, International Peace in developing countries by incorporating researchers Research Institute; Scott Gates, International Peace Poverly and Social Welfare 39 Research Institute and Michigan State University; and Hess, Gregory, and Brock Blomberg. 2000. "Is ''here Evidence of Anthony William Gerrard, UJniversity of Birmingham. a Ploverty-Conflict Trap?" Completion date: June 2002. Regan, I'atrick. 2000. "'Ihird-l"arty Interventions and the D)ura- tion of Intrastate Conflicts." Reports Sambanis, Nicholas. 20(). "Ethnic War: A 'l'heoretical and Empir- Azam, 3ean-lPaul, and Anke Hoeffler. 2000. "L,ooting and Conflict ical Inquiry into Its Causes." between Ethno-Regional Groups: Lessons for State Formation - 2000. "IPartition as a Solution to Ethnic War: An Empiri- in Africa." cal Critique ofthe 'I'heoretical Literature." World Politics(July). lBates, Robert. 2000. "Organizing Violence: Wealth, Plower, and lim- ited (Government." World Poverty Monitoring Colher, P'aul. "'I'he Challenge of Uigandan Reconstruction, 1986-98." Is poverty declining in the developing world? Because - "DoingWelloutofWar." little effort has gone into compiling and analyzing - "lolicy fir Post-conflict Societies: Reducing the Risks of distributional data on a reasonably comparable basis, Renewed Conflict." this question is surprisingly difficult to address. Yet Forthcoming. "Economic Causes of Civil Conflict and there is a clear need to do so, both to help monitor 'I'heir Implications for Policy." In Chester A. Crocker and Fen progress in reducing poverty and as a first step toward Osler Hampson with lamela Aall, eds., Managing Globak7haos. understanding the causes and effects of changing WVashington, D).C.: llnited States Institute of Peace. distribution. Collier, I'aul. and Anke Hoeffler. 2000. "Greed and Grievance in This project aims to monitor progress in reducing Civil War." lolicy Research Working lPaper 2355. World Bank, aggregate poverty using a consistent compilation of l)evelopment Research Group, Washington, D.C. distributional data from household surveys. Estimates of Collier, Paul, Ibrahim Elbadawi, and Nicholas Sambanis. "Why Are various poverty measures are available from numerous 'T'here So Many Civil Wars in Africa? Prevention of Future studies of individual countries, but their use for Conflicts and Ilromotion of Intergroup Cooperation." monitoring world poverty is questionable because of de Soysa, Indra. 2000. "Nattiral Resources and Civil War: Shrink- comparability problerris. Past work at the country level ing Plie or Honey P'ot?" has used poverty lines appropriate to each country, Doyle, Michael W., and Nicholas Sambanis. "13uilding leace: but there is a marked tendency for the real value of local Challenges and Strategies after Civil War." poverty lines to increase with the average income - 2000. "Irnternational Peacebuilding: A 'Theoretical and of a country. This fact clouds attempts to compare and Quantitative Analysis." aggregate across countries using the poverty data tFasLerly, William. 1999. "Can Institutions Resolve Ethnic Conflict?" available in standard (secondary) sources. The use of World 13ank, Development Research (Group, Washington, D.C. official exchange rates also biases international poverty ElIbadawi, Ibrahim, and Njuguna Ndung'u. 20(). "External Indebt- comparisons. edness, Growth, and Investment in Conflict and P)ostconflict This project uses primary data sources and reesti- African Countries." mates all poverty measures on a consistent basis, con- Elbadawi, Ibrahim, and Nicholas Sambanis. Forthcoming. "Exter- verting local currencies to constant purchasing power nal Interventions and the Duration of Civil Wars." lPolicy parity values. It also tests the robustness of comparisons Research Working Paper. World B3ank, D)evelopment Research across regions and over time to measurement assump- Group, Washington, D.C. tions. The data set covers 83 countries, with data for Fearon, James, and D)avid Laitin. 2()0(. "Work States, Rough 'l'er- two or more points in time for 50 countries. rain, and l,arge-Scale Ethnic Violence since 1945." The estimates indicate that by 1998, 1.2 billion Gates, Scott. 2000. "Recruitment and Allegiance: 'I'he Micro- people-roughly one quarter of the population foLundations of Rebellion." covered-were living on less than a dollar a day at 1993 Il-erbsr, Jeffrey. 20100. "'I'he Organization of Rebellion in Africa." prices. The incidence of absolute poverty in the devel- 40 Poverty and Social Welfare oping world as a whole fell slightly between 1987 and Urban Poverty, Risk Management, 1998, and the total number of poor remained the same. and Social Capital But there is marked variation among regions and coun- tries, with the number of poor rising in most of Africa, This project develops an interdisciplinary and multi- Europe and Central Asia, and Latin America and the method approach to study how social and cultural insti- Caribbean and falling in East Asia. tutions help poor households in urban areas cope with Results of this research are reported in the World risk and vulnerability. The study has both a substantive Bank's annual World Development Indicators and in its and a methodological purpose. The substantive purpose World Development Report 2000/2001: Attackitng Poverty is to study aspects of the relation between social insti- (New York: Oxford University Press, 2000). The data from tutions and poverty in urban India in order to improve this project have also been used in a number of studies the effectiveness of poverty reduction policies and pro- of cross-country differences in progress in reducing grams. The methodological purpose is to help develop poverty and inequality. an integrated qualitative and quantitative approach that Responsibility: Development Research Group, Poverty and combines econometrics and ethnographic methods with Human Resources-Martin Ravallion (mravallion economic and social theory to study how poor urban @worldbank.org) and Shaohua Chen. households use social resources to manage risk. Completion date: June 2002. The data sources for the study are primary survey data and qualitative information from focus groups and Reports in-depth interviews. Fieldwork began in October 1999 Anand, Sudhir, and Martin Ravallion. 1993. "Human D)evelopment and was completed in January 2000. The data were then in Poor Countries: On the Role of Plrivate Incomes versus lPub- entered and cleaned. Data analysis has just begun. The lie Services." Journal of Economic Perspectives, results are expected to inform the design of slum infra- Bidani, Benu, and Martin Ravallion. 1994. "I)ecomposing Social structure projects and social protection programs for the Indicators lUsing Distributional Data." Policy Research WVork- urban poor. ing Paper 1487. World Bank, P'olicy Research lDepartment, Responsibility: Development Research Group, Poverty and Washington, D.C. Human Resources-Vijayendra Rao (vrao@worldbank. Ravallion, Martin. 1994. "Measuring Social Welfare with and with- org) and Michael Woolcock. With Arup Mitra, Institute out lloverty Lines." Amerin-an Eronomic Review (May). of Economic Growth, Delhi; and Soumya Chattopad- - 1997. "Can High-Inequality Developing Countries hyaya, University of Maryland at College Park. The Escape Absolute lPoverty?" Policy Research Working Paper Netherlands Trust Fund is contributing funding for this 1775. Wlorld Bank, Policy Research Department, Washington, research. D.C. (ompletion date: October 2002. - . 2000. "Growth and loverty: Making Sense of the Debate." World l3ank, I)evelopment Research Group, Washington, The Living Standards Measurement Study, Phase 3 D.C. Ravallion, Martin, and Shaohua (Chen. 1997. "What Can New Sur- The Living Standards Measurement Study (LSMS) was vey Data 'I'ell [Is about Recent Changes in Poverty and Dis- established by the World Bank in 1980 to explore ways tribution?" lVorld Bank EronomicReview 11(2): 357-82. of improving the type and quality of household data in - . 2000. "How I)id the World's lPoorest Fare in the 1990s?" developing countries. The LSMS has contributed to Policy Research Working laper 2409. World Bank, Develop- both the quantity and the quality of research possible on ment Research Group, Washington, D).C. poverty and human resource issues. It has generated Ravallion, Martin, Gaurav D)att, and D)ominique van de Walle. methods of data collection and survey design and pro- 1991. "Quantifying Absolute Poverty in the Developing vided supportfor new, high-quality, multitopic household World." Review of Income and WVeallh 40(December): 359- surveys as well as further research into improving survey 76. data and analysis. LSMS surveys have been conducted Poverty and Social Welfare 41 in more than 20 countries, generating more than 40 data Social Capital sets. These data sets have been the key input for much of the work on poverty in the World Bank and have sup- The social dimensions of development are increasingly ported nearly 400 academic studies. The LSMS has pro- recognized as important determinants of individual well- vided policymakers with timely data for designing and being and institutional performance. This project con- evaluating social and economic programs. sists of a number of studies that investigate the social The present phase of the work focuses on supporting dimensions of development, with the aim of improving the decentralization of the LSMS program while main- the theoretical foundations, empirical support, and qual- taining high-quality data collection and analysis. Demand ity of the policy recommendations emerging from research for new surveys continues to come from countries and on this subject. Bank operational units, and the LSMS provides tools, The studies use several analytical approaches, includ- expertise, and research that respond to the needs of sur- ing formal modeling, econometric analysis, and qualita- vey planners, policymakers, and analysts: tive analysis. And they draw on a variety of sources, * Tools for survey planners (manuals and training ranging from literature reviews and secondary sources courses on surveys and analysis). (such as the World Bank Institute) to original fieldwork * Research on survey design methods (questionnaire consisting of interviews and household surveys. design, measurement of consumption for welfare, the The principal findings pertain to how different types effect of sampling error, and various experiments in mea- of social networks in poor communities are deployed surement). for different purposes in managing risk and opportunity. * Operational support for new surveys (from appraisal The findings have implications for how external agents to supervision to evaluation). (governments, aid agencies, nongovernmental organi- * A data bank (archiving the LSMS surveys with the zations) can best intervene in poor communities and necessary documentation and disseminating data sets). how they can leverage-or even build-social ties con- * Publications and dissemination (the LSMS Work- necting the poor to markets and to formal institutions. ing Paper Series). This work has directly informed the World Bank's World * The LSMS Web site (wwwworldbank.org/lsms), Development Report 2000/2001: Attacking Poverty (New which contains information on all the LSMS surveys York: Oxford University Press, 2000). as well as the data sets or information on how to obtain The research is expected to improve the quality of them. Bank-supported projects that are concerned, implicitly As part of the decentralization and capacity build- or explicitly, with encouraging the participation of the poor ing efforts in phase 3, the Bank staff and consultants and improving institutional quality. Bank operations staff involved in the LSMS program work closely with coun- have been asked to contribute to future work examin- terparts and clients in the Bank and externally, includ- ing the impact of social capital on development ing statistical offices in developing countries, the projects. Inter-American Development Bank, the Economic In Colombia and Romania this work has become the Commission for Latin America and the Caribbean, the foundation for major conceptual and policy analysis. In United Nations Development Programme, the U.S. Colombia social capital has served as the basis for a new Bureau of the Census, and the U.S. Bureau of Labor urban renewal initiative designed to lower crime and Statistics. increase citizen well-being. In Romania a social capital Responsibility: Development Research Group, Poverty and framework has become the basis for building a dialogue Human Resources-Kinnon Scott (kscottl@worldbank. among stakeholders (unions, government officials, media org), Martha Ainsworth, Harold Alderman, Calogero Car- representatives) that for decades have not communi- letto, Diane Steele, and Tilahun Temesgen. With Bene- cated with one another. And in India the findings of one dicte de la Briere. study have led to changes in the public distribution sys- (ompletion date: Ongoing. tem for foodgrains. 42 Poverty end Social Welfare Results from this research project were presented in 13rautigam, Deborah, and Michael Woolcock. Forthcoming. "Small the World Bank Institute's civil society program in Roma- States in a Global Economy: 'I'he Role of Institutions in Man- nia and at conferences at Boston University, C(ambridge aging Vulnerability and Opportunity in Small Developing University, Michigan State University, Middlebury Col- Countries." In Mansoob Murshed, ed., Globalization and the l ege, Oxford University, the University of Tasmania, the Obstacles to the Sucxe.ful Integration of Small Vulnerable ELonomies. University of Technology at Sydney, the Ford Founda- New York: Oxford University Press. tion, the Kettering Foundation, the Australian Institute Rao, Vijayendra. 2000. "Celebrations and Social Returns: 'I'he of Family Studies, the Australian Department of Fam- Economics of Festivals in Rural India." World 13ank, I)evel- ily and Community Studies, the Organisation for Eco- opment Research Group, Washington, I).C. nomic Co-operation and Development, the United . 2000. "IPrice Heterogeneity and Real Inequality: A Case Nations World Summit for Social Development, and Study of Prices and Poverty in Rural South India." Reviev of meetings of the American Agricultural Economics Asso- Income and Wealth 46(2): 201-12. clation. The work also forms the foundation for a new - . Forthcoming. "Poverty and Public Celebrations in Rural course to be offered at Harvard University. India." Annals of the American Academy of Political and Social Responsibility: Development Research Group, Poverty and Science. Human Resources-Vijayendra Rao (vrao@worldbank. Woolcock, Michael. 2()00. "Managing Risk, Shocks, and Oppor- org) and Michael Woolcock. tunity in Developing Economies: The Role of Social Capital." (ompletion date: Ongoing. In Gustav Ranis, ed., Dimensions of Development. New Haven, Conn.: Yale Center for International and Area Studies. Reports Woolcock, Michael, and Deepa Narayan. Forthcoming. "Social Bloch, Francis, and Vijayendra Rao. 20()0. "Statistical D)iscrimination Capital: Implications for Development'l'heory, Research, and and Social Assimilation." World Bank, Development Research Policy." World Bank Research Ohserver Group, Washington, D).C. Woolcock, Michael, Lant 13ritchett, and Jonathan Isham. Forth- Bloch, Francis, Vijayendra Rao, and Sonalde Desai. 2000. "Wed- coming. "'I'he Social Foundations of Poor Economic Growth ding Celebrations as Conspicuous Consumption: Signaling in Resource-Rich Countries." In Richard Auty, ed., Natural Social Status in Rural India." World Bank, Development Resources and Economic Growth in Developing Countries. New Research Group, Washington, D.C. York: Oxford UJniversity Press. Poverty and Sociol Welfore 43 Education and Labor Markets Labor Demand and Reform face therefore requires focusing on both continuing firms and entering and exiting firms. There are increasing fears that trade reform-and glob- The study's findings suggest that trade liberalization alization more generally-will increase the uncertainty has relatively little impact on demand elasticities. More- faced by average workers, particularly the unskilled. over, estimates depend greatly on technique and time One channel through which this may occur, it has been period, suggesting that drawing policy conclusions from argued, is the wage elasticity of labor demand-the per- comparisons of demand elasticities may be difficult. The centage by which employment falls if the wage rises 1 entry and exit of firms is responsible for a substantial frac- percent. It is argued that the increased competitiveness tion of net job creation. The elasticities of net job cre- of product markets and the greater access to foreign ation for this group are similar to those for continuing firms inputs may increase wage elasticities, implying that any and also show ambiguous effects of trade liberalization. shock to firm demand will necessarily lead to a larger fall The research has several implications for operations in wages or, if wages are sticky, to a greater fall in employ- in the World Bank. It produced the most precise estimates ment. It has also been posited that the higher elasticity to date of own wage labor demand elasticities, necessary for unskilled workers contributes to the worsening of for estimating the impact of minimum wages, labor mar- unskilled relative to skilled wages observed in some lib- ket distortions, and other variables that affect the cost of eralizing countries. labor. Its work on firm dynamics is central to under- This research project tested that argument: Does standing the process of job creation in liberalizing coun- globalization lead to higher labor demand elasticities tries. Its findings suggest that policy not be based on and thus greater volatility for workers? Or, in concrete comparative labor demand elasticities unless the num- terms, what impact does trade liberalization have on bers are truly comparable in methodology, data, and own wage labor demand elasticities, for both continuing position in the business cycle. And finally, its results firms and those entering and exiting? should reduce fears about workers facing greater risk as The study estimated consistent, state-of-the-art labor a result of globalization. demand elasticities using establishment-level panel data The research also contributed directly to operational from Chile and Colombia (cases of increased trade restric- activity. The elasticities it generated were used in the tions followed by liberalization) and Mexico and Peru simulations for the Colombia Emergency Employment (cases of rapid liberalization). This was done using the Program. And the final working paper will serve as a Arellano-Bond generalized method of moment in dif- guide to best practice in estimating labor demand ferences, Blundell and Bond systems estimators, and elasticities. ordinary least squares regressions. Results have been presented at the Latin American The study first focused on movements in labor and Caribbean Economic Association meetings (October demand within continuing firms, deriving necessary the- 1999, in Chile), the Latin Meetings of the Econometric ory and empirical specifications from standard neoclas- Society (August 1999, in Mexico), and the Sixth Annual sical production or cost functions. But as has now been Bank Conference on Development in Latin America documented extensively in the United States and in and the Caribbean (June 2000, in Washington, D.C.). In this study as well, a large fraction of movements in the addition, the main report produced by the project is stock of jobs, somewhere between 20 percent and 40 per- being disseminated through a "road show" throughout cent, is driven by the entry and exit of firms. Under- Latin America, with the aim of generating discussion standing the overall labor demand elasticities that workers about appropriate policies for dealing with economic 44 risk in the global economy. Presentations have also been those covered are less likely to lose their jobs. Combin- made in the Bank. ing several empirical strategies, the research also found Findings are available on the Web at wblnOO18. thatcovered workers do not "pay" for theirseverance pay worldbank.org/external/lac/lac.nsf. through lower wages. Finally, it found that consumption Responsibility: Latin America and the Caribbean Region, among unemployed workers who received severance Poverty Sector Unit-William Maloney (wmaloney pay was 20-30 percent higher than among those who did @worldbank.org). With Pablo Fajnzylber, Federal Uni- not. versity of Minas Gerais; Eduardo Ribeiro, Federal Uni- Findings were disseminated through a conference in versity of Rio Grande do Sul; and Jaime Saavedra and Washington, D.C., in June 2000. The conference released Maximo Torero, Grupo para Desarrollo (GRADE). the report SecuringOur Future in a GlobalEconomy (Wash- (ompletion date: April 2000. ington, D.C.: World Bank, 2000), to which this research contributed. Report Responsibility: Development Research Group, Poverty and de Ferranti, D)avid, Guillermo E. lPerry, Indermit S. Gill, and l,uis Human Resources-Martin Rama (mrama@worldbank. Serv6n. 2(00). Securing Our Future in a Global Eronomy. I,atin org) and Donna MacIsaac. The Canadian and Japanese American and Caribbean Studies Series. Washington, D).C.: Trust Funds contributed funding for the research. World Bank. Completion date: June 2000. Income Support for the Unemployed: Report Mandatory Severance Pay in Peru M/lacIsaac, Donna, and Martin Rama. 2000. "Mandatory Sever- ance l'ay in lPeru: An Assessment of Its Coverage and Effects This research was part of a broader project on income sup- Using Panel I)ata.- World Bank, I)evelopment Research Group. port programs for the unemployed in Latin America, Washington, I).C. undertaken jointly by the Latin America and the Caribbean Region's Office of the Chief Economist and Job Turnover and Total Factor Productivity: the Development Research Group. The broader project Microeconomic Evidence from Taiwan (China) was aimed at improving the understanding of who the unemployed are and assessing five income support pro- A crucial factor in economic performance is how well a grams that have been tried in middle-income countries: country reallocates its resources from less productive to public work, unemployment insurance, mandatory sev- more productive uses in response to long-term changes erance pay, individual unemployment savings accounts, in demand patterns and technology. Recent studies have and training for the unemployed. This research dealt with suggested that the fortunes of individual firms are only mandatory severance pay, focusing on Peru in the 1990s. marginally determined by industry-level changes, and In Peru, as in many other developing countries, firm-level data are thus vital for exploring issues in the employers have a legal obligation to grant severance pay evolution of industries. to workers dismissed through no fault of their own. This This research project focused on labor as one such research assessed the effects of this mandate using indi- resource that must be reallocated as the fortunes of the vidual records from three rounds of a household survey. employing firms change. The analysis was based on Relying on five indicators of coverage, the research found detailed firm-level data from the Manufacturing Censuses that roughly 20 percent of private sector workers are of Taiwan (China), for 1986 and 1991. Taiwan (China), legally entitled to severance pay, but only half those is an interesting case because, in contrast to several of its covered are likely to get it in the event of dismissal. struggling neighbors, it has so far escaped the effects of Legal coverage and, especially, actual coverage are more the East Asian financial crisis with a small devaluation prevalent among wealthier workers. Few among the of its currency and modest declines in share prices. Eco- unemployed receive severance pay, which suggests that nomic performance remains strong. Thus one of the Educalion and Labor Morkeis 45 main objectives of the research was to understand the creation rate than their larger counterparts. But unlike extent to which the industrial structure of Taiwan (China), in the United States, gross job destruction rates decline particularly its labor market, has contributed to its abil- sharply with size in only a handful of industries and ity to withstand macroeconomic shocks. actually increase with size in others. Given the pre- Using measures of firms' job creation and destruction dominance of small enterprises, this evidence suggests rates, with the firms classified by their turnover status, that, contrary to findings in the United States, this group the study addressed two questions. First, what is the of firms makes an important contribution to net job underlying pattern of gross job flows and the impor- creation. tance of incumbent firms relative to turnover firms in the Responsibility: Private Sector Development Department, net growth of jobs in Taiwanese manufacturing? And sec- Business Environment Unit-Geeta Batra (gbatra ond, what types of firms are most proficient at creating @worldbank.org). With Bee Aw and Tor Winston, Penn- new jobs? To address the second question, firms were fur- sylvania State University. ther classified by quartiles of employment size and total Completion date: June 2000. factor productivity. The results show that while the manufacturing sec- Report tor gained fewer than 9,000 workers in 1986-91, more than Aw, B3ee, and Geeta Batra. 2000. "Job 'Turnover and 'Total Factor one million jobs were created and more than one million Plroductivity: Micro Evidence from 'I'aiwan (China)." PSI) destroyed. In any given year an average of about 12 in Occasional Paper 43. World Bank, Private Sector Develop- 100 manufacturing jobs open up (compared with 10 in ment Department, Washington, D.C. 100 in the United States), and a similar number disap- pear. This large-scale reshuffling of employment is gen- Gender, Low, and Development erally interpreted to reflect a flexible and fluid labor market. In addition, of the 1.89 million jobs in 1986, Gender outcomes of development policy are determined only about 40 percent were retained jobs held in con- in part by a country's institutional environment. tinuing firms. The rest were lost through the contraction That environment reflects social and cultural norms that of incumbents or through shutdowns. In 1991 the vast shape the roles of men and women; the legal and majority of jobs were new positions created by entrants regulatory framework, which may validate gender rather than by the expansion of existing firms. differences whether or not they improve individual wel- Thus while the overall job creation and destruction fare; and the economic context, which includes tech- rates in Taiwan (China) are in line with those in other nology, the state of markets, and the prevailing gender countries-industrial (Canada and the United States) and division of labor. These institutions create incentives developing (Chile and Colombia)-the findings indicate and opportunities that shape individual and group choices that, unlike in these economies, in Taiwan (China) the entry and behaviors, including how men and women are able and exit of firms is the primary source of job turnover, not to respond to incentives from development policies and the expansion and contraction of continuing firms. programs. The findings also show that job destruction rates are This research reviews the cross-country evidence on negatively correlated wich total factor productivity across how different aspects of the law treat men and women. all industries, while job creation rates are not systemat- It includes a study on family law (including laws relat- ically related to total factor productivity. Together, these ing to divorce, child custody, separation rights, and pun- findings mean that net employment growth increases with ishment for domestic violence) and another on labor law total factor productivity, with high-productivity firms (including protection and minimum wage laws). Both having higher net job creation rates than low-productivity studies present evidence on the legal framework in dif- firms. ferent countries and the mechanisms for enforcing these Finally, the study shows that, just as in the United laws, and both review the effect the laws have had on the States, smaller employers have a much higher gross job welfare of men and women. 46 Edutation and Labor Markets The first study is a comprehensive survey of the inci- dence." Policy Research Report on Gender and Development dence and types of gender-specific, gender-neutral, and Working Paper 6. World Bank, Development Research Group, gender-blind labor market laws and policies in developing Washington, D).C. [www.worldbank.org/gender/prr]. countries, focusing on East Asia. It presents a theoret- ical context for understanding the impact of these labor Policy Research Report on Gender and Development market policies on women's employment, wages, and working hours. The study concludes that social policies Over the past several decades gender issues have gained designed to protect female workers and promote work- greater prominence in the debate on development. Yet place equality have controversial effects on labor market the importance of bringing a gender perspective to pol- outcomes. Working-hour restrictions and mandated icy analysis and design still is not widely understood, nor maternity benefits help safeguard women's family respon- have the lessons for development been fully integrated sibilities and ensure their physical security, but these reg- by donors and national policymakers. ulations can raise the cost to firms of hiring women. This research has focused on the many links between Equal pay and equal opportunity measures potentially gender, policy, and development outcomes-and on increase women's relative earnings and reduce occupa- such topics as the gender dimensions of poverty, how tional segregation, but they are difficult to implement and intrahousehold resource allocation and social capital enforce. Although not explicitly designed to target affect gender outcomes, and how legal and regulatory women's well-being or equality, seemingly gender-blind environments promote or inhibit gender equality (see the policies can yield different outcomes for men and women. abstract in this volume for Gender, Law, and Develop- The second study examines the meaning of equal pro- ment). The findings are reported in a draft World Bank tection laws as given in different international conven- Policy Research Report on gender and development tions and national constitutions, reviews how laws can (currently titled Engendering Development). The report discriminate against women or men and provides concrete strengthens the analytical and empirical underpinnings examples of such discrimination in different countries, of promoting gender equality and, in doing so, clarifies and relates discriminatory laws to intrahousehold allo- the value added of bringing a gender perspective to the cation of power and resources. In particular, it investigates analysis and design of development policies and projects. whether laws relating to violence against women have The study has drawn on existing analytical and empiri- been effective in protecting women. It also assesses the cal work on gender, recent policy and program experi- extent to which law matters (that is, whether legal liter- ence, about 30 background papers prepared by a acy programs, judicial training, test case strategies, and multidisciplinary group of researchers, and analysis of new legal reform initiatives work and whether law creates empirical evidence. social consensus or follows it). Among the key conclusions: Responsibility: Development Research Group, Poverty and * Despite progress, gender inequalities are still per- Human Resources-Elizabeth King (eking@worldbank. vasive worldwide and exist across many dimensions of org); and Poverty Reduction and Economic Manage- life. In no developing region do women experience ment Network, Gender Division-Andrew D. Mason. equality with men in legal, social, and economic rights. With Anne Tierney Goldstein, International Women Gender gaps remain widespread in access to and control Judges Foundation and George Washington University of resources, in economic participation, in power, and in Law Center; and Yana van der Meulen Rodgers, College political voice. These gaps are wider in poorer countries of William and Mary. and in the poorest groups within countries. Completion date: September 2000. * While girls and women are most disadvantaged by gender disparities, these inequalities reduce the well- Report being of all people. Societies that discriminate on the basis van der Nleulen Rodgers, Yana. 1999. "Protecting Women and of gender payasignificant price-in more poverty, slower P'romoting Equality in the l,abor Market: T heory and Fvi- economic growth, weaker governance, and a lower qual- Education and Labor Markets 47 ity of life. Where gender inequalities impose high human Reports costs and constrain countries' development prospects, Dollar, David, and Roberta Gatti. 1999. "Gender Inequality, there is a strong argument for a state role in promoting Income, and Growth: Are Good Times Good for Women?" gender equality. P'olicy Rescarch Report on Gender and Development Work- * Promoting gender equality in basic rights and eco- ing Paper 1. World Bank, Development Research Group, Wash- nomic development is central to a long-term strategy for ington, D.C. achieving equality. Societies that establish an institu- I)ollar, David, Raymond Fisman, and Roberta Gatti. 1999. "Are tional environment supportive of gender equality and that Women Really the 'Fairer' Sex? Corruption and Women in promote economic development are likely to be more Government." Policy Research Report on Gender and Devel- effective in reducing gender disparities than those that opment Working Paper 4. World Bank, Development Research focus on growth-or on rights-alone. Group, Washington, D.C. * But even an approach of equal rights and economic Filmer, Deon. 1999. "'I'he Structure of Social Disparities in Edu- development may not lead quickly to major gains. The cation: Gender and Wealth." Policy Research Report on Gen- processes of institutional change and of economic growth der and Development Working IPaper 5. World Bank, and development can be slow and uneven. Active mea- Development Research Group, Washington, D).C. sures are needed to redress persistent gender disparities Ilahi, Nadeem. 2000. "The Intra-household Allocation of l'ime and in the short to medium term. 'Iasks: What Have We Learnt from the Empirical l,iterature?" * The evidence argues for a three-part strategy to Policy Research Report on Gender and Development Work- promote gender equality: reforming legal, economic, ing Paper 13. World Bank, Development Research Group, and social institutions to establish a foundation of equal Washington, D.C. rights and equal opportunities for women and men; Klasen,Stephan. 1999. "DoesGenderInequalityReduceGrowth implementing policies for sustained economic growth and and Development? Evidence from Cross-Country Regres- development; and initiating active policy measures to sions." IPolicy Research Report on Gender and D)evelopment reduce gender disparities in the command of resources Working Paper 7. World Bank, Development Research Group, and political voice. Washington, D.C. The report, scheduled for publication in fall 2000, has L,ampietti, Julian A., and linda Stalker. 2000. "Consumption been broadly reviewed and discussed inside and outside Expenditure and Female Poverty: A Review of the Evidence." the World Bank. It was discussed on the Web through the Policy Research Report on Gender and Development Work- Global Development Forum and at a panel session at the ing Paper 11. World Bank, Development Research Group, Beijing Plus-5 meetings at the United Nations in New Washington, D.C. York in June 2000. Some of the background papers are Lampietti, Julian A., Christine Poulos, Maureen L. Cropper, Haile available on the project Web site (www.worldbank.org/ Miriku, and l)ale Whittington. 1999. "Gender and Preferences gender/prr). for Malaria Prevention in Tigray, Ethiopia." Policy Research Responsibility: Development Research Group, Poverty and Report on Gender and Developmenc Working P'aper 3. World Human Resources-Elizabeth King (eking@worldbank. B3ank, Development Research Group, Washington, D).C. org) and Ananya Basu; World Development Report Lokshin, Michael M. 2000. "Effects of Child Care lPrices on Office-Claudio Montenegro; Poverty Reduction and Women's l,abor Force Participation in Russia." P'olicy Research Economic Management Network, Gender Division- Report on Gender and Development Working Paper 10. World Karen Mason and Andrew D. Mason; and Global Devel- 13ank, Development Research Group, Washington, D.C. opment Network-Lyn Squire. With Tai Lui Tan, Lihong l,okshin, Michael M., Elena Glinskaya, and Marito Garcia. 2000. Wang, Cristina Estrada, Owen Haaga, and Branko "'The Effect of Early Childhood Development Programs on Jovanovic. The government of the Netherlands and the Women's l,abor Force Participation and Older Children's Royal Ministry of Foreign Affairs, Norway, have con- Schooling in Kenya." Policy Research Report on Gender and tributed funding for the research. Development Working Paper 15. World Bank, Development Completion date: September 2000. Research Group, Washington, D.C. 48 Education and Labor Markets L,ong, Iynellyn D)., ,e Ngoc Hung, Allison 'l'ruitt, 1,e 'hi Phuong empowerment issues in selected households in the same Mai, and l)ang Nguyen Anh. 2000. "Changing Gender Rela- study villages. tions in Vietnam's lPost l)oi \Moi lFra." lPolicy Research Report The data have been entered and are currently being on Gender and D)evelopment Working Paper 14. World Bank, cleaned. The process has been slowed by interruptions Development Research Group, Washington, D.C. from political disturbances, which prevented regular Paul-Majumder, I'ratima, and Anwara 13egum. 2000. "The Gen- operation of the Bangladesh organization (the Bangladesh der Imbalances in the Export-Oriented Garment Industry in Institute of Development Studies) responsible for data Bangladesh." lolicy Research Report on Gender and D)evel- entry and cleaning. Clean data are expected by July opment Working lvaper 12. World 13ank, Development Research 2000, after which analysis will begin. Group, Washington, D.C. Survey data will be processed with appropriate weights Quisumbing, Agnes R., and John A. Maluccio. 1999. "Intra- to develop indexes of social, economic, political, and household Allocation and Gender Relations: New Empirical Evi- overall empowerment. Once both empowerment and dence." Policy Research Report on Gender and Development its quantitative dimensions are defined, the impact of Working laper 2. World Bank, D)evelopment Research Group, microcredit on women's empowerment status will be Washington, D).C. estimated. Rice, Patricia. 1999. "Gender Earnings Differentials: 'I'he Euro- Responsibility: World Bank Institute, Economic Policy and pean Experience." Policy Research Report on Gender and Poverty Reduction Division, and Development Research Development Working Plaper 8. World Bank, Development Group. Rural Development-Shahidur R. Khandker Research Group, Washington, I).C. (skhandker@worldbank.org); and Development Research Sen, Samita. 2000. "'lowards a Feminist politics? 'I'he Indian Group, Rural Development-Hussain Samad. With Mark Women's Movement in Historical Perspective." lolicy Research Pitt, Brown University; and Rita Afsar, Bangladesh Insti- Report on Gender and D)evelopment Working Plaper 9. World tute of Development Studies. Bank, D)evelopment Research Group, Washington, D.C. Completion date: December 2000. van der Meulen Rodgers, Yana. 1999. "Protecting Women and Promoting Equality in the l,abor Market: 'I'heory and Evi- Gender Data and Labor Markets dence." Policy Research Report on Gender and Development Working Paper 6. World 13ank, Development Research Group, Labor market participation and remuneration in Latin Washington, D.C. America differ by gender, as they do in all regions, but there is scant evidence on why they differ and what Does Microcredit Empower Women? implications the differences have for the well-being of A Study of Grameen Bank, BRAC, and men and women. Moreover, little is known about how the RD-12 Project in Bangladesh these differences have evolved over the past 10 years of economic reform. This research project identifies This research is aimed at determining whether micro- the changes in labor market outcomes for men and credit programs empower women, the main participants women in Latin America over the past decade and exam- in these programs. Participatory and focus group research ines the importance of gender roles in shaping these involving women, men, village and urban elites, acade- outcomes. mics, program organizers, and leaders of women's groups The project has two parts. First, it constructed a data- was used to develop indicators for three concepts of base of gender-disaggregated statistics, to provide ana- empowerment-economic, social, and political. Ques- lysts and policymakers with the information needed to tionnaires based on indicators of empowerment were recognize men and women as different economic agents then administered to women in both program and non- with distinct sets of preferences and constraints. The data- program households in program villages and in target and base was constructed from household and labor market nontarget households in nonprogram villages. Partici- surveys and existing databases. The surveys generated patory or other qualitative approaches were used to study statistics on education, gender roles, labor markets, social Edutolion and Labor Morkets 49 capital, and household structure for 13 countries. Statis- Reports tics on health, violence, and gender expectations and atti- Arias, Omar. "Are All Men Benefiting from the New Economy? tudes were drawn from other sources and reported for all Male Economic Marginaliyation in Argentina, 13razil, and Costa countries for which the data are available. Rica." World 13ank, Latin America and the Caribbean Region, Second, the project is undertaking an empirical study Gender Sector Uinit, Washington, D.C. of the causes of the observed differences in labor force Cunningham, Wendy. 2000. "Mexican Female Small Firm Own- participation, unemployment, sectoral allocation, infor- ership: Motivations, Returns, and Gender." World Bank, Latin mal sector employment, entrepreneurship, and wage America and the Caribbean Region, Gender Sector EJnit, Wash- trends both between men and women and within each ington, D.C. gender group. The study draws on the database and . 2000. "Sectoral Allocation by Gender in the 1990s: Evi- complements it with econometric analysis of the deter- dence from Argentina, Brazil, and Costa Rica." World Bank, minants of differential labor market outcomes. The Latin America and the Caribbean Region, Gender Sector UJnit, results are used to build alternative explanations of Washington, D.C. gender differences in the labor market by taking into Saavedra, Luz. 2000. "Female Wage Inequality in Latin American account the opportunities and constraints created by Labor Markets." World Bank, Latin America and the Caribbean gender roles and how these shape labor market choices Region, Gender Sector Unit, Washington, D.C. and outcomes. A better understanding of these oppor- tunities and constraints will allow more tailored design Improving Primary Education in Kenya: of labor market policies and projects and enhance pro- A Randomized Evaluation of Different ject effectiveness. Policy Options Three preliminary results have emerged from the ongoing work: Many econometric studies have tried to estimate * Women's and men's labor market behavior and the effect of education policies on school performance returns are becoming more similar over time, but that does in industrial countries. But even the most sophisticated not necessarily mean that women are better off than econometric techniques may yield biased estimates before. New challenges are arising for both men and if schools with different levels of inputs also differ women in the home and workplace as workloads increase systematically in other, unobserved ways. Randomized and wages become more equal. experiments overcome many of the statistical problems - The interface between household roles and gender inherent in these econometric studies, but they are is important in explaining observed labor market out- rarely done because of their high costs and because of comes. Often there are more similarities in labor market public officials' reluctance to vary the level of behavior between those with similar roles in the house- inputs among schools. This research takes advantage of hold (primary breadwinner or primary caregiver) than an opportunity to perform randomized evaluations between those of the same sex. of several different education policy options in * The most vulnerable groups-women, informal collaboration with an international nongovernmental sector workers, and the least educated-saw the most organization. rapid gains in wages, employment, and formal sector The study began with a small number of schools in employment over the 1990s. Women experienced par- 1995. From 14 schools, 7 were randomly chosen to receive ticularly rapid gains. the organization's standard package of assistance. Pretests Responsibility: Latin America and the Caribbean Region, were administered at the beginning of 1995, and posttests GenderSectorUnit-WendyCunningham(wcunningham in the fall of 1995. Preliminary results show a large @worldbank.org) and Raquel Artecona. With Luz Saave- increase in student attendance, probably due to the pro- dra, University of South Florida; and Omar Arias, Inter- vision of free school uniforms, which effectively lowered American Development Bank. the price of schooling. However, test scores show no (ompletion date: January 2001. improvement. 50 Eduuolion and Labor Markets The project expanded in 1996 to 100 schools, of which Migration and Poverty in Latin America 25 were randomly chosen to receive a large number of textbooks. Pretests were administered in early 1996, and Migration is one of several ways through which house- posttests near the end of that year. The children were fol- holds adapt to such structural shifts as the transformation lowed for two more years (1997 and 1998) to assess of a rural agricultural economy into an urban industrial whether the initial effects endure for several years. Pre- one. Households may use migration, which offers the liminary results suggest that the impact of textbooks is promise of higher earnings, as a strategy for escaping not as strong as some earlier studies had indicated. Of par- poverty. They may use migration to overcome credit ticular interest is the finding that the provision of text- constraints due to imperfect markets or to overcome books benefited only the top 20 percent of students, as other forms of rationing, such as lack of access to edu- identified by the scores on the 1996 pretests. And text- cation and health services. And they may use book provision had little effect on dropout rates or grade migration-permanent or temporary, internal or repetition. international-as a strategy for coping with both macro- In 1997 another 25 of the 100 schools were selected economic and idiosyncratic shocks. to receive block grants that could be spent on several This study aims to provide a balanced view of the gains options, such as textbooks, other school supplies, or con- from and costs of migration by analyzing its impact on struction of new classrooms. The purpose of this inter- both monetary and nonmonetary outcomes. It is both vention is to see whether schools use funds more reviewing the literature and undertaking new research effectively when they are given a choice on how to spend on the geographic determinants of income and other them. Preliminary analysis shows a small but statisti- indicators of well-being, the impact of rural cash trans- cally significant impact on overall test scores after one fers on migration, and the impact of remittances on year. inequality, education, and housing. In 1998 another randomization was done for all 100 Responsibility: Latin America and the Caribbean Region, schools. Fifty schools participated in a program in which Poverty Sector Unit-Quentin Wodon (qwodon teachers received rewards if their students' performance @worldbank.org). With Gabriel Gonzalez, Victoria Malkin, on standardized tests improved; the other 50 schools and Corinne Siaens. did not participate. The data from this experiment are Completion date: March 2001. being analyzed. Findings have been presented at Brown, Cornell, The Impact of Labor Market Policies and Harvard, Hebrew, Michigan, Minnesota, Toronto, and Institutions on Economic Performance Yale Universities; the MacArthur Foundation; and the International Food Policy Research Institute. This study-the second phase of a project that assesses Responsibility: Rural Development Department-Harold the effect of labor market interventions on labor market Alderman (halderman@worldbank.org); and Develop- outcomes and aggregate economic performance-seeks ment Research Group, Poverty and Human Resources- to understand how the reform of labor market interven- Stacy Nemeroff and Nauman Ilias. With Paul Glewwe, tions should be approached. It focuses on a set of well- University of Minnesota; Michael Kremer, Harvard defined departures from the undistorted, partial University; Sylvie Moulin, Hillary Rodham Clinton equilibrium model of the labor market: minimum wages, Women's Empowerment Center, Morocco; and mandated benefits (or nonwage costs), payroll taxation Alexander Wolfson, Massachusetts Institute of Tech- (including social security contributions), public sector nology. Funding for the research has been contributed employment, job security, and unionization. by International Christian Humanitarian Services, the The research combines theoretical work, detailed Netherlands; and the U.S. National Science case studies based on household- and plant-level data Foundation. from countries in which labor market distortions are Completion date: March 2001. believed to be acute, and cross-country analysis. Several Educotion and Labor Markets 51 detailed studies are carried out for each labor market inter- Reports vention. The cross-country analysis is made possible by Azam, Jean-laul, and Catherine Ris. 2000. "Rent Sharing and the construction of a cross-country time-series database Wages in the Manufacturing Sector of C6te d'lvoire." Uiniver- of labor indicators, which comprises data collected from site des Sciences Sociales, 'ioulouse. cross-country and country-specific sources. The data- l3artel, Ann, and Ann Harrison. 1999. "Ownership versus Envi- base is used to extend the now standard growth regres- ronment: Why Are Public Sector Firms Inefficient?" NBER sion analysis so as to take labor market policies and Working laper 7043. National Bureau of Economic Research, institutions into account. The theoretical work deals Cambridge, Mass. with the political economy of labor market distortions and 13ell, Linda. 1995. "'I'he Impact of Minimum Wages in Mexico and its implications for the design of economic reforms. Colombia." Journalof I.aborJ&onomicv 15(3): S102-35. Several of the case studies have been finalized, and Butcher, Kristin, and Cecilia Rouse. "Centralized 13argaining in preparation for the cross-country work has begun. A key South Africa: A Study of Unions and Industrial Councils." input in this respect was the completion of the cross- P'rinceton UIniversity, Princeton, N.J. country database of labor market indicators. This data- Currie, Janet, and Ann Harrison. 1997. "Sharing the Costs: I'he base includes 44 variables relating to labor force partic- Impact of 1rade Reform on Capital and Labor in Morocco." ipation, employment and unemployment, wages and Journal of Labor Economics 15(3): S44-71. productivity, conditions of work and benefits, trade Daveri, Francesco, and Guido 'rabellini. 1997. "Unemployment, unions and collective bargaining, public sector employ- Growth, and Tlaxation in Industrial Countries." CEPR ment, and labor standards. The database covers 121 Working Paper 1681. Centre for Economic Policy Research, countries and 11 five-year periods, starting immediately London. after World War II. The consistency and completeness Forteza, Alvaro, and Martin Rama. 2000. "Labor Market 'Rigid- of the data are being checked country by country, and the ity' and the Success of Economic Reforms across More than One accompanying documentation is being organized for Hundred Countries." World Bank, Development Research public release. No comparable labor market database is Group, Washington, D.C. currently available to researchers and practitioners. F reeman, Richard. 1994. "A Global Labor Market? Differences in The research findings have been disseminated through Wages among Countries in the 1980s." World Bank, Policy workshops, training sessions, and seminars for researchers, Research Department, Washington, D.C. government officials, and trade union leaders. A policy- Cruber, Jonathan. 1997. "'I'he Incidence of Payroll 'Taxation: oriented volume, which would combine the study's Evidence from Chile." Journal of Labor Economir.s 15(3): results with lessons drawn from other research on labor S72-101. market policies and institutions in developing countries, Macisaac, Donna, and Martfn Rama. 1997. "Decerminants is planned. of Hourly Earnings in Ecuador: The Role of Labor Market Reg- Responsibilily: Development Research Group, Poverty and ulations." Journalof Labor Economits 15(3): S136-65. Human Resources-Martin Rama (mrama@worldbank. Rama, Martin. 1994. "Flexibility in Sri Lanka's Labor Market." Pol- org). With Raquel Artecona; lyabode Fahm; Alema Siddiky; icy Research Working Paper 1262. World 13ank, lolicy Research Jean-Paul Azam, Universite d'Auvergne; Ann Bartel and Department, Washington, D.C. Ann Harrison, Columbia ltniversity; Kristin Butcher, . 1995. "Determination des salaires au paradis: UIne analyse Boston College; Alex Cukierman, Tel Aviv University; du marche du travail a 1'1le Maurice." Revue d'Economie du Francesco Daveri, Universita di Brescia; Alvaro Forteza, D&veloppemenl 2: 3-27. Universidad de la Republica, Uruguay; Anna Fruttero and . 1995. "Do Labor Market Policies and Institutions Matter? Guido Tabellini, Universita Bocconi, Milan; Donna The Adjustment Experience in Latin America and the MacIsaac, Inter-American Development Bank; Dani Caribbean." I.abour pp. S243-69. Rodrik, Harvard UJniversity; Cecilia Rouse, Princeton Uni- - . 1995. "LJnions and Employment Growth: Evidence from versity; and Manisha Singh, University of Maryland. Jamaica." NVorld Bank, P'olicy Research Department, WVash- (ompletion dote: June 2001. ington, D.C. 52 Education and Labor Morkets . 1997. "Distortions des marches des biens et du Public Sector Retrenchment, Phase 2 travail: 1)eterminants et consequences." In Jaime de Melo and latrick Guillaumont, eds., Commerre Nord-Sud, migrationetdilo- This is a follow-up to a research project on how to deal calisation: ConsAluentes pour les salaires et lemploi. Paris: with redundant labor in the public sector. Economic Economica. reforms often require shrinking or divesting public sec- -. 1997. "Imperfect Rent I)issipation with U nionized Labor." tor agencies and enterprises, which in turn sometimes Public C.hoire 93: 55-75. requires massive layoffs. But experience shows that the - 1997. "Labor Market Institutions and the Second- process can be badly mishandled. 13est 'Tariff." Scandinavian Journal of Economics 99(2): 299- The first phase of this research investigated the opti- 314. mal design of downsizing operations, combining three - 1997. "Organized Labor and the lolitical Economy of approaches. It used the public economics perspective to Product Market Distortions." lVorld Bank E.conomic Review assess the financial and economic returns to downsizing. 11(2): 327-55. It used the labor economics perspective to predict the 1 1997. "'I'rade [Jnions and Economic Performance: East Asia losses public sector workers may experience as a result and Latin America." In James McGuire, ed., Rethinkingl)evel- of displacement. And it used the principal-agent approach opment:lEast AsiaandLatin America. Los Angeles: Pacific Coun- to identify the self-selection mechanisms appropriate cil on International lolicy. when individual productivity is not observable in the pub- - . 1998. "How Bad Is 'runisian tUnemployment? Assessing lic sector. However, the research itself made it obvious Labor Market Efficiency in a Developing Country." World that several important policy questions had not been Bank Research Observer 13(1): 59-78. addressed. It also showed that the answers to some of the - . 1999. "The Sri Lankan UInemployment Problem Revis- questions that were addressed have never been applied ited." I'olicy Research Working lPaper 2227. World Bank, South in practice, so that the potential obstacles to their imple- Asia Region, l'overty Reduction and Economic Management mentation are unknown. And it left unclear whether the Sector Ulnit, Washington, D.C. partial implementation that can be expected in practice - Forthcoming. "'I'he Consequences of Doubling the Min- would substantially improve the outcome of downsizing imum Wage: 'I'he Case of Indonesia." Industrial and Labor operations. Relations Review). This second phase of the research combines experi- - Forthcoming. "Wage Misalignment in CFA Countries: mentation with and evaluation of downsizing mecha- Are Labor Market Policies to Blame?" Journal of African nisms, microeconometric analysis within countries, and Economies. macroeconometric analysis across countries. From a Rama, Martin, and Raquel Artecona. 200(). "A Database of Labor research perspective, the main advantage of the exper- Market Indicators across Countries." World Bank, Development imentation and evaluation component is that it circum- Research Group, Washington, D.C. vents some of the typical identification problems in Rama, Martin, and Guido Tabellini. 1998. "Lobbying by Capital econometrics; from a practical perspective, this approach and Labor over ''rade and Labor Market Policies." European ensures that research has a direct impact on operations. Eronomir Review 42(7): 1295-1316. This phase of the research tries to answer the following Revenga, Ana. 1997. "Employment and Wage Effects of ''rade Lib- questions: How can the extent of overstaffing be assessed eralization: The Case of Mexican Manufacturing." Journal of at the country level? At the sectoral level? Can the "right" I.abor Economics 15(3): S20-43. self-selection mechanisms be implemented? Can com- Rodrik, Dani. 1997. "What Drives lPublic Employment?" N13ER pensation for displacement be appropriately tailored? Working Paper 6141. National Bureau of Economic Research, What are the relevant characteristics for tailoring com- Cambridge, Mass. pensation in the setting of postconflict demobilization? Weiss, Yoram. 1996. "G(rowth and Labor Mobility." In Solomon W. How much do early retirement programs cost? Does Polachek, ed., Researth ini.LhorEronomiou. Greenwich, Conn.: downsizing increase public sector productivity? Is it JAI lPress. worth it to downsize before privatization? EduCtolion and Labor Markets 53 Findings of the project have been disseminated tor Workers in Guinea-Bissau." Economisits' Forum 1999 Pro- through presentations on public sector downsizing for pol- reedings. Washington, D.C.: World Bank. icymakers in Vietnam, Yemen, Africa, and Europe and Haltiwanger,John,andManishaSingh. 1999. "Cross-CountryEvi- Central Asia. Presentations have also been made at sem- dence on Plublic Sector Retrenchment." World Bank l Monom, inars and conferences. In addition, a module on down- Review 13(1): 23-66. sizing is being prepared for a World Bank Institute course Jeon, Doh-Shin, and Jean-Jacques l,affont. 1999. "'I'he Efficient on labor policies. The project's main findings and the Mechanism for Downsizing the l'ublic Sector." lVorld Bank papers it has produced are available on the Web at c.-onomicReview 13(1): 67-88. www.worldbank.org/html/prdph/downsize/home.htm. I,evy, Anat, and Richard Mcl.ean. "Optimal and Sub-optimal The project has had a significant operational impact, Retrenchment Schemes: An Analytical Framework." Rutgers providing input and materials for downsizing operations tIniversity. in several countries, including operations managed by the Rama, Martin. 1997. "Efficient lPublic Sector Downsizing." Finan/e Asian Development Bank and the Inter-American Devel- and Development 34(3): 40-43. opment Bank. This phase of the project combines . 1997. "Efficient Plublic Sector Downsizing." Policy research with involvement in the preparation of two Research W'orking Plaper 1840. World Bank, Development structural adjustment credits aimed at supporting large Research Group, Washington, I).C. downsizing operations, in the state-owned enterprises of . 1999. "IPublic Sector Downsizing: An Introduction." lVorld Vietnam and in the civil service of Yemen. Bank Economic Review 13(1): 1-22. Responsibility: Development Research Group, Poverty and . 2000. "Downsizing in the Presence of Monopoly Rights: Human Resources-Martin Rama (mrama@worldbank. The Road to Riches." World Bank, Development Research org) and Alice Hong. With Sarah Bales; Alberto Chong; Group, Washington, D.C. Kaushik Basu, Comell University; Doh-Shin Jeon and Jean- Rama, Martin, and Donna Macisaac. 1999. "Earnings and Welfare Jacques Laffont, Universit6 des Sciences Sociales, Toulouse; after Downsizing: Central Bank Employees in Ecuador." Morld and Florencio L6pez-de-Silanes, Harvard University. Bank Economic Review 13(1): 89-116. Completion date: June 2001. Rama, Martin, and Kinnon Scott. 1999. "Iabor Earnings in One- Company Towns: 'ITheory and Evidence from Kazakhstan." Reports WVorld Bank Economic Review 13(1): 185-209. Assaad. Ragui. 1999. "Matching Compensation Payments with Robbins, Donald, Martin Gonzalez Rosada, and Alicia Menendez. Worker l.osses in the Egyptian l'ublic Sector." lWorld Bank "l'ublic Sector Retrenchment and Efficient Severance Payment lsconomic Review 13(1): 117-54. Schemes: A Case Study of Argentina." Harvard Institute for l3asu, Kaushik, Gary Fields, and Shub Debgupta. "Retrenchment, International Development, Cambridge, Mass. ILabor l.aws, and Government Policy: An Analysis with Spe- Ruppert, Elizabeth. 1999. "'f'he Algerian Retrenchment System: cial Reference to India." Cornell University, Ithaca, N.Y. A Financial and Economic Evaluation." WVorld Bank Economic Campa, jose Manuel. "IPublic Sector Retrenchment: Spain in the Review 13(1): 155-84. 1980s." New York Uiniversity. 'I'ansel, Aysit. "Earnings of Turkish Workers before and after Dis- Chong, Alberto, and Martin Rama. Forthcoming. "I)o Compen- missal Due to Privatization." Middle East Technical Ilniver- sation lackages Really Need to Be 'lThat Generous? IPublic Sec- sity, Ankara. 54 Edutction and Labor Markets Environmentally Sustainable Development Agricultural Expansion in Forest Villages models were estimated to explain the amount of land cul- in Chiang Mai, Thailand tivated by each village as a function of the price of rice (the primary crop), the agricultural wage, village popu- When searching for policies to alter the rate of defor- lation, and soil quality. Separate models were estimated estation, it is important to distinguish two competing the- for villages in reserved forests and those outside forests. ories of agricultural expansion-the population-driven, Preliminary results suggest that villages in reserved or subsistence, model and the market-driven expansion, forests do not fit the simple subsistence model. Agri- or perfect markets, model. According to the subsistence cultural land in these villages expanded over the period model, agricultural decisions are made by households that 1986-96, and the expansion was responsive to input and are imperfectly mobile and have limited opportunities output prices. This suggests that in formulating to work off-farm. In the simplest such model each house- agricultural policies, policymakers in Thailand face a hold's goal is to achieve a fixed level of consumption, tradeoff between improving rural incomes and promot- either by consuming what it produces or by selling its out- ing deforestation. But employment policies that put in the market. Two key predictions of this model are raise wages may increase incomes and take pressure off that an increase in agricultural population will increase forests. the area cultivated and that an increase in agricultural The study's findings were presented at the American productivity will reduce the area cultivated. An imme- Agricultural Economics Association meetings in Tampa, diate implication of this is that programs aimed at agri- Florida, on August 1, 2000. cultural intensification, such as subsidies for inputs or Responsibility: Development Research Group, Infrastruc- provision of high-yielding seeds, will ease the pressure ture and Environment-Maureen L. Cropper (mcropper on forests. @worldbank.org) and Jyotsna Puri. With Siripun The perfect markets model leads to the opposite Taweesuk, Syracuse University. implication. This model assumes that complete labor mar- Completion date: December 1999. kets exist, that on- and off-farm labor are perfect sub- stitutes, and that agricultural households maximize Health, Environment, and the Economy profits. The amount of agricultural land cultivated does not depend directly on population, but on output and Economic development is related to public health in input prices, especially the wage rate. Thus in the per- interlinked ways. Increased prosperity improves the pro- fect markets model an exogenous increase in output per vision and quality of public health services. At the same hectare increases the cultivated area, implying that pro- time, industrialization and urbanization increase envi- grams to raise farm incomes may have adverse environ- ronmental damage and exposure to pollutants. This mental consequences. research project empirically analyzed these links, This study attempted to distinguish these two combining classification tree analysis-which allows hypotheses using data for 1,200 villages in Chiang Mai, control for thresholds, cross-dependencies, and other Thailand, for six years between 1986 and 1996. Specif- nonlinearities-and multivariate regression analysis. The ically, it hypothesized that villages located in reserved research was based on a new data set combining infor- forests, which are more remote from markets and have mation on specific pollutants, data on deaths from dis- insecure property rights, are more likely to follow the sub- eases associated with these pollutants, general public sistence model. In contrast, agricultural expansion in health indicators, and measures of economic develop- villages outside reserved forests is more likely to be ment. The data cover 1983, 1988, and 1993 for the largest market-driven. To test this hypothesis, fixed effects available set of countries. 55 The empirical work documented robust links between The Role of the Nonfarm Rural Sector and pollutants and mortality on the cross-sectional level, Periurban Agriculture in Tanzania's Rural alongside strong income thresholds on deaths from spe- Development cific diseases. The findings, once extended to the analy- sis of the development-public health nexus, suggest There is a growing recognition among policymakers of that attention to public health in the early stages of the importance of promoting rural nonfarm employment industrialization is important and has strong additional opportunities. In many developing countries agriculture benefits in terms of growth potential. alone can no longer absorb the rapidly growing rural One strand of the research explored the determinants population, and undeterred labor migration to urban of cross-country differences in malaria morbidity and areas in most cases brings only higher social costs. There examined the link between malaria and economic growth. is also a recognition that in most developing countries, Using a classification rule analysis, it confirmed the dom- deliberately exploiting the dynamic interplay between inant role of climate in cross-country differences in agricultural and nonagricultural sectors in rural settings malaria morbidity. But the data do not suggest that trop- can lead to sustained development and poverty reduc- ical location is destiny: controlling for climate, the research tion. So there is an interest among policymakers in the found that income equality and access to rural health care design of policies that not only promote rural nonfarm influence malaria morbidity. opportunities but also develop and support the virtuous In a cross-section growth framework the study found cycle of mutually reinforcing progress in rural farm and a significant negative association between higher malaria nonfarm activities. morbidity and the growth rate of GDP per capita. This Periurban areas, by definition, are at the margin demar- relationship is robust to a number of modifications, cating urban and rural areas and thus are areas where farm including controlling for reverse causation. The esti- and nonfarm opportunities are likely to coexist. The mated absolute growth impact of malaria differs sharply objectives of this study were to review the range of non- across countries; it exceeds 0.25 percent a year in a quar- agricultural activities among periurban households and ter of the sample countries. Most of these countries are their links to the agricultural economy, to identify the in Sub-Saharan Africa (with an estimated average annual determinants of nonagricultural employment and growth reduction of 0.55 percent). incomes, and to explore key factors affecting yields and Responsibility: Development Research Group, Infrastruc- farm incomes in periurban areas. ture and Environment-Zmarak Shalizi (zshalizi The study analyzed household and village data from @a)worldbank.org) and Yi Wu; and Operations Policy and the 1998 Tanzania Periurban Survey, which collected Strategy Group-F. Desmond McCarthy. With Holger information from 592 households in 48 periurban villages Wolf, Georgetown IJniversity. surrounding six main Tanzanian cities. The survey Complelion dole: December 1999. gathered data on household income and its sources, employment in farm and nonfarm activities, socioeco- Reports nomic and other constraints to these activities, the avail- McCarthy, FV I)esmond, Holger Wolf, and Yi Wu. 1999. "The ability and use of basic services (such as health, education, Health and Environmental Panel I)ata l3ase." World 13ank, and extension services), food consumption expendi- I)evelopment Research Group, Washington, I).C. tures, social capital, and private asset ownership and 2000. "'I'he Growth Costs of Malaria." NBER WNorking structure. Ilaper 7541. National B3ureau of Economic Research, Cam- The main empirical analysis involved first estimating bridge, Nlass. a probit model of the probability of household involve- 2(100. "Malaria and Growth." lolicy Research Working ment in business activities and then estimating a busi- I'aper 23(03. World 13ank, I)evelopment Research Group, Wash- ness income regression to draw out the factors explaining ington, 1).(C. business earnings. These two steps were repeated for wage employment and wage earnings. 56 Environmentally Sustainable Development The findings show that nonfarm earnings contribute Household Survey Data." World Bank, lDevelopment Research some 24 percent of household income in the periurban Group, Washington, D.C. Draft. areas studied-ranging from 9 percent for Moshi to 32 percent for Dar es Salaam. Most (75 percent) comes Commodity Marketing Systems from own business activities. Nonfarm activities con- tribute about 15 percent of employment. Two decades ago governments controlled most agricul- Business activities occur most frequently in villages tural commodity pricingand marketing in developingcoun- with access to asphalt roads, in those where nonfarm tries. Today agricultural commodity subsectors in most activities account for an important share of employment, developing countries have undergone market reform, and and in those where the agricultural potential of land is many have been completely liberalized. These changes were relatively low. Trust and other social capital variables brought about by several factors, including changes in are also important, with very strong tribal or kinship ties development economists' perception of the roles of gov- and high household participation in communal activities ernment and of agriculture in economic development, such reducing the probability that a periurban household will international events as the collapse of the Soviet Union and engage in own business activities. Nonfarm business of international commodity agreements, and changes in activities tend to be run by men under 45, with primary the lending policies of international financial institutions. (but typically not higher) education, and occur most fre- This study carried out case studies of commodity quently in households with small landholdings. market reforms in a number of countries. Through Own business activities offer an important alternative detailed exploration of these cases, it attempted to clar- to agriculture as a source of livelihood. But access to ify why and how market reform has been conducted, what such activities appears to be limited to men and influ- the consequences were, and what lessons can be learned. enced by infrastructure. Nonagricultural wage employ- The study found that the factors impeding and the fac- ment is dominated by men ranging in age up to the tors prompting market reform are more political than eco- mid-forties and is strongly correlated with education nomic. Thus one of the main consequences has been a (primary and secondary). Such employment is most fre- shift of financial and political power from the government quent (and the earnings it produces highest) in villages to the private sector. In addition, market reforms in with high population density. Earnings tend to rise with many countries introduced institutional changes in com- education level and with proximity to the urban center. modity pricing and marketing. The initial findings were discussed in May 1999 with Market reform is probably a necessary condition for government policymakers, donors, academics, and other long-term economic development, but not a sufficient members of civil society in a seminar in Dar es Salaam one. The case studies clearly suggest that reform has had organized by the World Bank's resident mission. The a rather limited impact in countries where the private sec- research was also discussed with units in the Bank's tor is weak and social and physical infrastructure inade- Africa Region, and results were used in preparation of the quate. Moreover, market reform raised new issues in country assistance strategy for Tanzania. The data pro- some countries, such as weakened research and exten- vide a valuable benchmark for future household-level sion, volatile producer prices, and the disappearance of studies in the country. crop, investment, and export financing. So it is no panacea Responsibility: Development Research Group, Rural Devel- for agricultural sector development, which requires a opment-Gershon Feder (gfeder@worldbank.org), Jaime new approach in this changed context. Quizon, and Peter Lanjouw. Responsibility: Development Research Group, Rural Devel- Completion date: January 2000. opment-Panos Varangis (pvarangis@worldbank.org), Tlakamasa Akiyama, and Donald Larson; and Develop- Report rnent Prospects Group-John Baffes. With Jonathan Lanjouw, lPeter, Jaime Quizon, and Robert Sparrow. "Nonagri- Coulter, National Resources Institute, United Kingdom. cultural Earnings in Periurban Areas of lanzania: Evidence from Completion date: June 2000. Environmentally Sustainable Development 57 Reports kets develop, early project participants will need to find Akiyama, 'I'akamasa, D)onald l,arson, llanos Varangis, and John contractual solutions, suitable to all parties, that address Baffes. Forthcoming. Commodify arkrtReforms:J.esonxof7f.O price and quality uncertainty. Pioneering projects demon- Detades. Regional and Sectoral Studies Series. WVashington, strate a variety of potential solutions. D.C.: World l3ank. The research was conducted in support of the World Varangis, I'anos. 1999. "'I'he Impact of Coffee and Cocoa Market Bank's Prototype Carbon Fund. Results from the research liberalization and Key Factors to Successful Reforms." lapcr are posted on the Web at www.prototypecarbonfund.org/ presented at Sustainable 'I'ree Crop Development 1Forum, and were recently used to inform policymakers in Latvia Strengthening Africa's Competitive Position in Global Markets, responsible for what is potentially the first Prototype [!.S. Agency for International Development and Chocolate Carbon Fund investment. Manufacturers Association, October 19-21, Arlington, Va. Responsibility: Development Research Group, Rural Devel- opment-Donald F Larson (dlarson@worldbank.org). Pricing Carbon Offset Projects (ompletion date: June 2000. This research drew on pioneering experiences in the Repotl incipient market for carbon offsets to derive lessons for Larson, Donald F "Pricing Carbon Offset Projects and Promoting participants in greenhouse gas mitigation projects as Offset Markets: Issues and Lessons." World Bank. Develop- they consider new investments and for policymakers as ment Research Group, Washington, D).C. they construct the rules and institutions that will shape future carbon markets. The study reviewed past price out- Market Development and Allocative Efficiency: comes and modeled forecasts of offset prices and argued Irrigation Water in the Punjab that both are poor predictors of market prices under an implemented carbon emissions agreement. Consequently, This study examines how farmers in the Punjab of Pak- managing price risk and related uncertainty will be key istan cope with an erratic supply of canal irrigation. It for early market participants. The study reviewed inno- examines the informal markets that have emerged to vative risk management solutions in early transactions and diversify and buffer farmers against this risk and the suggested roles for public and private institutions in pro- impact these markets have had on agricultural production. moting the development of markets for tradable offsets. Active informal canal water and groundwater mar- The Kyoto Protocol remains a framework with key kets are common in South Asia and elsewhere. Despite implementation rules undefined and enabling domestic the obvious importance of irrigation in agriculture, the regulations absent. This encourages firms to delay invest- workings of these markets remain largely unexplored, ing in carbon market assets because the value of such however, mainly because of the paucity of good micro- assets is determined largely by rules governing their cre- level data. A major objective of the study is to estimate ation and use. Consequently, most early participants a dynamic model of irrigation decisions with uncertainty were motivated by a desire to influence outcomes, estab- in water supply, using panel data from a watercourse in lish feasibility, or gain know-how. the Punjab. Using these estimates, the study will simu- These incentives for participating in pioneering activ- late the impact on farm income of an increase in the reli- ities have consequences for the types of lessons that can ability of canal supplies-the main goal of recent be drawn from them. It also suggests that past transac- Bank-sponsored water management reforms in Pak- tions are poor indicators of future market prices that istan's Punjab. might prevail under well-defined rules. For similar and Trading of sanctioned canal water turns and ground- additional reasons, economic model forecasts of future water extracted from private tubewells is observed in the prices are also in doubt. Early activities are best used to region. Exchanges of canal turns are a form of mutual draw lessons about contractual arrangements that address insurance among neighboring farmers, but such insurance issues of price and performance risk. Until secondary mar- is limited by the high covariance of shocks, coordination 58 Environmentally Sustainable Development problems, and the high cost of transporting water. pated despite the existence of a competitive fringe of Groundwater, by contrast, is always available, at least to small traders with high transactions costs; that networks those with a tubewell nearby, but it is expensive to may or may not be correlated with ethnicity; and that the extract. It is thus used as a last resort-a buffer stock- fear of being cheated prevents some mutually beneficial in case the canal is dry and rainfall is sparse. trades, especially in agricultural input markets in which The study's results thus far suggest that the informal farmers need credit and insurance. exchange of canal water helps farmers insure against Responsibility: Development Research Group, Rural Devel- uncertain canal water supplies. A large component of canal opment-Gershon Feder (gfeder@worldbank.org) and risk cannot be diversified, however, because coordination Marcel Fafchamps. With Soule Goura, Laboratoire problems restrict trading to small neighboring groups of d'Analyse Regionale et d'Expertise Sociale; and Richard farmers whose endowments are highly correlated. This Kachule, International Food Policy Research Institute. leaves considerable scope for insurance through partic- Completion date: December 2000. ipation in groundwater markets. Reduced form estimates of demand for groundwater Brazil Global Overlay Study confirm the role of dynamics in irrigation decisions: two- week lagged water use has a negative effect on current This study analyzes emerging policy issues and pro- use. Tubewell owners and share tenants of tubewell posed economic mechanisms related to forest protection owners use significantly more groundwater than buyers, and forest establishment in Brazil, looking at the impli- which is consistent with other findings that tenants and cations for biodiversity protection, mitigation of climate owners face lower groundwater prices than buyers. In change, and local economic benefits. The study uses future work, these results will be refined to produce spatial simulation and other methodologies to assess estimates of the price elasticity of demand for water, how policies will change spatial patterns of incentives for which in turn will feed into policy simulations. forest preservation, management, and conversion-and Responsibility: Development Research Group, Rural Devel- how alternative spatial patterns of exploitation and con- opment-Hanan Jacoby (hjacoby@worldbank.org) and version affect carbon sequestration or emissions and the Rinku Murgai. With Saeed Ur Rehman, International conservation of habitats important to biodiversity. Water Management Institute, Lahore, Pakistan. The study has three components: Completion date: December 2000. * Transferable development rights and greater flexibility under the legalforest reserve requirement. Brazilian law Markets for Agricultural Inputs and Outputs requires land owners to maintain at least 20 percent of in Sub-Saharan Africa each property under natural forest cover as a forest reserve. There is active discussion about allowing prop- This study examines whether markets for agricultural out- erty owners to meet this requirement on a different puts and inputs minimize transactions costs and foster property, to reduce compliance costs and increase the competition. The analysis is based on the results of sur- environmental effectiveness of the measure. This com- veys conducted in Benin and Malawi in collaboration with ponent examines the costs and benefits of alternative pro- the International Food Policy Research Institute. On posals for making the reserve requirement more flexible, the output side, the survey results will be used to con- focusing primarily on the state of Minas Gerais as a case trast the market organization of food and cash crops (cot- study. Preliminary findings suggest that restricting ton in Benin, tobacco in Malawi). On the input side, the enforcement and trading of legal reserves to the largest study will examine the institutional arrangements that properties might substantially reduce compliance and make trade in agricultural inputs possible. enforcement costs while satisfying much of the aggregate The study is expected to show that traders with bet- requirement. ter networks collect rents because relationships help * Nativeforests,plantedforests, andcoke in Minas Gerais. reduce transactions costs; that these rents are not dissi- This component examines a nexus of issues related to Environmentilly Sustainable Development 59 the substitutability between charcoal from native wood- Chomitz, Kenneth, and ''imothy Thomas. 2(X)0. "Geographical Pat- lands, charcoal from plantations, and mineral coke in terns of Land lJse and Land Intensity in the Brazilian Amazon." meeting the energy needs of Minas Gerais's large iron and Draft. steel industries, assessing policies that would internal- Gerwing, Jeffrey J., Rodney Salomao, and Christopher I Jhl. 2000. ize the environmental benefits of using sustainable "Land Cover and Carbon l)ensity Maps for the Brazilian Legal sources of energy Amazon." Draft. * Land use in the Amazon. This component examines the economic and environmental costs and benefits of Economic Instruments for Conservation supporting and complementary land use policies, includ- ing placement of the national forests, trade in legal As pressures for both agricultural expansion and biodi- reserves under alternative rules, and impacts of royalty versity protection increase, land must be allocated and charges for forest clearance. It will assess the potential managed as efficiently as possible to meet these two impact of these policies on agricultural output, carbon needs. This project is aimed at improving the ability to emissions, and biodiversity. meet those dual needs through three objectives: The research project is expected to contribute to pol- * Developing a quantitative, operational definition of icy discussions in Brazil, to the design and implementa- biodiversitv useful for assessing large-area conservation tion of World Bank projects related to land use and policies. sustainable development in Brazil, and to worldwide * Developing and demonstrating a methodology for discussions of innovative approaches to conservation. assessing biodiversity and development tradeoffs arising Responsibility: Development Research Group, Infrastruc- from land allocation decisions or policies. ture and Environment-Kenneth Chomitz (kchomitz * Applying that methodology to assess the potential @worldbank.org). With Aline Tristao Bernardes and environmental impact of economic instruments for con- Antonio Salazar Brandao, Santa Ursula University; Peter servation, with particular attention to incentive pay- May, Federal Rural University of Rio de Janeiro; Insti- ments for land uses consistent with conservation. tuto do Homem e Meio Ambiente da Amaz6nia (Imazon); The study site for the research is the Atlantic Forest and Timothy Thomas, Sociedade de Investiga,oes Flo- of southern Bahia, in Brazil, an area that exemplifies the restais. Instituto Brasileiro de Geografia e Estatistica issues that arise when economic pressures threaten (IBGE) and the International Environment Forum are important biodiversity resources. The Atlantic Forest collaborating in the research. The Global Overlay Pro- has an extremely high level of biodiversity, and many con- gram (Danish Trust Fund) has contributed funding for servation biologists rank it among the habitats with high- the research. est priority for conservation. The Bahian section of the Completion date: January 2001. forest is now reduced to relatively small fragments, mak- ing up perhaps 7 percent of the forest's original area. Less Reports than a fifth of this is protected. The remaining area is 13ernardes, Aline 'ristao. 1999. "Environmental Inspection, threatened by conversion, often to uses with low eco- Enforcement, and Monitoring System, Minas Gerais, Brazil." nomic value and little impact on employment. World 13ank, Development Research Group, Washington, The project will build a spatially explicit bioeconomic 1.C. model. The economic component of this model will rep- - 1999. "Some Mechanisms for Biodiversity Protection in resent landholder responses to alternative economic Brazil, with Emphasis on 'T'heir Application in the State of instruments and assess the instruments' economic and Minas Gerais." World Bank, Development Research Group, social impacts. The biological component will assess the Washington, ).C. impact of resulting land use configurations on the ecosys- Chomitz, Kenneth. 1999. "'Uransferable )evelopment Rights and tem, taking into account both the representation of lForest lProtection: An Exploratory Analysis." World Bank, diverse species or elements and the viability of plant and Development Research Group, Washington, I).C. animal populations. The model will use secondary data, 60 Environmentally Sustainable Development including geographic information system (GIS) data and for creating a coherent set of environmental accounts and data from the census and other sources, and primary assessing how well each fits with internationally estab- data on land values and biodiversity to be collected by lished economic accounting methods that link asset Brazilian partners under a parallel project. It will also be stocks with flows. Recent activities also include partic- informed by focus group interviews with stakeholders on ipation in a workshop sponsored by the United Nations the acceptability of alternative economic instruments. to disseminate the final report of the Nairobi Group The research is expected to contribute directly to (Integrated Environmental and Economic Accounting: An the design and implementation of the Parks and Reserves Operational Manual, New York: United Nations), which Project (administered by the World Bank for the Pilot Pro- proposes a set of guidelines to help developing countries gram for the Tropical Brazilian Forests). And it will shed estimate the environmental impact of economic activi- light on the feasibility of new, market-like approaches to ties in different sectors. conservation that may be of broad interest to the Bank All these activities are closely tied to efforts within the and its clients. World Bank to expand the range of environmental indi- Responsibility: Development Research Group, Infrastruc- cators, strengthen their relevance, and produce and refine ture and Environment-Kenneth Chomitz (kchomitz associated statistical series. This initiative thus forms @worldbank.org). With the Instituto de Estudios an important part of the Bank's commitment to provid- S6cioambientais do Sul da Bahia; Institute for Compu- ing suitable data for monitoring newly agreed on inter- tational Earth System Science, University of California national development goals for the environment in the at Santa Barbara; Timothy Thomas; and Industrial 21st century. Economics. The parallel project is funded by Programa Some of the data collected to better understand the Estadual para a Conservacao da Biodiversidade links between the economy and the environment appear (PROBIO). regularly in the World Bank's annual WorldDevelopment Completion date: June 2001. Indicators. Working papers on the revised SEEA have been prepared for review by the London Group. Report Responsibility: Development Data Group-M. Saeed Hardner, Jared. 1999. "Land EJse'l'rends and Conservation Oppor- Ordoubadi (mordoubadi@worldbank.org) and Michael tunities in the Atlantic 1 orest of Southern Bahia, Brazil." World Ward (through March 2000). Bank, D)evelopment Research Group, Washington, D.C. Completion date: June 2001. Environmental Data Accounting Land Markets, Gender, and Access to Land in Latin America This project investigates how the depletion of natural resources and degradation of the environment by air This project investigates how recent property rights and water pollution could be incorporated into a system reforms aimed at improving the functioning of rural fac- of conventional national accounts to measure economic tor markets in Honduras, Mexico, and Nicaragua have performance and sustainability. Through participation in affected agricultural productivity and the lives of the the London Group of environmental data experts, the rural poor. The study is part of a broader research agenda project supports international initiatives to revise the to assess the effectiveness of land markets (rental and United Nations' Recommended System of Integrated sales) as a mechanism for allocating land efficiently across Environmental and Economic Accounts (SEEA). In con- heterogeneous households; to examine the effect of junction with related research activities by the United imperfections in rural markets on the direction of land Nations, Eurostat, the Organisation for Economic Co- transfers, the type of contracts adopted, and the ensuing operation and Development, and leading industrial coun- changes in the agrarian structure; and to identify policies tries, the project is working to develop a general measure that can help make land markets function better and of sustainability. It is also reviewing various approaches increase productivity and equity. The study also inves- Environmentally Sustainable Development 61 tigates how recent property rights reforms have affected and productivity, and the desire of large landlords to liq- the property rights of women in rural areas and, there- uidate their landholdings. fore, rural household well-being. * The failure of old-style land reform, the continuing The project relies on microeconometric analysis of political pressure for land reform, and the drop in land recently collected panel data and data collected in the prices following the elimination of many distortions course of the project. Data for Mexico are from a survey favoring agriculture. of about 1,500 smallholders, including information on This research project aims to quantify the scope for and about 400 smallholdings, undertaken by the Food and economic potential of land reform, help in the design of Agriculture Organization (FAO), the Mexican Ministry programs that would realize this potential, and mount of Agriculture, and the University of California at Berke- monitoring and evaluation systems that would allow in- ley in 1994 and 1997. Data for Nicaragua come from a depth evaluation of the impact of such programs on both 1996 survey of 1,500 producers by the FAO and the Uni- productivity and poverty reduction. The project com- versity of California at Berkeley. The survey, which is rep- bines ex ante analysis of land reform based on farm bud- resentative of the main agricultural areas of the country, get analysis with econometric analysis of survey data for is complemented by a resurvey of the respondents con- Brazil, Colombia, the Philippines, South Africa, and Zim- ducted in 1999. Data for Honduras come from a 1992 sur- babwe. Country-specific results and international expe- vey conducted by the University of Wisconsin. rience provide immediate feedback on ongoing efforts. Preliminary results for Mexico indicate that elimina- In addition to helping to establish baseline surveys, tion of rental restrictions has significantly reduced the the project has undertaken several case study evaluations. transactions costs associated with land rentals. But In general, these demonstrate the scope for increasing because of credit market imperfections, the poor were productivity through land reform and the advantages of often unable to take advantage of the increased market a demand-driven approach. But they also highlight the opportunities. importance of designing mechanisms for implementing Responsibility: Development Research Group, Rural Devel- incentive-compatible reforms to ensure replicability and opment-Klaus Deininger (kdeininger@worldbank.org) economic viability. and Rinku Murgai. With Michael Carter and Bradford The findings support the World Bank's stance in favor Barham, University of Wisconsin at Madison; and Alain of land reform, and the efforts in developing countries deJanvry and ElisabethSadoulet, UniversityofCalifornia to address long-standing issues of maldistribution of at Berkeley. The U.S. Agency for International Devel- assets. They also emphasize the importance of placing opment contributed funding for the surveys in Hon- such efforts in a broader policy context. duras and Nicaragua. The project has contributed to the design of Bank Completion date: June 2001. operations by pointing to elements critical for success (focusing on integrated productive projects, involving Land Reform financial intermediaries, and using a decentralized approach) and by elaborating a framework for monitor- New opportunities and lingering problems have renewed ing and evaluating projects that will eventually allow an the interest of governments in agrarian reform: in-depth assessment of their impact. The research has . The inability to address rural violence, deep-rooted also helped to inform the policy debate and clarify the poverty, and inequality of opportunity through conven- potential and limits of land reform in countries where it tional means, and the expectation that a redistribution remains highly controversial (the Philippines, Zim- of productive assets would improve the access of the poor babwe). Results have been disseminated at conferences to economic opportunities. and workshops for policymakers in Brazil, the Philippines, - The potential for improving productivity and equity South Africa, and Zimbabwe. given the large tracts of unutilized or underutilized land Responsibility: Development Research Group, Rural Devel- on large farms, the inverse relationship between farm size opment-Klaus Deininger (kdeininger@worldbank.org) 62 Environmentally Sustainable Development and Pedro Olinto. The Swiss Trust Fund and the Brazil- Food Policy Research Institute; and Simeon Ehui and ian government are contributing funding for the research. Amare Teklu, International Livestock Research Institute, Completion date: June 2001. Addis Ababa. Completion date: June 2001. Reports Deininger, Klaus. 1999. "Making Negotiated Land Reform Work: Nature Tourism's Contribution to Economic Initial Fvidence from Colombia, Brazil, and South Africa." Development and Conservation Finance IVorildDevelopment 27(4): 651-72. - . IForthcoming. "Negotiated Land Reform as One Way of Improperly managed nature tourism can degrade or Land Access: Experience from Colombia, B3razil, and South destroy the environmental assets on which it is based. If Africa." In Alain de Janvry, Flisabeth Sadoulet, and Jean- managed wisely, however, it offers potentially valuable Philippe Platteau, eds., I.and Reform Revisited: Acces.s to l.and, opportunities for generating revenues, not only for devel- Rural Poverty, and PublicAction. New York: Oxford Ulniversity opment but also for conservation. Press. This study investigates the contribution that nature Deininger, Klaus, and Hans Binswanger. 1999. "'The Evolution of tourism can make to conservation and the economy. It the World Bank's Land Plolicy: Principles, Experience, and studies the choices that determine the sustainability of Future Challenges." tWorld BankRe.earAh Observer 14(2): 247-76. nature tourism assets and the process by which these Deininger, Klaus, and Julian May. Forthcoming. "Is There Scope assets are exploited in developing countries. for Growth with Equity? An Initial Assessment of Land Reform Specifically, the study explores the following questions: in South Africa." Policy Research Working Paper. World Bank, * Is it better to raise conservation funds through D)evelopment Research Group, Washington, I).C. changes in destination pricing or through taxes on tourism Deininger, Klaus, M. Maertens, Pedro Olinto, and F. Lara. 2)00. trade? "Redistribution, Investment, and Human Capital Accumula- * How should park entrance fees be structured? tion: 'T'he Case of Agrarian Reform in the lPhilippines." World Should differential pricing be used (for example, for Bank, Development Research Group, Washington, D.C. local and foreign visitors)? * At what level should entrance fees be set to maxi- Land Rental Markets and Agricultural mize the economic returns to both the site and the Efficiency in Ethiopia tourism sector? * At what level should entrance fees be set to mini- This study investigates the extent to which land rental mize environmental degradation and its associated costs markets in rural Ethiopia support allocative efficiency and and maximize revenues? whether the choice of land rental contract has detri- * What are the main managerial options for impfov- mental effects on work incentives and input use. Data ing the resource base or minimizing degradation? collected by the International Livestock Research Insti- * What are the net local economic benefits from tute are analyzed in collaboration with the International nature tourism? That is, what leakages and local multi- Food Policy Research Institute. The research is expected pliers are involved? How much do the poor living in to provide essential background information to Ethiopian communities adjacent to parks benefit? Are there ways policymakers exploring land reforms and to land tenure to increase those benefits? institutions in the country. Several meetings have been Little applied economic analysis has been done on sup- held in Washington, D.C., and in Addis Ababa with the ply and demand in nature tourism markets or the rela- external collaborators to discuss conceptual issues, tions among markets. For this reason, this project adopts research strategies, and data needs. a multimarket model approach. Where possible and Responsibility: Development Research Group, Rural Devel- appropriate, the research will attempt to incorporate opment-Gershon Feder (gfeder@worldbank.org) and environmental damage functions into the analytical Marcel Fafchamps. With John Pender, International framework, the methodology, and the case studies. Eval- Environmenially Sustainable Development 63 uation of the links between nature tourism and the envi- Institutional Means of Controlling Administration ronment will attempt to highlight potential threshold and Reducing Corruption in Transition Economies: effects and critical features of the relationship. A Comparative Study of Environmental Regulation The project has developed a sectoral multimarket in Bulgaria and Hungary analytic framework that clarifies the principal direct and indirect links among the economic, environmental, social, As many transition economies and developing countries and policy variables affecting nature tourism. The model seek to reform various regulatory regimes to make them attempts to respond to three key issues: the sustain- more efficient, increasing attention'is being paid to infor- ability of resource use, the relative benefits from and inter- mal regulatory mechanisms, that is, those that do not rely actions among multiple users, and the roles of the public on traditional command-and-control regulation. These and private sectors in nature tourism activities. The goal informal mechanisms come in a variety of forms, from is to develop a framework that will allow policy analysts negotiations with the targets of regulation to the use of to assess these issues in different circumstances and civil society organizations as government surrogates. A regions. number of donors are encouraging use of these informal The framework will be applied to the northern area mechanisms because they are less costly and interven- of the KwaZulu-Natal Province in South Africa, in part- tionist than command-and-control tools and may encour- nership with the KwaZulu-Natal Nature Conservation age broader compliance. Equally important, as a result Service and the KwaZulu-Natal Tourism Organization. of the weaknesses of governance structures in many The intent is to illustrate the utility of the model, countries, particularly the judiciary, many of these infor- particularly in shedding light on the relative importance mal mechanisms can also serve to constrain arbitrary of different policy variables in a particular ecological regulatory action, thereby strengthening regulatory and economic context. It is expected to demonstrate accountability and credibility as well as effectiveness. But how parameters for the model relationships will be for many of these informal mechanisms to serve as estimated and what data can reliably be found for this accountability mechanisms, formal rules must be in place purpose. to structure their operation, help them be fairly applied, Social accounting work has begun, and on-site, origin- and ensure that there are means to enforce them. country, ecological, and producer surveys are under way. This study develops a methodology for determining Household, hunter, and game sales studies will be car- what kinds of formal rules (those requiring information ried out in 2001. disclosure, notice-and-comment on proposed regula- Responsibility: Africa Region, Rural Development and Envi- tions, negotiated rulemaking, open meetings, public ronment Department-Ernst Lutz (elutz@worldbank. hearings, and so on) may be most conducive to the effec- org); and Environment Department-John Dixon. With tive use of informal accountability mechanisms and iden- Bruce Aylward; Geert Creemers, Pete Goodman, and Stu- tifies the regulatory contexts within which they may be art Ferrer, KwaZulu-Natal Nature Conservation Ser- appropriate in the field of environmental regulation. It vice; Kreg Lindberg, Ecotourism Society; Barry James and also assesses the consequences of using informal control Danielle James, Brousse-James & Associates; Dawie mechanisms in the absence of certain formal rules, inves- Mullins, Conningarth Consultants; Aki Stavrou, DRA- tigating whether the lack of such rules can retard the Development, Durban, South Africa; and other local broader development of a rule-of-law consciousness. consultants. The KwaZulu-Natal Conservation Service Based on interviews with legal, regulatory, and other has made contributions in kind, the South Africa Tourism experts in two transition economies, the study will cre- Authority is cofinancing the household survey, and the ate an inventory of potential informal accountability Belgian Trust Fund is funding Mr. Creemers's work in mechanisms and explore which mechanisms are cur- fiscal 2001. rently being used and which might be considered for use, Completion dote: June 2001. taking into account legal, political, social, economic, and cultural factors. 64 Environmentally Sustainable Development Responsibility: Poverty Reduction and Economic Manage- cluding conference will be organized at the Bank to ment Network, Public Sector Management Division- communicate the study's main findings to research and Richard E. Messick (rmessick@worldbank.org). With operational staff, provided resources are available. Malcolm Russell-Einhorn, Abt Associates; Jeffiey Lub- Responsibility: Environment Department, Office of bers, American University; and Vedat Milor. the Director-Mohan Munasinghe (mmunasinghe Completion date: August 2001. @worldbank.org); Global Environment Coordination Unit-Noreen Beg; and World Bank Institute, Economic Making Long-Term Growth and Development Policy and Poverty Reduction Division-Jorge Araujo. More Sustainable With Peter Meier, IDEA Inc., United Kingdom; Chitru Fernando, ESI Inc., Sri Lanka, and Tulane University; Development strategies generally emphasize sustained Ronaldo Seroa da Motta and Claudio Ferraz, Instituto de growth as a means of raising average incomes. But fail- Pesquisa Econ6mica Aplicada (IPEA), Brazil; Carlos ure to account for environmental degradation can erode Young, Universidad Federal do Rio de Janeiro; Osvaldo the capital base for future development. This research Sunkel and Carlos de Miguel, Center for the Analysis of aims to improve the understanding of the links between Public Policies, Chile, Shavi Fernando and D. C. Wijer- economic development and the environment and to atne, Ceylon Electricity Board; Nimal Siripala, Ministry identify policies that will help maintain long-term growth of Finance, Sri Lanka; U. Sapukotane, Ministry of Envi- prospects. ronment, Sri Lanka; and D. Chandrasekere, Ceylon The project, which focuses on case studies of Brazil, Petroleum Corporation. Chile, and Sri Lanka, adopts a variety of approaches. Each (ompletion date: September 2001. case study includes an action-impact matrix, a cost- effective approach that uses available data (primarily Report from in-country sources, the World Bank, and the Inter- Munasinghe, Mohan, Osvaldo Sunkel, and Carlos de Miguel. national Monetary Fund) to show the key environmen- Forthcoming. The Sustainability of Long-Term Groweth: Sorioeco- tal impacts of development policies. Other approaches nomicand Ecological Perspectivyes. London: Edward Elgar. range from fairly simple models to quite complex (and thus costly) ones. The study compares their usefulness Guidelines for Pricing Irrigation Water and cost-effectiveness in modeling the links between Based on Efficiency, Implementation, growth and the environment. and Equity Considerations Initial work focused on organizing strong in-country teams of researchers who will be responsible for critical A growing trend in World Bank irrigation water projects elements of the work, consistent with the project's stresses pricing as a primary means of regulation. Con- emphasis on capacity building. It also included gather- ditions for the disbursement of a loan for the construc- ing data, prioritizing issues, and refining the analytical tion of an irrigation project often require "appropriate" models. The current phase of research is examining the pricing of the irrigation water that will be generated. Yet circumstances under which growth-inducing, economy- it is not clear what "appropriate" water prices are or how wide policies (such as liberalization) and the growth that they should be applied. Disagreements among compet- ensues may exacerbate the environmental harm caused ing groups of water users are common, particularly if by policy distortions (such as subsidized prices for nat- they are in different economic sectors. Surprisingly, econ- ural resources). The work will also identify conditions omists also disagree on how best to address this issue. under which growth could worsen the adverse environ- This project seeks to clarify the basic concept of water mental effects of market failures. pricing and Jay out a set of guidelines on how to price irri- Several in-country workshops that included senior gation water under different circumstances. The pri- decisionmakers have been held, and more are planned mary measure of performance is efficiency, broadly to review and disseminate the results of the study. A con- defined to include implementation costs. Income dis- Environmentally Sustainable Development 65 tribution, available water institutions, and political con- Sending Farmers Back to School: straints are considered in the context of case studies. An Econometric Evaluation of the This research aims to develop guidelines for select- Farmer Field School Extension Approach ing and implementing water pricing methods by: Summarizing methods used to price irrigation water Studies of the economic and other impacts of agricultural in various countries and conducting detailed studies of extension programs, particularly traditional training and five countries-China, Mexico, Morocco, South Africa, visit programs, have yielded mixed results. The many and Turkey-with different physical, social, economic, problems associated with administering large, and often and institutional conditions. expanding, extension bureaucracies; the growing disen- * Developing and applying a cost-benefit framework chantment with packaged technologies and with the to evaluate the performance of different water pricing top-down centralized approach to knowledge dissemi- methods. nation; and the general alienation of farmers from the cre- * Conducting an in-depth analysis, to include income ation and dissemination of knowledge have led many to distribution, water institutions, and political aspects, in question the cost-effectiveness of staff-intensive public one or two regions of Morocco. extension systems and their efficiency in diffusing knowl- * Repeating the analysis in regions in China, Mexico, edge, particularly in the light of growing fiscal deficits in South Africa, and Turkey for which data were collected. many countries. Country reports and databases on Morocco, South In recent years a number of development agencies, Africa, and Turkey have been completed, and reports and including the World Bank, have promoted an alternative databases for China and Mexico are being finalized. type of extension program, farmer field schools, as a Analysis of the country cases is expected to be com- more relevant, efficient, and cost-effective approach to pleted by October 2000. Mathematical programming extending science-based knowledge and practices to models that capture the various aspects of water pricing farmers. This project will evaluate the effects of farmer reforms at the regional level have been completed for field schools in Indonesia, Peru, and the Philippines, at three regions: two irrigation perimeters in the Loukkos the farm and the program level. At the farm level farm ORMVA (regional agricultural development office) profits will be used as a key indicator of success. Farm- scheme in Morocco and the Leksop irrigation scheme in level impacts will be measured econometrically, using South Africa. Data for representative perimeters from the both with-and-without and before-and-after compar- Doukkala, Haouz, and Souss Massa ORMVA schemes in isons with panel data. Careful selection of sample sites Morocco and reports on water projects in China, Mex- and respondents will allow isolation of the effects of ico, and Turkey are being finalized. contemporaneous activities that may also affect farm Responsibility: Rural Development Department-Ariel Dinar profits. The empirical strategy will also try to isolate (adinar@Cworldbank.org). With Yakov Tsur and Vladimir secondary effects of farmer-to-farmer diffusion of knowl- Lubinsky, Hebrew University, Rehovot, Israel; Terry Roe edge from direct program effects on participants and and Robert Johansson, University of Minnesota; Rachid measure the depth and breadth of this knowledge dif- Doukkali, Institute of Veterinary Science and Agricul- fusion, through case studies and participant observation ture, Rabat, Morocco; Michael Schur, Ministry of Finance, methods. At the program level the study will aggregate South Africa; Enrique Aguilar; and Zhou Yaozhou and the effects of all households affected by farmer field Wei Bingcai, Ministry of Water Resources, Beijing, China. schools in order to compare overall program benefits (ompltion date: October 2001. with overall costs. Responsibility: Development Research Group, Rural Devel- Report opment-Gershon Feder (gfeder@worldbank.org), Jaime Johansson, Robert C. Forthcoming. "Plricing Irrigation Water: A Lit- Quizon, and Rinku Murgai. With Tahlim Sudaryanto, Sjai- erature Survey." P'olicy Research Working Paper. World Bank, ful Bahri, and Hania Rahma, Center for Agricultural and Rural Development Department, Washington, D.C. Socioeconomic Research, Indonesia; Agnes Rola, Insti- 66 Environmentally Sustainable Development tute of Strategic Planning and Policy Studies; Rebecca . Analysis assists in targeting capacity building ini- Nelson, Paul Winters, and Oscar Ortiz, International tiatives. Potato Center, Peru; and Hermann Waibel, University * Country ownership of process is fundamental to of Hannover. effectively involving stakeholders. The process should (ompletion date: December 2001. not be seen as nothing more than a Bank requirement. * With shrinking budgets, promoting effective pub- Strategic Planning and Implementation lic involvement in developmental decisionmaking will of Public Involvement in Environmental not be attained by a single project. To allow aggregation Decisionmaking of benefits, projects in a given country should have sim- ilar objectives in promoting public involvement (such as This study examines three issues: whether strategic capacity building). planning in the involvement of all relevant stakeholders The Nigerian Federal Ministry of Agriculture has improves public consultations in category A environ- disseminated two reports based on the first phase of the mental assessments of World Bank-financed projects project. The results were also disseminated at the Stake- and leads to project effectiveness, whether training of holders Workshop for the Fadama II project, held in Bank staff and clients on effectively involving the pub- Abuja, Nigeria, in August 2000. Results of the project will lic in the environmental assessment process influences be used in the design of the regional workshops to be held their attitudes and enables them to apply the lessons in October 2000. Lessons learned from the project were learned in their work, and the extent to which legislative also incorporated in the World Bank Institute's safe- and policy frameworks on public involvement influence guards policy training and in the public participation the quality of public consultations. The project pilots strategy and plan for the Fadama II project. lessons learned about strategic planning (from earlier Responsibility: Legal Department, Environment and Inter- Bank reviews and from ongoing work for the Third Envi- national Law Unit-David Freestone (dfreestone ronmental Assessment Review) for public involvement @worldbank.org), Nightingale Rukuba-Ngaiza, and in potentially controversial projects. Mohammed A. Bekhechi; Social Development Depart- The project will train Bank staff and clients in involv- ment-Parmesh Shah; and World Bank Institute, Envi- ing the public effectively. It will survey and interview a ronment and Natural Resources Division-Pietronella sample of Bank staff to assess the extent to which train- Van Den Oever. The Norwegian Trust Fund is con- ing affects their attitudes toward and practices for involv- tributing funding for the research. ing the public in the environmental assessment process. Completion date: December 2001. The study will also research legal and policy requirements in various countries, interviewing stakeholders, review- Understanding and Improving the Environmental ing staff appraisal reports, and drawing on reports of the Performance of China's Township-Village Bank's Quality Assurance Group to determine the link Industrial Enterprises between the legal and policy frameworks and the qual- ity of public consultations. In less than a decade China's township-village industrial The study has yielded several interesting prelimi- enterprises (TVIEs) have risen to near parity with China's nary results: traditional industrial sector. Recent estimates suggest * Projects that strategically plan for public consulta- that community-based enterprises now account for about tions contribute more to project design and implemen- 50 percent of China's industrial output and more than 30 tation than do those that involve the public on an ad hoc percent of total rural income. Emissions from these or add-on basis. enterprises remain only partially regulated, however, * Institutional audits of projects should involve a com- and are estimated to account for nearly half of all indus- prehensive analysis of institutional capacity to effectively trial pollution in China. China's State Environmental involve the public in developmental decisionmaking. Protection Agency (SEPA) requested this collaborative Environmentolly Sustainable Development 67 research project because of a perceived need for a more this variable would imply greater allocation of regulatory systematic and comprehensive approach to pollution resources to collection and dissemination of appropriate control for TVIEs. environmental information. The project results will contribute to the discussion of Fifth, the project will provide insight into the use of regulatory reform in several ways. First, they should pro- environmental information within TVIEs. Recent evi- vide insights helpful for policymakers in decentralizing the dence from Mexico suggests that internal environmental national regulatory system. Reforms currently under dis- management and training strategies have significant cussion may involve changes in the administration of impacts on factory emissions, because they increase respon- national regulatory standards, imposition of pollution siveness to regulatory incentives for pollution control. levies (charges), and establishment of monitoring and The research will assess the importance of these vari- enforcement procedures. The project will demonstrate ables in the case of TVIEs. Strong results would suggest methods for measuring the gap between actual and opti- the need for greater focus on pilot technical assistance and mal emissions and suggest principles for appropriate training programs for plant-level environmental manage- adjustment of regulatory instruments to narrow the gap. ment as complements to (but not substitutes for) more tra- Second, the research will focus attention on pollution ditional regulatory development programs. exposure risks for workers inside TVIE facilities. The Interviews with community leaders, plant managers, welfare of workers in heavily polluting factories may be workers, and household heads are almost complete, and severely affected, even when air quality in the commu- pollution monitoring has begun. Data analyses will be nity is relatively good. The study will contribute to the completed in 2001, and major reports should be ready by understanding of the issue by sharpening the cost- the end of 2001. benefit assessment by providing separate impact esti- Responsibility: Development Research Group, Infrastruc- mates for exposed workers and neighboring communi- ture and Environment-David Wheeler (dwheeler ties. In addition, the project's econometric analysis will @worldbank.org), Hua Wang, Benoit Laplante, Susmita seek to identify the primary determinants of within- Dasgupta, Jun Bi, Ping Yun, and Lei Liu. With Yi Liu plant pollution. Variables to be tested include sector, and Fengzhong Cao, China's State Environmental Pro- output, wages, plant vintage, human resources, envi- tection Agency; Zhifeng Yang, Beijing Normal Univer- ronmental management strategies, quality of environ- sity; and Genfa Lu, Nanjing University. mental information, and alternative employment (ompletion dale: December 2001. opportunities. Third, the project will provide insights into the impact Land Tenure in Rural China of more general policy reforms on pollution from TVIEs. Research on other Asian countries suggests that policies This research, undertaken jointly by the World Bank's that affect input prices, worker education, enterprise Development Research Group and China Country Unit, scale, and technology choice can have impacts on pol- aims to quantify the benefits and costs of improving the lution that are similar in magnitude to those of direct reg- definition of land use rights in China and to determine ulation. Results from this research should promote a the distribution of gains and losses accruing to different broader dialogue on the relation between environmen- types of farmers. It is based on a resurvey of a panel of tal and economic policy reforms in China. about 1,000 farm households in three provinces for which Fourth, the project will use local survey data to assess comprehensive data are already available from four the impact of environmental information and the local rounds of the State Statistical Bureau's annual household capacity to use it effectively. The results should inform survey (1993-95). the Bank's lending and environmental policy dialogue in The study tests the following hypotheses: China. One contribution will be improved understand- * Even where formal credit markets are absent, secure ing of environmental information as a source of pressure tenure is very important for increasing household invest- on TVIEs to control pollution. An important role for ment and wealth. 68 Environmentally Sustainable Development * The higher levels of tenure security brought about insurance. It is also important for the transferability of the by property rights reform increase the propensity to par- findings to other countries in Asia where legal restrictions ticipate in factor markets (for land and, through out- on the functioning of land rental markets continue to be migration and off-farm employment, for labor), thus widespread. generating gains in allocative efficiency that tend to Responsibility: Development Research Group, Rural Devel- increase household income (and improve rural well- opment-Klaus Deininger (kdeininger@worldbank.org); being in general). and East Asia and Pacific Region, China Country Unit- * If initial land endowments are distributed in an Juergen Voegele, and Rural Development and Natural egalitarian fashion and education and off-farm employ- Resources Sector Unit-Li Guo. With Yang Yao and ment are widely accessible, less costly means of insur- Yaohui Zhao, Beijing University, and Michael Carter, Uni- ance than periodic redistribution of land are likely to be versity of Wisconsin. available, implying that property rights reform will not Completion date: December 2002. adversely affect the poor. * The net economic benefits from property rights Measuring the Economic Value of Environmental reform are large, and failure to implement such reforms Protection Projects: Methodology and Application carries a high opportunity cost. to Armenia's Lake Sevan The study goes beyond the current literature in sev- eral ways. First, most studies on the subject have been Lake Sevan-a large, high-altitude lake in Armenia with limited to examining the impact of formal title rather than much symbolic, cultural, and historical importance to informal means of increasing tenure security. This, Armenians-has been significantly depleted over the together with the fact that most of these studies find the past 50 years. Withdrawals have lowered the water level main impact of title to come about through credit mar- and shrunk the surface area, destroying fisheries and kets, implies that very little is known about the effects reducing tourism. The Armenian government is con- of tenure security in environments in which credit mar- sidering actions to stop or partially reverse the damage. kets are underdeveloped and most poor people live. But the costs of these actions are estimated to be high, The study thus promises to shed light on rural poverty and the benefits have not been estimated. reduction more generally. This study will use contingent valuation to estimate Second, several studies have found the impact of land the benefits associated with the lake's recreational and tenure on short-term investments to be small, leading to nonuse values. Through surveys, it will assess the will- the belief that even the long-term benefits from increased ingness of foreign tourists and Armenians-both those tenure security would be limited. This study will deter- living in Armenia and those in the diaspora-to pay to mine whether there is, in fact, empirical support for such prevent further degradation of the lake. It will test dif- a view. ferent ways of eliciting value (open-ended, close-ended, Third, the fact that near universal access to land in and likelihood questions), different modes of survey China has been shown to perform an important safety net (mailed questionnaires and in-person interviews), and dif- function helps focus the study on the distributional ferent payment vehicles (utility bills, a trust fund, and impact of land tenure reform. Because attitude surveys tourist fees). in China have found broad support for periodic land The survey has been written and is about to be redistribution, many believe that tenure reform would pretested and conducted in Armenia, France, and the be antipoor, an issue that can be directly addressed in the United States. Local collaborators have been identified research. and will participate in a training workshop designed to Finally, the research explicitly considers the rela- familiarize them with the methods and techniques of tionship between land tenure and the functioning of environmental valuation. other factor markets. This is not only important because The findings from this research will benefit policy- other markets will affect households' options for self- makers involved in making decisions about the restora- Environmentally Sustainable Development 69 tion of Lake Sevan. The methods tested will benefit Responsibility: Development Research Group, Infrastruc- those developing projects with large nonuse or nonmar- ture and Environment-Benoit Laplante (blaplante ket environmental benefits. The results will also bene- @worldbank.org), Hua Wang, and Craig Meisner. With fit practitioners of environmental valuation, particularly Vic Adamowicz and Dale Whittington. in developing countries. Completion date: December 2002. 70 Environmentally Sustainable Development Infrastructure and Urban Development Infrastructure and Growth: telephones in many developing countries and to that A Multicountry Panel Study extent is demand determined. Estimating a translog function, the study found that The purpose of this study was to produce estimates of the electricity capacity and paved roads are each subject to effects of major kinds of physical infrastructure on GDP rapidly diminishing returns. Building much of such infra- per capita growth and multifactor productivity. The study structure on the chance of demand is therefore risky. It modeled five kinds of infrastructure separately. in a stan- also found that electricity capacity and paved roads are dard growth framework with total capital, human capital, complements to both physical and human capital. This and geographic variables as additional candidates for signifies that the effectiveness of each increases with explaining growth. The estimates were produced in a full stocks of general capital and therefore (with everything panel (152 countries) of annual data (195S-95) and with measured in per worker terms) with capital deepening a new multicountry database of infrastructure stocks. across the economy-that is, with industrialization. The study found that among the explanations of a To estimate the rates of return to infrastructure (rel- country's infrastructure stocks, population size and per ative to that to capital in general), the study combined capita income are important, but so are area and degree estimates of the marginal product of infrastructure with of urbanization. These signal the degree of density, data on the unit cost of construction. For both roads and which affects the per capita cost of supplying roads, elec- electricity capacity, it found that productivity is highest tricity, and telecommunications. in rapidly growing middle-income developing countries. On the crucial question of causation-does infra- In that same group the unit cost of installing electricity structure cause growth or vice versa?-the study con- capacity or paved roads is lower than that in the low- cluded (on Granger tests and helped by cointegration in income and high-income groups, and the social rate of the series of infrastructure stocks and per capita income) return to capital in general is highest. that causality between income levels and infrastructure Across the entire sample, the study found much het- stocks runs in both directions, but that the long-run erogeneity in the rates of return to paved roads and elec- effect is from infrastructure to income. tricity capacity relative to that to capital in general. In a Measuring the long-run productivity of infrastruc- number of cases infrastructure has the lower rate. Disag- ture capital relative to capital in general across the entire gregating by per capita income, however, the study found sample, the study found electricity generating capacity that middle-income developing countries show rates of to have productivity about equal to that of capital in return to paved roads well above those to capital in general, general. It found the same for transport routes (paved indicating undersupply and, possibly, pronounced exter- roads and railway track) in lower-income countries. nalities to paved roads associated with middle income. For Assuming that no infrastructure will be laid down that electricity capacity, however, the highest relative rates were is not as productive as capital in general, there is no evi- found in the low-income group, while the return in the mid- dence in these cases, on average, of externalities associ- die-income group is close to that to capital in general. ated with these kinds of infrastructure. In higher-income Responsibility: Development Research Group, Public countries, however, transport routes have a greater impact Economics-Shantayanan Devarajan (sdevarajan on GDP per worker than does capital in general. Tele- @worldbank.org); and Transportation, Water, and Urban phones also have a large impact on output, but the effect Development Department, Office of the Director- is so large as to strain credibility, at least as a supply Christine Kessides. effect; it probably reflects the chronic excess demand for Completion date: December 1999. 71 Reports . At any level of development there is indeed a best Canning, I)avid. 1998. "A D)atabase of World Stocks of degree of national urban concentration. It increases Infrastructure, 1950-9,5." WVorld Blank lEconomii: Review 12(3): sharply as income rises, up to a per capita income of 529-47. about $5,000 (in purchasing power parity terms), before -1999. "Infrastrcture's Contribution to Aggregate Output.' declining modestly. The best degree of concentration lPolicy Research Working Plaper 2246. World Bank, Develop- declines with country scale. Growth losses from signifi- ment Research Group, Washington, D).C. cantly nonoptimal concentration are large. Those losses Canning, I)avid, and Esra l3ennathan. 2000. "'I'he Social Rate of tend to rise with level of development, peaking at a very RCturn on InfrastruLCture Investments." Policy Research Work- high level (about 1.5 percentage points of annual eco- ing Paper 2390. World 13ank, I)evelopment Research (Group, nomic growth). Results are very robust. Washington, I).C. * In a group of 72 countries in 1990 roughly 30 had satisfactory urban concentration, 24 had excessive con- Competitive Cities: Urban Primacy and Growth centration, and 5-16 had too little. * The countries with highly excessive concentration Urban analysts and social scientists have hypothesized include Argentina, Chile, Costa Rica, and Panama that excessive urban primacy-a situation in which too (in Latin America); the Republic of Korea and Thai- many of a country's or region's resources are concen- land (in Asia); the Republic of Congo (in Africa); and trated in an excessively large, costly metropolitan area- Greece, Ireland, and Portugal (in Europe). Many of these hinders national growth and quality of life. Moreover, the countries have explicitly unitary governments or fed- World Bank's recent focus on the urbanization strategies eral structures that have traditionally been severely and entrepreneurship of medium-size cities indicates constrained. disenchantment with conditions in megacities. And * The countries with too little urban concentration the popular press has focused on the competitiveness include Belgium (a small, split country) and such special of medium-size cities in the United States (compared cases as the former Czechoslovakia and the former with large metropolitan areas) for most economic Yugoslavia. activity. * Urban concentration declines with national scale. It All this suggests two related questions for research. initially rises with per capita income, peaking at about Firsc, does excessive primacy have significant effects on $3,000 before declining. If the largest city in a country economic growth? Many studies have examined the is a port, increased trade leads to increased urban con- determinants of urban primacy, most with the pre- centration. Otherwise, increased trade leads to decon- sumption that too much primacy is detrimental to a centration as markets in the hinterland open to trade. But country. Yet this presumption appears not to have been trade effects are modest. tested. This study tested that presumption. * Similarly, more political decentralization (or increased Second, what are the determinants of urban primacy? federalism) only modestly reduces urban concentration. This research addressed this question in a more sophis- * However, interregional transport infrastructure- ticated way, with better data, than past studies had. especially dense road networks-significantly reduces While earlier studies relied on cross-sectional data and urban concentration, an effect that rises with income. methods, this one used panel data and methods. It also The findings were presented at the Regional Science used data on key determinants of primacy related to Association meetings in Montreal in November 1999, with national infrastructure investments and decentralization about 60 specialists in urban development attending. of government, which are typically not used. Responsibility: Development Research Group, Infrastruc- The study explored the issue of urban overconcen- ture and Environment-Zmarak Shalizi (zshalizi tration econometrically, using data from a panel of 80-100 @wvorldbank.org). With Vernon Henderson and James countries every five years from 1960 to 1995. It found the Davis, Brown University. following: Completion date: April 2000. 72 Infrostructure and Urban Development Report ration by the public sector of the technical and contractual Henderson, Vernon. 2000. "How tlrban Concentration Affects details of projects before their private concessioning. Economic Growth." lolicy Research Working Paper 2326. Responsibility: East Asia and Pacific Region, Energy and World 13ank, I)evelopment Research Group, Washington, D.C. Mining Sector Unit-Barry Trembath (burembath @worldbank.org); and Project Finance and Guarantees Financing of Private Hydropower Projects Department-Tomoko Matsukawa. With Knight Piesold Limited, United Kingdom. This study reviewed the issues and challenges related Completion date: June 2000. to private financing of hydropower development in developing countries. From the limited pool of projects Report that have reached or are nearing financial closure, 10 Head, Chris. 2000. Financing of Private Hydropower Projera. World projects were chosen for the study in five developing Bank Discussion Paper 420. Washington, D.C. countries that have been among the most active in pro- moting private hydropower development-Brazil, the The Effects of Telecommunications Infrastructure Lao People's Democratic Republic, Nepal, the Philip- on Investment: An Empirical Analysis pines, and Turkey. These projects represent a range of physical and market characteristics, regulatory and con- Telecommunications infrastructure is increasingly rec- cession environments, public-private risk sharing arrange- ognized as a causal factor in economic growth. This study, ments, and financial structures. Collectively, they based on a literature review, econometric analysis, and a represent a reasonable cross-section of the types of pri- survey of examples from the academic literature and pro- vate hydropower schemes seeking investment financing. ject reports, seeks to improve the understanding of the In developing countries the financing of greenfield pri- underlying causal mechanisms by examining the relation vate infrastructure projects on a limited recourse basis between telecommunications infrastructure and the quan- faces certain common issues regardless of the type of pro- tity and quality of investment. ject. Hydropower development projects raise additional Three important findings emerge from the study: difficulties-stemming from their site-specific nature; * The relation between telecommunications rollout their high construction risk and long construction peri- as traditionally measured and investment quality and ods; their capital-intensive nature and high share of local quantity is weak. The relation between investment and costs; the unpredictability of their output, which is sub- the quality of telecommunications services, as proxied ject to river flows and broader water management con- by privatization, is far stronger. straints; the complex concession process needed to - Investment in information infrastructure has a sig- achieve transparency in the award and pricing of output; nificant impact on income-generating opportunities and and environmental sensitivities. The study examined how the quality of service provision in microeconomic stud- the 10 case projects solved these difficulties and reviewed ies of developing countries, but the extent of that impact the main public policy issues involved. is highly dependent on a range of broader factors, such Private hydropower development is still evolving, and as market reform. the process remains slow and expensive. There is a dan- * Telecommunications rollout is correlated with a ger that interest in the larger hydropower projects will fal- range of nonincome development indicators (including ter if prospective developers continue to face high up-front health and education), after allowing for income effects. costs and long preparation periods with only limited At least three reports and a data set will emerge from prospects of success. The findings of the study suggest a the study. The reports will include two econometric need for longer-term financing to better suit the charac- studies of the impact of telecommunications infrastruc- teristics of hydropower; a regulatory framework and real- ture on World Bank project performance and foreign istic public-private risk sharing responsive to the direct investment flows, and a report aimed at policy- requirements of hydropower projects; and adequate prepa- makers that will include the results of the econometric Infrustructure and Urban Development 73 analysis, additional econometric analysis on the impact solid waste management-and thus the willingness to pay of telecommunications on nongrowth development goals for the service. and the impact of sector reform on the provision of ser- The team is now assessing the constraints and feasi- vices, and a literature review on the impact of informa- bility of the benefits transfer methodology, in which the tion infrastructure on government services and the private results of contingent valuation studies for one location sector. An online data set will include data on foreign are used to predict willingness to pay in other locations. direct investment, reviews by the World Bank Operations If benefits transfer turns out to be workable, project Evaluation Department, and information on telecom- managers would be able to extrapolate the experience munications and reform status. The research has already from one project to another, lowering the considerable been used in two reports expected to influence Bank pol- cost of assessing willingness to pay. icy and the broader community: a toolkit on poverty Preliminary analytical results were presented in the reduction strategy papers and a submission to the G-8 Philippines (to mayors and city officials in Iloilo and conference in Japan on the digital divide. Naga, the Department of Environment and Natural Responsibility: Telecommunications and Informatics, Policy Resources, local nongovernmental organizations, and Division-Charles Kenny (ckenny@worldbankorg) and academics in Manila) in February and March 1999. Christine Qiang. With Jia Liu and Taylor Reynolds, Results were also presented to operational staff during American University; and Jeremy Grace, State Univer- the Study Tour on Waste Management in Scandinavia, sity of New York. June 7-11, 1999. (ompletion date: August 2000. Responsibility: Latin America and the Caribbean Region, Finance, Private Sector, and Infrastructure Sector Unit- The Sustainable Financing of Investmenis Sheoli Pargal (spargal@worldbank.org); and Develop- in Municipal Infrastructure: Cost Recovery ment Research Group, Infrastructure and Environment- for Solid Waste Management in the Philippines Maureen Cropper. With Nathalie Simon, U.S. Environ- mental Protection Agency; and the University of the This study uses contingent valuation surveys to measure Philippines. The Japanese government contributed fund- the willingness to pay for garbage collection and disposal. ing for the research. Results of a 1998 survey of 500 representative house- tompletion date: September 2000. holds, 300 representative commercial establishments, and 150 itinerant vendors in Iloilo, a medium-size city in the Comparative Study of Water Institutions Philippines, reveal that on average households are willing and Their Impact on Water Sector to pay 24.45 pesos and commercial enterprises 89.15 pesos Performance in Selected Countries a month for solid waste collection. (The number of usable responses from the itinerant vendor sample was too low In response to increasing water scarcity, water institutions to obtain robust results.) In contrast, willingness to pay for around the world-formal and informal policy, legal, and solid waste disposal was close to zero for both households administrative entities-are undergoing far-reaching and commercial entities. Similar results were obtained in changes. What has the cross-country experience with a second medium-size city, Naga. the evolution of water institutions been? Do the changes Household income, the respondent's level of school- advance or impede the water sector's financial viability ing, male gender, hiring help to dispose of garbage, and and the sustainability of water resources? recycling waste in the household were all positively This project addresses these questions through a related to the willingness to pay for garbage collection. comparative study of water institutions and their impact Age and burning garbage were negatively related to will- on sector performance in selected industrial and devel- ingness to pay. These results clearly underline the impor- oping countries. The interdisciplinary study compares a tance of education and information dissemination set of legal, policy, and administrative features affecting campaigns in increasing awareness of the importance of the economic and operational performance of water insti- 74 Infrastructure and Urban Development tutions in 35 countries. It then compares performance, an evaluation methodology employing perception-based based on qualitative and quantitative variables. By link- cross-country data. These analytical and empirical analy- ing the comparative analysis of institutions with the ses are used to identify key inputs for a generic strategy analysis of sector performance, the study identifies both of water institution reform. common and unique features of best-practice and worst- The results show that water institution performance case institutions. has a statistically significant positive effect on water sec- The analysis draws primarily on data derived from tor performance, and they indicate the relative strength, interviews with a sample of water sector experts and direction, and significance of the effects of institutional responses to a detailed questionnaire administered to this features on performance. They suggest that the inter- sample. The results provide the basis for deriving strate- action of institutions and performance can be affected by gic options and action plans for strengthening institutions the socioeconomic, political, and resource-related envi- and improving their performance. ronment in which it occurs. And they strongly favor a Despite variations in resources and political econ- sequential strategy for institutional reform. omy conditions, several common trends and patterns The results of the study have been disseminated emerge. The key issues are no longer resource devel- through seminars at the Water Resources Center of the opment and water quantity but resource allocation and University of Illinois at Urbana and at the World Bank, water quality. The notion of water provision as a public at a November 1999 seminar at the University of Indi- good and welfare activity is being replaced by the con- ana at Bloomington, and at the European Conference of cept of water as an economic good and as an input in eco- Environmental and Resource Economists, Crete, June nomic activity. And the old development paradigm of 29-July 3, 2000. centralized decisionmaking, administrative regulation, Responsibily: Rural Development Department-Ariel Dinar and bureaucratic allocation is giving way to a new para- (adinar@worldbank.org). With R. Maria Saleth, Institute digm rooted in decentralized allocation, economic instru- for Social and Economic Change, Bangalore, India. ments, and stakeholder participation. Completion dote: October 2000. The findings suggest that there is a critical need to con- centrate efforts in countries, areas, and subsectors that Reports already have a critical mass of institutional capacity, where Saleth, R. Maria, and Ariel Dinar. 1999. Evaluating Water fustitu- the probability of success is higher than elsewhere because tions and WaterSertorPerforman(e. World Bank Technical P'aper of lower transactions costs. The institutional changes 447. Washington, D.C. occurring across countries suggest that the potential net . 1999. "Water Challenge and Institutional Response: A gains of such changes are beginning to exceed the cor- Cross-Country Perspective." Policy Research Working Paper responding transactions costs in most contexts. 2045. World Bank, Rural Development Department, Wash- For water sector reform strategies, the multidimen- ington, D.C. sional links among key sector problems suggest that an . Forthcoming. "Institutional Change in the Global Water Sec- integrated approach will have the greatest impact. At the tor: Trends, Patterns, and Implications." Water isograne Poliy. heart of such an approach lie institutional changes to strengthen and modernize the legal, policy, and admin- The Impact of Regulatory Risk on the Cost istrative arrangements governing the water sector, of Private Debt for Infrastructure Projects The second phase of the study develops an analyti- in Emerging Markets cal framework for identifying various layers of institutional links and links between institutions and performance evi- During the past decade capital markets became the dent in the interaction of institutions and sector perfor- main source of funding for infrastructure projects, once mance. (The third phase of the study will analyze the financed overwhelmingly by governments. In develop- entire data set, which includes 116 observations from the ing and transition economies infrastructure bonds were 35 countries.) It then evaluates the layers of links using the mostcommon method of financing oil, gas, transport, Infrustructure and Urban Development 75 electricity, and telecommunications projects in 1990-99. downgrade events to investigate the effects of governance Since investments in infrastructure are particularly over the lifetime of infrastructure bonds. The informa- susceptible to the risks of government interference, tion about key governance risks is then analyzed to countries raising private finance for infrastructure projects understand the policy implications. need to ensure that the political and regulatory frame- The research uses principal components and cluster works allay investors' concerns about the risk of analysis, ordinary least squares and two-stage least squares default. with instrumental variables regression analysis, trun- Analyzing rich cross-sectional and time-series data cated and augmented regression analysis, and multino- on the universe of fixed rate infrastructure bonds issued mial logit regression analysis. and traded during the past decade, this research exam- The relationship between regulatory policy and the ines the effect of governance (political and regulatory cost of private debt for infrastructure in developing coun- frameworks) on investors' risk perceptions and thus tries has received almost no attention, yet has important on the cost of debt. The research considers such aspects implications for the policy advice the Bank gives to of polity and governance as the tradition of law and client countries on building and strengthening regulatory order, the presence of corruption, the quality of the regimes to promote private sector development. This bureaucracy, the strength of the contract enforcemenc research should contribute to that advice as well as to the system, the extent of regulatory discretion and the polit- Bank's methodology for pricing risk insurance to facili- ical constraints on this, and the likelihood of expropria- tate private project finance in emerging economies. The tion and other political risks. It also identifies the political research will also produce a database of regulatory risk and regulatory risks that concern investors most. The indicators in industrial and developing countries. research compares infrastructure bond markets of devel- Responsibility: Europe and Central Asia Region, Energy oped and emerging economies to see how the factors Sector Unit-Laszlo Lovei (llovei@worldbank.org). With driving infrastructure finance in the two country groups Nina Bubnova and John Quigley, University of Califor- differ and to draw policy conclusions from these nia at Berkeley; and Ilya Lipkovich, Virginia Polytech- differences. nic Institute and State University. The methodological approach used has several inno- Completion date: October 2000. vative aspects: * It enhances the explanatory capacity of earlier credit Report risk models by combining firm-intrinsic and macroeco- Bubnova, Nina B. 2000. Governance Impact on Private Investment:lEvi- nomic factors and adding the full spectrum of risks asso- denrefrom theInternationalPatuerns of InfrastruaureBond Rik Pric- ciated with the quality of governance and regulation in ing. World Bank Technical P'aper 488. Washington, D.C. the country and sector of bond issuance. * It applies hierarchical cluster analysis to understand Privatization and Basic Infrastructure an array of indicators of regulatory and political risk and Services for the Urban Poor to discern variables that drive the perception of gover- nance risk in a given country. A third of Latin America's people live in poverty today, * It complements the analysis based on cross-sec- and a sixth live in extreme poverty. The very poor can- tional data by constructing a database of time-series not meet their basic nutritional requirements, let alone yield data on infrastructure bonds traded in the see- the cost of basic infrastructure services. Because of cap- ondary market and examining factors that affect bond risk ital market imperfections, they typically cannot borrow in actual market conditions. to pay connection costs, further limiting their access to * It investigates the effect of industry structure and infrastructure services. regulation on infrastructure bonds in the power sector. This lack of access helps explain why the privatiza- * It compiles and analyzes the rating history of an tion plans proposed by some Latin American govern- entire universe of bonds, using the history of upgrade and ments have raised concerns among advocates of the poor. 7 6 Infrostructure and Urban Development While privatization can be expected to improve effi- Community Comanagement of Urban ciency in service delivery, it does not necessarilv lead to Environmental Quality: Water, Sanitation, greater equity. To improve equity, regulatory regimes and Water Pollution Control must ensure that private operators have incentives to invest in activities they might otherwise have considered The main goal of this research is to answer the follow- insufficiently profitable. ing question: What is the best decisionmaking procedure The goal of this study is to answer three questions: for coordinating the actions and resources of the munic- How much access do the poor have to basic infrastruc- ipal government, the community, and the private sector ture services in Latin America? What has been the impact in designing water and sanitation, solid waste manage- of privatization on the poor in Latin America? And how ment, and water pollution control systems that are sus- can we make sure that privatization will be beneficial for tainable, equitable, effective, and efficient? the poor in that region? The research is developing a planning methodology The study reviews the transmission mechanisms consisting of a set of decisionmaking procedures and a through which infrastructure reform may affect the poor, set of guidelines for selecting and applying the most focusing on microeconomic issues related to the poor's appropriate procedure in a given situation. The deci- access to infrastructure services and the affordability of sionmaking procedures will be designed to help deter- those services. Using household survey data from 12 mine the best systems for serving a given urban countries, the study reviews the trends over time in community, the resources required for these systems, and access to infrastructure services, examining whether the the contributions to be provided by the municipality, the poor are benefiting from increases in connections. It community, and the private sector. Once the procedures also describes the policy options available to promote bet- are developed, they will be applied in an urban setting ter access and ensure service affordability and assesses in Latin America, and their utility evaluated. how priorities should be set. Specifically, it looks at two Developing the planning methodology requires questions: whether policymakers should emphasize sub- addressing three main sets of research questions: sidies for new connections or consumption subsidies for * What are the best ways to inform providers and people already benefiting from connections and whether consumers of options for water and sanitation, solid waste some sectors are more important than others in reduc- management, and water pollution control systems? Both ing poverty. technical and relatively sensitive topics need to be The study is limited to the urban poor and to the water, treated, such as implications for health and hygiene prac- gas and electricity, and telecommunications sectors (some tices and the requirements for construction, mainte- evidence on urban transport may be included). Country nance, and operation. coverage is limited to countries, such as Argentina, * How should priorities be set? What are the best meth- Bolivia, and Chile, that have substantial experience pri- ods for eliciting evaluation criteria and preferences from vatizing urban infrastructure. Brazil or Mexico or both will consumers, communities, and government entities? To what also be included, because of their sheer size and because extent and under what conditions are existing methods- both face rising urban poverty problems. Additional most of which have been developed in OECD countries- countries will be added as the research design proceeds. appropriate for developing countries? What kinds of processes Responsibility: Latin America and the Caribbean Region, would best facilitate negotiation among the parties? Poverty Sector Unit-Quentin Wodon (qwodon * How should services be linked to the community's @worldbank.org), Vivien Foster, Mohamed Ajwad, and contributions and preferences? How should the level Corinne Siaens, and Finance, Private Sector, and Infra- and timing of consumers' resource contributions be structure Sector Unit-Anna Wellenstein; and World determined? How should burdens and responsibilities be Bank Institute, Governance, Regulation, and Finance matched to these resource contributions? Division-Antonio Estache. The project organized an international expert work- Completion date: October 2000. shop on participatory multicriteria decisionmaking at Infrasiructure and Urban Development 77 the University of Don Bosco in Soyapango, El Salvador, freight logistics services have affected businesses that on December 14-18, 1998. The university, a private make intensive use of these services in the Czech Repub- institution striving to improve the quality of life in Soy- lic, Estonia (telecommunications only), Hungary, Poland, apango (a suburb of San Salvador), is collaborating in the and Turkey (logistics only). These countries have pur- research. sued different policies in these sectors, but each has Given the project's ultimate goal of improving prac- implemented a "regime shift" in the past decade. tice, it will make a special effort to disseminate findings The project's approach involves interviewing inten- and lessons learned to the potential practitioners of the sive user firms to quantify the impact of increased invest- procedures, especially in the areas where the procedures ment and innovation in telecommunications and road are being applied. And the participatory approach used freight logistics services on performance-related varn- in applying the procedures will ensure that all those ables. In addition, the project examines the links between involved gain experience in comanagement. regulatory reform and the provision of new services by Responsibility: Latin America and the Caribbean Region, telecommunications and road freight service providers. Environmentally and Socially Sustainable Development The empirical evidence is based on a major new survey Sector Unit-Richard M. Huber (rhuber@worldbank.org) of about 1,400 enterprises, including infrastructure ser- and Shelton Davis. With Mark Ridgley and Aimee Del vice providers and intensive users of such services. Com- Aguila, Terra Group; Maria Cristina de Barahona, Fran- plementary data are drawn from separate surveys of cisco Rivas, Nelly Castillo, and Saul Benitez, University competition and regulatory agencies and detailed case of Don Bosco, Soyapango, El Salvador; and Arnold vd studies of selected enterprises. Such extensive data allow Klundert, Maria Muller, Jaap Rijnsburger, and Lex exploration of several hypotheses on the relevance of Hemelaar, WASTE, Gouda, the Netherlands. The upstream innovations and of a procompetitive overall pol- Netherlands Partnership Trust Fund is contributing icy environment in driving the downstream intensity of funding for the research. competition. Completion date: December 2000. The results of the study should help policymakers and operational staff better assess the case for active com- Enhanced Telecommunications and Road Freight petition policies and for improved coordination between Logistics: Competition and Innovation sector-specific and economywide regulation. They should also indicate whether easing any remaining barriers to A number of policy studies assert that enhanced telecom- competition in upstream business services should be a munications (expanded traditional services and new cel- priority. lular, Internet, and data-related services) and logistics Responsibility: Development Research Group-Mark Dutz services will transform business practices and signifi- (mdutz@worldbank.org). With Maria Vagliasindi, Euro- cantly increase business productivity. The premise is pean Bank for Reconstruction and Development; AC that enhanced telecommunications and road freight ser- Nielsen, Cyprus; David Newbery, Cambridge University; vices can stimulate entry and competition in downstream Aydin Hayri, Deloitte & Touche; and Eda Karakullukcu, user industries, allowing new firms to enter, incumbent Metafor Construction and Trade, Istanbul. The European users to offer new products in new markets, and rivalry Bank for Reconstruction and Development is con- to intensify. If regulatory reform and increased compe- tributing funding for this research. tition spur innovations and other improvements in such Completion dote: December 2000. services, and these innovations in turn generate sub- stantial downstream benefits, that would substantially Infrastructure Productivity: strengthen the case for increased competition based on Direct and Indirect Effects its economywide effects. This project examines how regulatory changes, com- Studies conducted over the past decade have repeatedly petition, and enhanced telecommunications and road reported rates of return to public capital that far exceed 78 Infrostructure and Urban Development those to private capital or those emerging from cost- would enable development practitioners to choose the benefit analysis or project evaluation for infrast.ructure most efficient reform for their circumstances. Using a case investments. In part to investigate these still controver- study approach, this research systematically analyzes sial returns and to find out whether the operation of experience with attempts at private participation in the indirect effects may help explain them, this study iden- provision of water services in six cities: Buenos Aires, tifies and measures the growth and productivitv effects Argentina; Santiago, Chile; Abidjan, Cote d'lvoire; of infrastructure in India, using time-series data from Conakry, Guinea; Mexico City, Mexico; and Lima, Peru. about 1960 to about 1990. The sample represents the main contracting options The study addresses three main questions. First, in used in water supply, provides significant variation in the addition to direct effects on output and growth, does phys- institutional setting, and allows comparison with coun- ical infrastructure have significant indirect effects? Sec- tries that have not used private participation. ond, what are the economic rates of return to (lifferent The study analyzes the effects of political and con- kinds of infrastructure investment, and how do they tracting institutions on the design and performance of con- compare with the social rates of return to other uses of tracts for reform of urban water supply, comparing capital? Third, is infrastructure a necessary condition different forms of private participation and reforms under for growth? public ownership. It examines the design and perfor- The study estimates growth effects for roads, rail, mance of reform (including the contractor selection process, telephone lines, and electricity generation and trans- contract design, and regulatory framework), looking at mnission capacity. These effects are measured in terms of how the different types of reform addressed, or failed to rnanufacturing and domestic product at the state and dis- address, possible problems of incentives, information trict level. The study also tries to determine at what asymmetries, and credibility. Finally, the research assesses level and through which channels the effects operate. the results of the reform, looking at different indicators of Responsibility: Development Research Group, Public performance and measuring the welfare effects of reform Economics-Shantayanan Devarajan (sdevarajan compared with a counterfactual (using the methodology @alworldbank.org) and Sethaput Suthiwart-Narueput; and developed by Ahmed Gala] and others, Welfare Conse- Transportation, Water, and Urban Development Depart- quences of Selling Public Enterprises: An Empirical Analysis, ment, Office of the Director-Christine Kessides. With New York: Oxford University Press, 1994). Esra Bennathan, Subhashis Gangopadhyay, Sylaja Srini- The research has produced several important findings: vasan, Charles Hulten, Paul Seabright, and Martin Robert * The large health and environmental externalities Weale. associated with water provision make it fundamentally (ompletion date: December 2000. different from other infrastructure sectors. * In institutionally weak environments it is difficult Report to provide institutionalized protection against expropri- Hulten, (harles, 1999. "Indian Manufacturing Industry: Elephant ation of quasi rents and regulatory capture. or ''iger? New Fvidence on the Asian Miracle." * Constraints such as the political importance of water, the cost and scarcity of water resources, and the extent Institutions, Politics, and Contracts: Private Sector of unmet demand profoundly affect the design and dif- Participation in Urban Water Supply ficulty of reform. * The political motivation for, feasibility of, and com- Reforms promoting private sector participation in the pro- mi tment to reform affect the choice of design for reform vision of urban water supply are often cited as success and its success. stories, but these reforms have followed many different * Even in difficult institutional environments approaches, including leases, concessions, and service con- and with serious failings in design or implementation, pri- tracts. There has been no rigorous analysis that criti- vate sector participation produced gains over reasonable cally examines the reforms and the outcomes or that counterfactuals. Infrostructure and Urban Development 79 * Performance improved with private sector partici- ticipation in tJrban Water Supply Systems-Ti'he Case of Mex- pation, and in some cases-most notably in Santiago, ico City Water Sector Service Contracts." World 13ank, D)evel- Chile-it improved without privatization. opment Research Group, Washington, D.C. The reason for the success in Santiago appears to Menard, Claude, and George R.G. Clarke. 1999. "Reforming have been improved regulation. Santiago's regulator was U)rban Water Supply: TI'he Case of Abidjan, C'te d'lvoire." lol- powerful, independent, politically insulated, and guided icy Research Working Paper 2377. World l3ank, D)evelopment by detailed laws that left little room for discretion. Fur- Research Group, Washington, D.C. ther, it paid salaries above civil service norms, and its staff . 2000. "A 'I'ransitory Regime: Water Supply in Conakry, was regarded as honest, professional, and competent. Guinea." Policy Research Working lPaper 2362. World 13ank, This suggests that the gains from having a politically inde- D)evelopment Research Group, Washington, D.C. pendent regulator are significant. Noll, Roger, Mary Shirley, and Simon Cowan. 1999. "Reforming The case studies will be used by the World Bank t1rban \WaterSystems: TheoryandEvidencefrom[)eveloping Institute for its training programs on the water sector and Countries." World Bank, Development Research Group, Wash- on regulation. ington, D).C. I)raft. Responsibility: Development Research Group, Regulation Shirley, Mary, and Claude Menard. 1999. "Cities Awash: Reform- and Competition Policy-Mary Shirley (mshirley ing U)rban Water Systems in Developing Countries." World @worldbank.org), Luke Haggarty, Colin Xu, and Ana Bank, Development Research Group, Washington, D.C. Maria Zuluaga, and Public Economics-George R. G. Draft. Clarke; and Private Sector Development Department, Shirley, Mary, L. Colin Xu, and Ana Maria Zuluaga. 2000. "Reform- Private Participation in Infrastructure-Penelope Brook. ing tJrban Water Supply: 'I'he Case of Santiago, Chile." Policy With Claude Menard, Sorbonne University; Simon Research Working Paper 2294. World Bank, Development Cowan, Worcester College, Oxford; Manuel Abdala, Research Group, Washington, D.C. Navigant Consulting and Universidad de San Andres; Lorena Alcazar, University of the Pacific; Douglass North, Yardstick Competition across Ports: Washington University at St. Louis; Scott Masten and An Illustrated Guide for Regulators Keith Crocker, University of Michigan; Roger Noll, Stan- ford University; Dale Whittington, Northeastern Uni- This research addresses two main questions: What is a versity; and Matthew McCubbins, University of California reasonable quantitative methodology for measuring the at San Diego. relative efficiency of ports operating in competition with (ompletion date: December 2000. each other? And how can this methodology be used to provide a tool that regulators can use to introduce yard- Reports stick competition in the port sector and to ensure that the Alcaz.ar, Lorena, Manuel A. Abdala, and Mary M. Shirley. 2000. efficiency gains achieved through restructuring or private "'T'he Buenos Aires Water Concession." Policy Research Work- sector participation are maintained and passed on to port ing Paper 2311. World Bank, I)evelopment Research Group, users under the most common regulatory regimes? Washington, D.C. With the increase in potential competition in the sec- Alcazar, Lorena, Colin Xu, and Ana Maria Zuluaga. 2(X)(. "Reform- tor, the need to improve performance monitoring is ing tUrban Water Supply: 'I'he Case of l,ima, Peru." World becoming a serious concern for port regulators. This Bank, D)evelopment Research Group, Washington, D.C. Draft. study aims to specify a cost frontier useful to regulators Clarke, George R.G., Claude Me6nard, and Ana Maria Zuluaga. 2000. wishing to compare the relative efficiency of ports. A cost "'I'he Welfare Effects of Private Sector Participation in Guinea's frontier shows costs as a function of the level of outputs UJrban Water Supply." IPolicy Research Working Paper 2361. and the prices of inputs. It must be specified so as to allow World Bank, I)evelopment Research Group, Washington, D).C. regulators to assess the wedge between tariffs and min- Haggarty, ILuke, lenelope 13rook Cowen, and Ana Maria Zuluaga. imum costs and relate it to some of the key regulatory 1999. "Institutions, Pollitics, and Contracts: Private Sector lar- decision variables. 80 Infrastructure and Urban Development In preparation for this estimation, the research will and afford the owners of such facilities a fair opportunity develop a database of performance and productivity to recover their prudently incurred costs. indicators. The control variables included in the speci- While the issue of pricing access to bottleneck facil- fication of the functional relations estimated will be ities is common to all network utilities, this project selected so as to ensure that the operators of a port activ- focuses on telecommunications. While the access pric- ity are effectively comparable. Once the frontier has ing rules for gas, water, railroads, and electricity have a been estimated, the efficiency of a specific operator can similar analytical foundation, they differ in their detailed be assessed relative to the performance of the best oper- formulation because of differences in these industries' ators in the industry when facing the same constraints as technical characteristics. the operator being assessed. The methodology will be The study analyzes the basic methodological tested using data from Mexico in collaboration with the approaches to access pricing along two key dimensions: Mexican government. If possible, it will also be tested the institutional setting in which access rates are deter- in two to three more case studies. mined, and whether access rates are built up from costs The project is working with a team of advisers and or derived from end-user prices. It also identifies the per- practitioners in Latin America (Argentina, Colombia, tinent cost concepts for setting access rates. Because of Costa Rica, and Peru) familiar with the type of data that the difficulty of estimating such costs in developing and port authorities can generate in order to ensure that its transition economies and because the embedded tech- results are useful in a large set of countries. nology of the incumbent operators is unlikely to repre- Responsibility: World Bank Institute, Governance, Regula- sent a proper measure of forward-looking costs, the study tion, and Finance Division-Antonio Estache (aestache advocates the use of world cost benchmarks. Such bench- @worldbank.org). With Sabbas Lamarroy, Mexican Port marks, appropriately modified to account for domestic Regulatory Authority; Lourdes Trujillo and Marianela conditions, should reflect forward-looking rather than his- Gonzalez, University of Las Palmas de Gran Canaria, torical costs. The proposed access rates are above the total Spain; and Tim Coelli, University of New England, long-run incremental cost and below the stand-alone Armidale, Australia. cost of providing access. Completion date: December 2000. The study derives appropriate pricing principles in the presence of economies of scale and scope in the provi- Efficient Network Access Pricing Rules sion of access and identifies several strategies that reg- for Developing and Transition Economies ulators can use. In the presence of scale economies nonlinear pricing schemes can reduce, but do not entirely This research project seeks to translate the principles and eliminate, the inefficiencies caused by the divergence results of the theoretical and analytical work on pricing between price and incremental costs that is needed to access to infrastructure networks into a set of tractable ensure adequate revenues. Moreover, differential pric- rules and procedures. The need for access pricing rules ing schemes are likely to be in the public interest. In the that are easy to implement is especially urgent in devel- presence of significant fixed costs that are joint and com- oping and transition economies because of severe mea- mon to several services (that is, network costs), the study surement problems and lack of technical expertise. The advocates a Ramsey pricing rule. This rule directs the reg- project seeks to undertake an operationally useful ulator to set prices by taking into account the pertinent approach to the definition and implementation of access marginal costs, the elasticities of demand, and the "tight- and interconnection rules in network industries under- ness" of the budget constraint facing the owner of the going a transition toward competition. The results should bottleneck facility. provide practical guidance to policymakers in develop- The application of the Ramsey principles that are ing and transition economies on how to ensure access for developed leads to the so-called global price caps rule. competitors to essential (bottleneck) network facilities Under that rule the regulator is directed to set all rates, on terms that are consistent with efficient competition including access rates, at the Ramsey-efficient level and Infrastructure and Urban Development 81 then determine the appropriate permissible price increases This research project uses case studies of Latin Amer- for every basket of services. For global price caps regu- ican and OECD countries to analyze the effectiveness lation to implement efficient prices, however, it must of a wide range of energy assistance programs that have assign proper weights to the services included in the been implemented to help expand access to services, cap-a rather difficult task in developing and transition ensure affordability, and prevent disconnection for the economies with low penetration rates. The study proposes poor. a nondiscretionary method for choosing such weights Responsibility: Latin America and the Caribbean Region, that mitigares the problem of potential regulatory capture. Poverty Sector Unit-Quentin Wodon (qwodon When the entrants seeking access offer services that are @worldbank.org). close substitutes to those offered by the incumbent owner Completion date: March 2001. of the bottleneck facility, the efficient components pric- ing rule, supplemented by active regulatory oversight to Competition and Privatization favor nondiscriminatory interconnection, can be used. in Urban Water Supply Alternatively, the regulator may be directed to use global price caps supplemented by maximal access prices defined Privatization in urban water supply has proceeded more by the efficient components pricing rule. slowly and been characterized by less private sector Responsibility: Development Research Group-loannis N. involvement than privatization in other infrastructure Kessides (ikessides@worldbank.org). sectors. One plausible reason for this is that it is much Completion date: March 2001. harder to introduce product market competition in the water sector than in other infrastructure sectors. Conse- Report quently, competition must be introduced indirectly- Kessides, loannis N., Jean-Jacques L,affont, Janusz A. Ordover, and through competition for the market (that is, competitive Robert 1). Willig. 1999. "The Access Pricing Plroblem: Some bidding), yardstick competition (benchmarking), and Practical Rules in 'l'elecommunications." World Bank, I)evel- competition in the capital market. opment Research Group, Washington, 1).C. I)raft. Since full privatization prevents repeated competition for the market, lease and concession contracts might Energy Services and Programs for the Poor have a distinct advantage over that approach. This pro- ject assessed how well other methods of competition There is increasing recognition of the importance of (yardstick and capital market competition) have substi- dealing with material hardship as well as income poverty tuted for competition for the market in the United King- in both industrial and developing countries. One type of dom. Using data from company balance sheets and material hardship is the inability of the poor to obtain income statements, the research used a partial equilib- access to energy services and, once they have access, to rium cost-benefit analysis to assess the total welfare pay the costs of the services. gains and to identify which groups gained from privati- In low-income and lower-middle-income countries zation and which groups lost (this analytical approach was access remains a pressing issue, especially in rural areas developed by Ahmed Galal and others, We/fare Conse- for such network services as gas and electricity. In upper- quences of SellingPublic Enterprises: An EmpiricalAnalysis, middle-income countries, which include transition New York: Oxford University Press, 1994). economies of Europe and Central Asia and a number of Preliminary results suggest that both consumers and countries in East Asia and Latin America, expanding the government lost as a result of privatization. The access may be a less important issue than ensuring afford- government lost because of an overly generous stock ability and avoiding disconnection. In both groups of market flotation that sold the water and sewerage com- countries traditional policies designed to reduce poverty panies for far less than their actual value. Consumers lost may not be enough to shield the poor from the hardship because of large price increases that allowed the priva- of inadequate energy services. tized utilities to make large profits. This occurred despite 82 Infrastructure and Urban Development the establishment of an independent, well-funded, and and communities, the study will calculate the economic highly competent regulator and the attempts to introduce and social returns to rural roads. It will also provide sup- competition. Further, there is little evidence that pro- port to BIDS in analyzing the descriptive data. ductivity improved following privatization. In fact, mea- BIDS collected the baseline survey data and was to sured productivity fell following privatization, although have conducted follow-up surveys in 1998 and 1999. this outcome appears to be the result of tighter envi- Because of the devastating flood of 1998 and its aftermath, ronmental regulation, not privatization. however, the follow-up surveys had to be delayed until These results suggest several important lessons for November and December 2000. developing countries. First, they demonstrate the impor- Responsibility: World Bank fnstitute, Economic Policy and tance of having regulation well established before pri- Poverty Reduction Division, and Development Research vatization. Second, they show the difficulty of privatizing Group, Rural Development-Shahidur R. Khandker during periods of uncertainty-in this case, uncertainty (skhandker@worldbank.org); Development Research due to the newly imposed environmental regulations. In Group, Rural Development-Hussain Samad; and South practice, the privatized utility managed to implement the Asia Region, Infrastructure Sector Unit-Thampil environmental improvements more cheaply than Pankaj. With M. Abdul Latif, Bangladesh Institute of expected-allowing shareholders to make large profits Development Studies. but resulting in large losses for consumers. Finally, the (ompletion date: June 2001. results show the importance of competition for the mar- ket. If such competition had been used to set prices at The Macroeconomics of Infrastructure the time of privatization, the large price increases might in Latin America have been avoided. Responsibility: Development Research Group, Public Eco- The progress in stabilization and reform achieved in nomics-George Clarke (gclarke@worldbank.org), and many Latin American countries over the past decade has Competition and Regulation Policy-Ana Maria Zulu- been based largely on strong fiscal adjustment efforts. aga. With Simon Cowan, Oxford University. There is a widespread perception, however, that public (ompletion date: June 2001. infrastructure investment-and, in many instances, infra- structure maintenance as well-has been a casualty of this The Impact of Rural Roads fiscal retrenchment. Across Latin America fiscal correc- tions have been associated with a slowdown in the expan- Rural roads can boost agricultural growth and invest- sion of physical infrastructure stocks (such as road ment, household food security, and investment in human networks and power generation capacity). There is a capital. They can also improve access to markets for risk that infrastructure deficiencies could hamper private rural products and reduce transactions costs. But the sector activity and growth over the medium term, even- returns to rural road investments are not known, in part tually constraining the expansion of tax bases and mak- because of methodological problems. Even if calculated ing the fiscal effort self-defeating. using the incernal rate of return approach, the estimates Partly as a response to this situation-but also as an of the returns are generally so low that investments do integral aspect of the regionwide shift away from the state- not appear viable. Moreover, the impacts of rural roads led development model-most Latin American countries are long term and cannot be captured through cross- lhave taken significant steps to allow increased involve- sectional survey data. ment of the private sector in infrastructure. Indeed, This project involves a long-term impact study of a Latin America is the developing region that has made the Bank-financed rural roads project in Bangladesh. It pro- most progress in the privatization and liberalization of vides technical assistance to the Bangladesh Institute of basic infrastructure services. Development Studies (BIDS) to carry out baseline and This study examines how this redefinition of the pri- follow-up surveys. Based on the panel data on households vate and public sector roles has affected the volume and Infrastrutture and Urban Development 83 quality of infrastructure services and the economy's Rural Roods: Welfare Impact Evaluation investment and growth prospects and at what fiscal costs or benefits. Specifically, it addresses the following pol- Rural roads are often seen as key to raising living stan- icy issues: dards in poor rural areas. Yet despite the consensus on * What are the short- and long-run fiscal costs and ben- their importance-and much anecdotal evidence-there efits of the new public-private partnership, characterized is surprisingly little hard evidence on the size and nature by reduced public sector involvement in infrastructure? of their benefits. How should they be reflected in the priority ranking of This study aims to assess the impact of rural roads on public expenditures at a time when fiscal restraint is a poverty and to provide inputs to policy discussions of how dominant concern? best to allocate scarce public resources. The empirical * How have the opening of infrastructure sectors and investigation is being conducted in Vietnam, where the the new forms of public-private partnership affected the Bank is financing and helping to implement a large- volume and quality of infrastructure stocks and services? scale rural roads project for poverty alleviation. The Where have crowding-in effects between public and pri- study's overall focus is on how the determinants of liv- vate investment been reinforced, and where have they ing standards change over time in communes that have been hampered? (From a policy viewpoint, the answer road projects compared with ones that do not. to this question is needed to identify potential new bot- A survey was used to collect baseline data for a ran- tlenecks in public investment and possible distortions in dom sample of 100 project communes and 100 nonpro- private investment or in resource allocation by multilat- ject communes in the spring of 1997. A second round of eral organizations.) surveying was conducted in June 1999. Bad floods * What kinds of opening up are more effective in delayed the survey in a few provinces. The data are cur- attracting the private sector-privatizing existing firms, rently being entered and cleaned. Information from allowing entry of new firms, or allowing entry of foreign these data should allow initial impacts to be assessed. firms? What kind of regulatory framework for the liber- Four other surveys were also conducted in 1997 and alized infrastructure sectors has yielded the largest pay- 1999. In each sampled commune a questionnaire was off in terms of attracting private initiative? Under what administered to 15 randomly sampled households. A circumstances does the opening of infrastructure sectors short district-level survey was implemented to help put generate additional private investment? That is, does pri- the commune-level data in context, and an extensive vate infrastructure investment come at the cost of reduced province-level database was created to help understand capital spending in other sectors? the selection of provinces for the project. Because the To answer these questions, the research combines impact of road projects varies with the magnitude of the microeconomic and macroeconomic evidence from Latin change resulting from the project and the method of America and elsewhere. An important byproduct of the project implementation, a project-level database for each project should be a comprehensive data set on infra- of the project areas surveyed is also being constructed. structure stocks and flows for the major economies of The baseline data will be used to model the selection Latin America. of project sites, with a focus on the underlying economic, Responsibility: Latin America and the Caribbean Region, social, and political economy processes. Later rounds Chief Economist Unit-Luis Serv6n (Iserven will be used to understand gains measurable at the com- @worldbank.org), Private Sector Cluster-Sheoli Par- mune level, conditional on selection. The general gal, and Finance, Private Sector, and Infrastructure Sec- approach will be in the tradition of double differencing tor Unit-Marianne Fay; and World Bank Institute, with matching methods. Matching methods can be used Governance, Regulation, and Finance Division-Anto- to select ideal controls from among the 100 sampled nio Estache. With Cesar Calder6n, University of nonproject communes, and outcomes in project com- Rochester. munes can be compared with those found in the control Completion date: June 2001. communes before and after the introduction of the road 84 Infrusiructure and Urban Development projects. Outcome indicators to be examined include five times. And accelerated motorization is clogging commune-level agricultural yields, income diversification, developing country cities with traffic congestion. employment opportunities, availability of goods, land These negative externalities of motorization in devel- use and distribution, services and facilities, and asset oping countries pose a challenge for public policy and the wealth and distribution. allocation of public expenditures. This research uses Responsibility: Development Research Group, Public Eco- theoretical, empirical, and comparative case study analy- nomics-Dominique van de Walle (dvandewalle ses to address concrete operational issues. It addresses @worldbank.org). With Vu Tuan Anh, Economics Insti- such questions as these: How much emphasis should be tute, Hanoi; and Dorothy Jean Cratty, University of given to policies and programs that may reduce the need Maryland at College Park. The Canadian International for transport infrastructure investments? How effective Development Agency (CIDA) Trust Fund is contribut- are different policies in accommodating large populations ing funding for this research. and economic growth in urban areas with minimal neg- Completion date: December 2001. ative externalities from motorization? What is the ben- efit in encouraging a more appropriate pace of Reports motorization-one that better balances private decisions van de Walle, I)ominique. 1999. "Assessing the Ploverty Impact of on small capital outlays with society's ability to mobilize Rural Road Projects." World Bank, I)evelopment Research resources and implement complementary capital invest- Group, Washington, 1).C. ments? How should transport infrastructure investments 2)2000. "Choosing lropoor Rural Road Investments." World be allocated? Should investments be made in the urban Bank, D)evelopment Research Group, Washington, I).C. core or the urban periphery, in rail or roads, in ring roads or arterials or corridors, in motorized or nonmotorized net- Motorization and the Pricing of Externalities works, in networks favoring personal or collective modes of transport? In the past 50 years the number of motor vehicles world- The research agenda focuses on three main themes: wide has grown from about 60 million to about 700 mil- . The welfare effects of different road pricing mech- lion. Developing countries are having to cope with a anisms. This research develops analytical and numeri- higher level of motor vehicle ownership than OECD cal general equilibrium models to evaluate the welfare countries had at similar per capita income levels-but and efficiency impacts of alternative instruments (con- with less developed public infrastructure and institu- gestion fees, parking fees, gasoline taxes, mass transit sub- tional capacity. sidies, dedicated bus lanes, high-occupancy vehicle In addition, qualitative differences in developing lanes) to control for transport externalities. It also looks countries (such as proportionately more two-stroke engine at the interactions between transport policy instruments vehicles and mixed right of way) have created unprece- and preexisting tax systems (both local and national). dented negative externalities. The World Health Orga- * The role of land use and urban form and the avail- nization (WHO) predicts that by 2020 about 2.4 million ability of alternative modes of transport in determining people worldwide will die annually in road traffic acci- the pace of motorization at different stages of develop- dents; 88 percent of these deaths will be in developing ment in Asia. The research differentiates among coun- countries, making traffic accidents the second worst tries at the mature stage of motorization, those midway "epidemic" in these countries in terms of years of life lost, in the process, and those at the initial stage. It will later The adverse effects of vehicle-related pollution at the expand to developing countries in other regions. local level are also much worse in developing countries. * The productivity of road infrastructure. This research While the ambient level of suspended particulates meets develops a general equilibrium model that includes firm the WHO standard in most industrial country cities, it productivity effects (from road investment) and con- exceeds that standard in such developing country cities gestion externalities and investigates optimal rules for as Beijing, Delhi, Mexico City, and Xian by as much as road infrastructure investment. Infrastrutture and Urban Development 85 This research program is a collaborative effort by the The rigorous empirical analysis will not only assist World Bank, national and city government agencies, uni- donors but also help the proponents of reform make their versities, independent research groups, nongovernmental case. The project will also strengthen policy and regulatory organizations, and other international development skills in the region by joining African research institutes with agencies. senior researchers from academia and the World Bank in Responsibility: Development Research Group, Infrastruc- close partnership, all using a single methodological and con- ture and Environment-Zmarak Shalizi (zshalizi ceptual framework. In the course of the project the par- @worldbank.org), Elysa Coles, Antonio Bento, Maureen ticipating African research institutes-the Center for Cropper, Kenneth Chomitz, and Mead Over. Economic and Social Research (CIRES) in C6te d'lvoire Completion date: January 2002. and the Economnic and Social Research Foundation (ESRF) in Tanzania-will take on more and more lead responsi- Privatization of Telecommunications bility for the research, with the goal of creating an institu- in Sub-Saharan Africa tionalized regional capacity to advise on telecommunications reform and on infrastructure regulation more broadly. Much of the policy advice on privatization and regulation The work began in 1999 with a pilot case study of telecommunications is based on the experience of high- (Ghana), followed by team meetings to ensure consis- and middle-income countries. But a growing number of tency in the conceptual ftamework and the quality of the Sub-Saharan African countries have privatized their work. By June 2000 initial drafts of four cases had been telecommunications firms or allowed private cellular oper- completed. All six case studies and a synthesis report will ators to enter their domestic market. A better under- be discussed with the project advisers in 2000, revised, standing of this experience would help donors develop and finalized. It is expected that they will be dissemi- policy advice tailored to the institutional environments and nated through a regionwide conference in Africa in 2001. market conditions of countries in Sub-Saharan Africa, Additional developments will be tracked and analyzed avoiding "one-size-fits-all" approaches to reform. over the next two years, resulting in updated case stud- This research is analyzing Sub-Saharan African coun- ies and papers for a conference in late 2002. tries' experience with telecommunications reform in Responsibility: Development Research Group, Regulation depth and will track changes over the period 1999-2002. and Competition Policy-Mary M. Shirley (mshirley It explores three key questions faced by policymakers @worldbank.org), Luke Haggarty, George Clarke, and in the region: Frew Gebreab. With David Sappington and Mark Jamison, * Hlow can greater competition be encouraged by University of Florida; Jean-Jacques Laffont and Jean-Paul facilitating efficient entry? Azam, University of Toulouse; Tchetche N'Guessan, Gul- * How can the incumbent telecommunications bert Marie N'Gbo, and Marhieu Meleu, CIRES, C6te provider be motivated to use its existing assets better and d'Ivoire; and Samuel Wangwe, Haji Semboja, and David to invest in additional capacity? Christian, ESRF, Tanzania. The U.S. Agency for Interna- * How can telecommunications reform be structured tional Development is contributing funding for the research. so that it gains the support of key stakeholders and fits Completion dote: June 2002. well with the country's institutional capacity? The research is analyzing these questions through a Economic and Engineering Evaluation broad data set and through case studies of countries that of Alternative Strategies for Managing have tried a mix of reform approaches, including no Sedimentation in Storage Reservoirs reformt-C6e d'Ivoire, Ghana, Malawi, Senegal, Tanzania, and Uganda. The project will produce a comprehensive The traditionally accepted practice in designing and database on telecommunications in Sub-Saharan Africa, a operating reservoirs is to allow them to fill slowly with set of detailed case studies, and a series of analytical papers, sediment, leaving the consequences of the sedirnenta- which will be presented at two major conferences in Africa. tion and abandonment of reservoirs for future generations. 8 6 Infolstructuie and ulrbn oevelopmeni That stage has already arrived for many reservoirs, and Responsibility: Rural Development Department-Alessan- suitable sites for new reservoirs are limited. What is dro Palmieri (apalmieri@worldbank.org) and Ariel Dinar. needed is sustainable management of reservoirs. With Farhed Shah, University of Connecticut; and George The goal of this research is to develop a mathemati- Annandale, Golder Associates, Denver, Colorado. cal optimization model that can be used to determine the (ompletion date: October 2002. economic feasibility of sustainable management of stor- age reservoirs, taking into account economic, social, envi- Emergence from Subsistence: Infrastructure, ronmental, and engineering factors. Not all reservoirs can Location, and Development in Nepal be managed sustainably, and economic guidelines need to be developed to identify the projects that can be. Intuitively, the success of projects such as roads, irriga- The model will be designed to provide policymakers with tion projects, small business assistance schemes, or fer- a general framework for assessing whether a particular site tilizer distribution programs would seem to depend can support a sustainable reservoir and whether that critically on where they are located. But research has shed mode of operation makes economic sense. The results little light on the effect of location on economic outcomes. of this research may influence the way policymakers The purpose of this research is to begin filling this and engineers approach the design of dams. gap by studying the relations among infrastructure, geo- The study was launched by a workshop held on graphic location, and economic development in Nepal. December 8-9,1999, at the World Bank, attended by peo- Nepal is a particularly suitable place to study spatial spe- ple from both developing and industrial countries (Aus- cialization because of the extreme diversity of the coun- tria, Brazil, Italy, Japan, Malaysia, the Philippines, South try in terms of accessibility and proximity to urban centers. Africa, Turkey, the United Kingdom, and the United To study how proximity to towns and cities affects States) as well as by Bank staff. The workshop was households' participation in labor and output markets and intended to help outline the first phase of the research- their allocation of land, the research uses the von Thunen formulation of policy. Among those attending, there was model of specialization. It modifies the simple von a general consensus on the need to extend reservoir life Thunen model to account for the facts that the size of whenever feasible-and to assess feasibility both for the market (measured by city population) affects the existing dams and in planning and designing new dams. width of the circle; in the presence of a network of cities, The concept of the life cycle of dams emerged as a key villagers can trade different goods in different markets; aspect of the research. and workers in villages surrounding cities commute to Data for the research are available in existing case urban centers, while workers farther away migrate per- studies. In addition, several countries have shown keen manently. In the econometric estimation, the research interest in participating in the research: Brazil, Chile, takes a nonparametric approach that allows for a flexible Jordan, Malaysia, Mexico, Morocco, Namibia, Pakistan, relation between household decisions and proximity to the Philippines, Sri Lanka, Sudan, Turkey, and Uzbekistan. cities of different sizes. The research has been discussed at several events in The research is proceeding in two stages. In the first addition to the launching workshop: the International stage household data from the 1995-96 Nepal Living Water Resources Association Workshop on Dams, Devel- Standards Survey (NLSS) were combined with geo- opment, and the Environment on February 14-16, 2000, graphic information system data on travel time to major in Sao Paulo, Brazil; the conference on Reservoir Sedi- cities. Data on urban populations were taken from the mentation on June 20, 2000, in Wallingford, United King- 1991 population census. Estimation based on a cross-sec- dom; and the annual meeting of the U.S. Commission on tion of 3,300 households reveals a strong spatial division Large Dams on July 10-13, 2000, in Seattle, Washington. of labor. Nonfarm employment is heavily concentrated The research is expected to initiate a new generation in and around cities (up to four hours of travel time), while of operations in the Bank, focusing not only on dam agricultural wage employment dominates villages located safety but also on reservoir conservation. farther away (three to eight hours). Isolated villages Infrastructure and Urbon Development 87 (more than eight hours from the nearest city) are essen- Report tially self-subsistent in both farm and nonfarm prod- lFafchamps, Marcel, and Forhad Shilpi. 200(0. "'[he Spatial Divi- ucts. Vegetable and cereal production for sale takes place sion of Labor in Nepal." World Bank, Development Research near urban centers, while oilseed and other commercial Group, Washington, I).C. crops are more important at intermediate distances. These findings are consistent with the von Thunen Database on Infrastructure Privatization model of concentric specialization, and they also show the importance of city size. The research also finds border Lack of data about infrastructure privatization has severely effects with India to be significant, in the sense that prox- constrained the World Bank's ability to carry out a sys- imity to Indian towns does not have the same effect on tematic analysis of the relationship between the policy local specialization as proximity to Nepalese towns. The alternatives in privatizing infrastructure and the institu- study intends to identify factors other than proximity to tional environment in which these alternatives exist. cities that enable individual households to take advantage This project, in line with the recommendations of the of new market opportunities opened by roads and other Bank's World Development Report 1994: Infrastructure for development projects and determine which households Development (New York: Oxford University Press, 1994), tend to be excluded from the benefits of such projects. is developing a database of variables crucial to the under- Although the results are promising, they are based on standing of experience in infrastructure privatization. cross-section analysis, in which the geographic location The aim is to enable policymakers and Bank staff to of households is partly endogenous. If, for instance, a vil- learn from the successes and failures of infrastructure lage is good for vegetable production, it may attract peo- reform. The acceleration in infrastructure privatization and ple who are good at producing vegetables. Over the the rapid disappearance from the Bank's shelves and years roads are likely to have been built to serve more institutional memory of much of the information on util- promising or productive areas. To account for individual- ities' performance as these entities are privatized make specific fixed effects and the endogeneity of road place- the need for this effort especially pressing. Early efforts ment, the second stage of this project will resurvey the to collect information from Bank sources identified sub- NLSS households in 2001-02, after the population cen- stantial gaps that must be filled through country visits. sus is completed. The new survey will provide data on The database covers sales in electricity and telecom- how urbanization and the construction and upgrading of munications in 24 countries and includes financial infor- roads since 1995 have affected market participation and mation and performance indicators before and after sale, geographic patterns of specialization. The research will the terms and conditions of the privatization transac- also investigate how trade liberalization with India has tion, and details on the regulatory framework. The data- affected border trade and the division of labor across base will fill important gaps in the Bank's institutional space within Nepal. The project will also yield an updated memory and allow staff preparing and supervising infra- representative data set that can be used for further structure projects to quickly compare performance mea- poverty assessment in Nepal. Research results should sures and regulatory frameworks with those for successful help betrer identify suitable placement strategies for and unsuccessful privatized firms. Subsequent analysis infrastructure and development projects. using the data will develop detailed guidelines based on Responsibility: Development Research Group, Rural Devel- what worked and what failed in privatizing infrastructure. opment-Forhad Shilpi (fshilpi@worldbank.org). With Responsibility: Development Research Group, Regulation Marcel Fafchamps, Oxford University. The Swedish and and Competition Policy-Mary Shirley (mshirley Japanese Consultant Trust Funds have contributed fund- @worldbank.org) and Luke Haggarty. With Roger Noll, ing for this research. Stanford University. Completion date: February 2003. (ompletion date: Ongoing. 8a lnfroslrurture and Urban Development Maucroonomics The Role of Agriculture in Republica Bolivariana The oil sector played a role in this process through its de Venezuela's Economic Rise and Decline effect on the market and the policy variables. To the extent that oil income contributed to infrastructure and In growing economies labor productivity often increases to employment opportunities in nonagricultural sectors, more rapidly in agriculture than in other sectors. And there it also contributed to out-migration from agriculture. has been a long-standing view that rising labor produc- And it may have contributed to the decline in the real tivity in primarily agricultural economies and an out- price of agricultural goods, which added to the out- migration of agricultural labor to other sectors have been migration. But it might also have contributed to the an essential dynamic mechanism that brings equilib- recession in the 1980s, thereby reducing migration in that rium to differences in average sector incomes. period. In Rep6blica Bolivariana de Venezuela differences in Responsibility: Development Research Group, Rural Devel- productivity between agriculture and the rest of the opment-Donald Larson (dlarson@worldbank.org); and economy were large. In the 1960s output per worker in Africa Technical Families, Rural Development 1-David nonagricultural sectors was more than seven times that Nielson. With Yair Mundlak and Rita Butzer, University in agriculture. Such large differences are unusual, espe- of Chicago; and John Devereaux, University of Miami. cially for a high-income country, as Venezuela was clas- The Israeli and Irish Trust Funds contributed funding sified at the time. for the research. This study modeled agricultural and nonagticultural (ompletion date: December 1999. productivity in Venezuela using an approach that recog- nizes the role of technology and policy states in the Reports underlying factor choices and thus makes it possible to Butzer, Rita, Donald Larson. and Yair Mundlak. "Intersectoral capture the effects of policy on productivity. The study Migration in Venezuela." also modeled intersectoral migration. Devereaux, John, and David Nielson. "Growth Miracles and l)is- Estimation results indicate that labor responded to asters: 'rhe Case of Venezuela." Draft. the large disparity in average incomes. Thus out- migration from agriculture seems to be responsive to Monetary Policy and Monetary Indicators market forces, particularly to the sectoral income gap- during Banking Crises a result consistent with those obtained for other Latin American countries as well as from cross-country analy- Banking crises have plagued countries from Argentina to sis. The implication is that as the gap in sectoral income Zambia over the past two decades. In recent years sev- narrows, migration slows. But modernization or devel- eral studies have identified banking crises and studied opment, measured by roads and human capital, reduces their causes. But the importance of a sound banking the cost of migration and improves the quality of the sector for monetary policy implementation has received labor force, thereby strengthening the tendency to little attention in academic and policy circles. This migrate. research project was aimed at helping to fill this gap Past investments by the Venezuelan government through an empirical analysis of the monetary effects of therefore provided positive incentives for productive banking crises. reallocation of labor. In contrast, price and exchange rate The research focused on two issues. First, it evaluated interventions, especially prevalent in the 1980s, created the claim that the stability of demand for money is threat- artificial incentives for migration through their effects on ened by the occurrence of banking crises. Second, it income differentials. analyzed the relationship between monetary indicators 89 and prices; in particular, it tested whether crises cause a will also be presented in the Development Research structural break in this relationship. (For purposes of Group's Macroeconomics and Growth seminar series. the study, monetary indicators refers to variables that help Responsibility: Development Research Group, Finance- explain the behavior of prices and are monitored by Maria Soledad Martinez Peria (mmartinezperia policymakers to guide them in the conduct of monetary @worldbank.org) and Cristina Neagu; and Financial Sec- policy.) tor Strategy and Policy Department-Ivanna Vladkova. The study focused on the following countries and With Neil Ericsson, Federal Reserve Board. crisis episodes: Chile (1981-87), Colombia (1982-88), Completion date: January 2000. Denmark (1987-92), Japan (1992-present), Kenya (1985-89 and 1992-95), Malaysia (1985-88), and Uruguay Report (1981-85). These were chosen to obtain a geographically Peria, Maria Soledad Martinez. 2000. "'the Impact of Banking representative sample of countries that had experienced Crises on Money Demand and Price Stability." Policy Research banking problems over the past two decades. (Though Working lPaper 2305. World 13ank, Development Research the research began with 17 countries, data limitations Group, Washington, D.C. reduced the sample to these 7.) Industrial countries were included in the sample to allow contrast and comparison The Quality of Growth with developing countries. For the empirical estimations, cointegration analysis The last decade of the 20th century witnessed striking and error correction modeling were used to find appro- progress in the developing world-but also stagnation and priate dynamic specifications for money and prices in each setbacks, even in countries that had previously experi- of the countries. Parameter constancy tests on the esti- enced fast economic growth. These large differences mated money demand equations helped in evaluating the and sharp reversals have taught us much about what hypothesis that demand for money becomes unstable dur- contributes to development. Economic growth remains ing crisis periods. The analysis focused on broad money central-not just its pace, but crucially also its quality. because the demand for narrow money is more likely to Reviewing the experience of the past decade, this be affected by such factors as financial innovation and study drew lessons for development at the turn of the cen- deregulation, events that can themselves lead to insta- tury. These lessons support a broadening of the policy bility. In addition to determining which variables are framework to achieve sustainable development. Four significant indicators of the behavior of prices, parame- areas of action are key: ter constancy tests were also performed to investigate * Improving the distribution of opportunities. Address- whether crises bring about a structural break in the rela- ing the large inequalities in opportunities-especially in tionship between prices and monetary indicators. education-would offer the greatest potential welfare Overall, the study found no systematic evidence that gains to society. banking crises cause instability in the demand for money. * Sustaining natural capital. Dealing with the envi- It found that money, exchange rates, foreign prices, and ronmental damage resulting from current growth patterns domestic interest rates are significant indicators of price would both achieve a better natural environment and behavior. Finally, the results do not support the notion reduce the number of poor people. that the relationship between monetary indicators and * Dealing with global financial risks. Globalization pre- prices undergoes a structural break during crisis episodes. sents risks to the poor, but if these risks are addressed, But in three of the seven countries the study found evi- it could provide the technological wherewithal for reduc- dence of variance instability in the price equations as a ing poverty. result of banking crises. * Improving governance and controlling corruption. Preliminary findings were presented at the Annual Lack of civil liberties and voice, lack of transparency in Latin American and Caribbean Economic Association the interactions between the elite and the state, and Meetings in Santiago, Chile, in October 1999. Findings misgovernance and corruption threaten the gains from 90 Macroeconomics any action-while courageous measures to increase trans- This research-a collaborative effort developed by sev- parency, create checks and balances, and improve gov- eral African institutions and the World Bank-combined ernance hold great promise for significant payoffs. economic and econometric analytical approaches, polit- This broader focus complements liberalization efforts ical economy, and institutional analysis to address these with interventions in education and health to enhance the issues. It concluded that, with determined leadership, ability of poor people to benefit from reform efforts and to Africa can claim the 21st century and surmount the poor participate in development. It shifts attention from an development record of the 20th century. Doing so will exclusive reliance on government as the agent of change involve going beyond macroeconomic reforms to address to a policy that engages all segments of society. This in turn four development areas: the interaction of political and calls for much greater attention to participatory processes economic governance, including conflict management; and effective capacity building across the board. investing in people (including reversing the HIV/AIDS The project's major output, a forthcoming book titled pandemic); strengthening productive sectors and diver- The Qualitv of Growth, will be published in at least six lan- sifying trade and economic activity; and reducing aid guages (Chinese, English, French, Russian, Spanish, dependence and indebtedness and strengthening part- and Thai). Early versions have been presented to the nerships. Addressing these problems will require a rebal- Asian Development Forum, the 1999 annual meetings ancing of power and responsibility-between African of the World Bank and International Monetary Fund, and people and governments, building on recent trends World Bank Institute seminars and conferences. The toward greater political participation, and between African book will be widely used in core World Bank Institute states andi their development partners. training courses and seminars. Working papers and draft chapters of the main report Responsibility: World Bank Institute-Vinod Thomas were discussed at workshops and conferences in Abid- (vthomas@worldbank.org) and Ashok Dhareshwar, Eco- jan in July 1999, in Nairobi in December 1999, in Addis nomic Policy and Poverty Reduction Division-Yan Ababa in March 2000, and at the African Council of Min- Wang, Governance, Regulation, and Finance Division- isters in June 2000. The report, issued in May 2000, has Mansoor Dailami and Daniel Kaufmann, and Environ- been extensively reported in the media and discussed at ment and Natural Resources Division-Nalin Kishor. conferences and meetings in Africa, Europe, and the With Ramon E. Lopez, University of Maryland; and United States. Xibo Fan, Johns Hopkins University. Responsibilily: Africa Region Technical Families, Regional Completion date: February 2000. Economics and Social Policy-Alan Gelb (agelb @worldbank.org), Gene Tidrick, and John Randa, Report Regional Rural Development and Environment-Hans World Bank. Forthcoming. The Quality of Growih. New York: Oxford Binswanger, Capacity Building Unit-Brian Levy, Global UIniversity Press. Coalition for Africa-Tesfaye Dinka, Human Develop- ment 2-Nicholas Burnett. Institutional and Social Can Africa Claim the 21st Century? Policy-Lionel Demery, and Rural Development 1- Robert Townsend; and Development Research Group- What are the determinants of Africa's economic perfor- Ibrahim Elbadawi, Paul Collier, and Taye Mengistae. mance, and how are these determinants linked to poverty With Charles Soludo, University of Nssuka, Nigeria; reduction? How can we build social capital in Africa, Lual Deng; Njuguna Ndungu, University of Nairobi; and how can it enhance the effectiveness of the state? Jean-Paul Azam, University of Toulouse; Michael Chege, How can productive sectors in Africa be strengthened to University of Florida; Ernest Aryeetey, University of enable the region to participate in the global economy? Ghana; Lemma Senbet, University of Maryland; Tshikala What are the issues relating to development partner- Tshibaka, Food and Agriculture Organization; T Ademola ship (aid and external debt)? What development strat- Oyejide, University of Ibadan, Nigeria; and Carol Lan- egy can Africa adopt in the 21st century? caster, Georgetown University. The Netherlands and laoEroeconomics 91 Swiss governments and the Canadian International understanding of the relationship between premodern Development Agency provided funding for this research. development, as proxied by population density and sim- Completion date: June 2000. ilar variables, and "social capability," as measured by the Adelman-Morris social development index. Report Responsibility: Africa Region Technical Families, Macro- World l3ank. 2000. Can Afrira Claim the 21st Century? With the col- economics 2-Miria Pigato (mpigato@worldbank.org). laboiration of the African Development Bank, African Economic With Louis Putterman and Areendam Chanda, Brown Research Consortium, Global Coalition for Africa, and UJnited University. Nations Economic Commission for Africa. Washington, I).C. Completion date: October 2000. Economic Growth, Social Capability, Fiscal Decentralization in Developing Countries and Preindustrial Development This project analyzes government decentralization in Recent studies have conjectured that the preindustrial developing countries from a positive and normative per- development experiences of countries in Africa, Asia, and spective. The normative analysis recognizes macroeco- Latin America left them in different positions for achiev- nomic management and stability, microeconomic ing modern economic growth following World War II. efficiency, and redistribution as objectives of decentral- Preindustrial development can be conceptualized as ization. The positive analysis recognizes that decentral- running along a spectrum from primitive, foraging, band- ization cannot be supported on the basis of these type societies to extensive agricultural and pastoral small- objectives unless government behavior is modeled in village societies and to intensive state-level agrarian ways that acknowledge weaknesses in central govern- societies resembling those of Europe and Japan on the ment. Such weaknesses may lend support to decentral- eve of industrialization. Proxied by population density, ized systems under some circumstances, such as when farmers per hectare, the irrigated share of farmland, or the market analogy of competition between jurisdic- the first principal component of the three, preindustrial tions applies or local participation is important. They may development has been shown to be a good predictor of argue against decentralization when, for example, com- per capita income growth in developing countries in petition erodes the tax base and leads to a race to the bot- 1960-75, 1975-90, and 1960-90. tom (assuming thatgovernmentis not so dysfunctional that In further explorations using the Barro-Lee primary and such a low-tax equilibrium is the preferred outcome). higher education data and the Adelman-Morris social The project combines conceptual analysis and empir- development index, the preindustrial development mea- ical research. The empirical work indicates that, in a sures usually show a robust, statistically significant rela- wide range of circumstances and in varying forms, fiscal tionship with the rate of economic growth, in the direction decentralization has either no association or a negative predicted-countries more densely populated and inten- association with economic growth. Some forms of decen- sively cultivated at the beginning of the period achieved tralization can lead to efficiency gains in social sectors such faster per capita income growth during postwar periods as education, but these are typically not fiscal decen- when conventional explanatory factors are controlled for. tralization. Autonomy and community participation can This research project is further investigating the rela- improve school performance, but they need not be asso- tionship between premodern development and recent ciated with fiscal decentralization. growth to see whether the original hypotheses can be ver- Theory warns that fiscal decentralization can reduce ified using larger samples, longer time series, earlier data equity unless the center retains strong tax and redis- for premodern development levels, and more sophisti- tributive powers-as it typically does in developing cated methods. It also explores the connections between countries. This project tries to identify the contexts in premodern development, growth, and the demographic which redistribution improves (or reduces) efficiency changes of recent decades. And it seeks to improve the by examining the channels through which decentraliza- 92 Macroeconomics tion works and studying the political economy of decen- * What were the most important determinants of tralization. It shows that decentralization often increases community-level growth and improvement of the living deficits. Political economy analysis looks at the extent to conditions of the poor? Have asset-poor households or which the effects of decentralization and the speed with regions with below-average access to infrastructure or high which it is achieved depend on the political context. levels of violence systematically lagged in the growth The study also examines the links between decentral- process? How effectively were households in different ization and governance. wealth classes able to cope with aggregate and idiosyn- Responsibility: Development Research Group, Public cratic shocks, and what factors helped them in doing Economics-Shantayanan Devarajan (sdevarajan so? Cworldbank.org), Gunnar Eskeland, Heng-fu Zou, Vinaya * How effectively have the country's agricultural Swaroop, and Stuti Khemani, Regulation and Competi- potential and inputs (purchased and nonpurchased) been tion Policy-George Clarke, and Poverty and Human used? What factors have furthered agricultural diversi- Resources-Elizabeth King; Latin America and the fication, and how much has the performance of input Caribbean Region, Poverty Reduction and Economic and output markets improved since adjustment was Management Sector Unit-Steven B. Webb; Europe initiated? and Central Asia Region, Poverty Reduction and Eco- * What factors (policies) have promoted productive nomic Management Sector Unit-Deborah Wetzel; investment and new enterprise start-ups at the house- South Africa Resident Mission-Junaid Ahmad; and hold level? To what degree has the absence of a minimum Poverty Reduction and Economic Management Net- set of endowments at the community level led to eco- work, Public Sector Management Division-Jennie Lit- nomically motivated out-migration among the better vack. With David Wildasin, David Pines, Canice educated? How do the incomes of these migrants com- Prendergast, Oliver Hart, and Jan Brueckner. pare with the average in their region of origin and with Completion date: December 2000. the incomes of their peers irinche regions to which they migrate? Reports * Has the increase in school fees observed over the Davoodi, Hamid, and Heng-fu Zou. 1998. "Fiscal lDecentraliza- period reduced enrollment among the poor or led to tion and Economic Growth: A Cross-Country Study." Journal higher dropout rates? Or was the fee increase more than of Urban Economi's 43: 244-57. compensated for by improvements in school quality? Fornasari, Francesca, Steven 13. Webb, and Heng-fu Zou. 1999. What are the implications for policies aimed at cost "I'he Macroeconomic Impact of lDecentralized Spending Deficits: recovery? International Evidence." World l3ank, Washington, D.C. * What was the economic benefit (in reduced num- Xie, Danyang, Heng-fu Zou, and Hamid Davoodi. 1999. "Fiscal ber of days lost to disease) from providing public health Decentralization and Economic Growth in the Ulnited States." services in rural and urban areas? How did curative and Journal of Urban E,:onomir's 45: 228-39. preventive interventions (including improving individ- Zhang, 'Iao, and Heng-fu Zou. 1998. "Fiscal lDecentralization, uals' knowledge about the causes and treatment of dis- P'ublic Spending, and Economic Growth in China." Journal of eases) interact in preventing adult or childhood diseases, Public Erconomics 76: 221-40. and what does this imply for public health policies? The study's main findings to date are in two areas. The Impact of Public Spending in Uganda First, while education, road distance, and access to exten- sion have a significant positive impact on agricultural pro- This research is using data from a series of household sur- duction, rural producers overuse nontraded inputs veys (spanning 1992-99) in Uganda to investigate ques- (homegrown seed) and underuse purchased inputs (fer- tions about social and economic development in the tilizer). Credit constraints significantly affect demand for country's rural areas. The key questions being examined inputs. Lack of access to financial services (as measured are as follows: by distance to the closest bank) negatively affects the Macroeconomics 93 start-up of nonagricultural enterprises and integration into benchmarks and to identify and analyze policy options markets for agricultural produce, supporting the gov- (and possibly even to assess local project impacts) would ernment's emphasis in its rural development strategy benefit from high-quality subnational data in a com- on improving access to financial services. mon, user-friendly platform or framework. Second, knowledge about the causes and treatment Such a framework is unavailable, however. A number of diseases, in addition to access to health services and of countries maintain economic, demographic, and fiscal their quality, has a significant impact in reducing indi- data for the first tier of subnational government (state or viduals' propensity to fall sick. Even under conservative provincial) and sometimes for the second tier (administrative assumptions, the monetary benefits (derived by valuing units at the county or district level). But many of these coun- the number of days lost at the local wage rates) can be tries do not process or disseminate much of the data. very high. The World Bank is in a unique position to compile such Responsibility: Development Research Group, Rural Devel- data and thereby provide an international public good of opment-Klaus Deininger (kdeininger@worldbank.org). great benefit to national and subnational policymakers and With John Okidi, Makerere University, Uganda. planners, decisionmakers in firms and nongovernmental Completion date: December 2000. organizations, and international and domestic researchers. Through a collaborative effort among Bank units, inter- Reports national statistical organizations, and research institutes D)eininger, Klaus. 2(XX). "Does Cost of Schooling Affect Inrollment over the past 12 months, subnational data at the first and by the Poor? UJniversal lrimary Education in UJganda." World second tier of subnational governments have been col- 13ank, Development Research Group, Washington, D.C. lected for several large countries, including Argentina, l)eininger, Klaus, and Donald Larson. Forthcoming. "Crop Mar- Brazil, China, India, Indonesia, and Mexico. For most of kets and Household lParticipation in lUganda." In Paul Collier these countries data have been collected on demographic, and Ritva Reinikka, eds., Uganda'sRer.overy: The Role of Farms, social, economic, and fiscal indicators. Subject to the Firms, and Government. New York: Oxford University Press. availability of additional resources, the initiative may be Deininger, Klaus, and John Okidi. I orthcoming. "Market Partic- expanded to another 20 countries. ipation, Agricultural Productivity, and Nonfarm Activities." In A multistage process has been adopted for developing laul Collier and Ritva Reinikka, eds., Ugandar Rerovery: lhe Role the database: inventorying all subnational data sources in of Farms, Firms, and Government. New York: Oxford U niversity the Bank's Development Economics Senior Vice Presi- Press. dency; inventorying all such sources at Bank headquarters and in regional offices; surveying all Internet sources for Subnational Data Initiative publicly available data; contacting universities, researchers, and public bodies (including statistical offices) for data that Agglomeration and urbanization economies increasingly may not be in the public domain yet; evaluating the qual- affect the spatial pattern and dynamics of global produc- ity of the data; and putting the data into a common data- tion and distribution. This, coupled with the recent trend base with appropriate notations on quality. of democratization and decentralization of decisionmak- Responsibility: Development Research Group, Infrastruc- ing, has meant a growing role for subnational govern- ture and Environment-Zmarak Shalizi (zshalizi ments in setting and implementing the development @worldbank.org) and Somik Lall. agenda (in many countries, for example, their share of gov- (ompletion date: May 2001. ernment spending is now in the range of 30-50 percent). The increasing prominence of subnational levels of Fiscal Decentralization in Latin America government has been reflected in the World Bank's lend- ing portfolio and policy dialogue. This has generated This project investigates the effects of fiscal decentral- much interest in evaluating the performance of subna- ization on macroeconomic management and equity and tional government. Efforts to establish performance on the efficiency of resource allocation in the education 94 Macroeconomics sector. It includes case studies of Argentina, Brazil, and how electoral cycles and partisan alignment affect Colombia, and Mexico and an econometric investigation resource allocation, controlling for economic factors. of a wider sample of industrial and developing countries. The project includes a multinational econometric The country analyses are not stand-alone case studies but analysis with a panel of 32 industrial and developing integrated comparisons. countries for 1980-94. The results imply that subna- The study systematically investigates the outcomes tional spending and deficits lead to central government of decentralization, examining in particularwhetherit has deficits primarily in the context of transitions. Most led to unsustainable fiscal deficits. The case studies countries in the sample decreased the central government investigate this question in depth; the multinational deficit during the period, but countries had more diffi- econometric analysis uses panel data to test several culty doing so if the subnational deficits were rising. hypotheses. With cross-section averages, reflecting a longer-run sit- The case studies reveal that Argentina had greater suc- uation, the regressions suggest that central government cess with decentralization than Brazil, because it imposed spending falls proportionally when subnational spend- a harder budget constraint on the public sector at the ing is financed by subnational taxes-a result that is national level and because the national executive, through consistent with true devolution of spending responsi- the party system, had stronger influence on congress bilities and no overall change in the size of the public and on subnational governments. Establishing the right sector. When subnational spending rises without corres- incentives for subnational governments and their cred- pondingly higher subnational taxes-implying that the itors, as Argentina did, proved more effective for restrain- financing is being done mostly by transfers-the central ing local and state borrowing than establishing rules for government's own spending does not decline with the prior approvals of credit by the central. government, as expansion of subnational spending, implying a larger Brazil did. overall public sector. The regressions with first differences In Colombia the study finds that although increased in a panel (time-series and cross-section) find that subnational autonomy, spending, and deficits coincided increases of suboational spending and deficits lead to with deterioration in the overall fiscal balance and in higher spending and deficits at the national level. The macroeconomic stability, most of the decline was due to relationships are strong economically as well as statisti- slippage at the national, not the subnational, level. Cen- cally significant. tral government efforts to restrain subnational deficits, The results of the research have been presented at while handicapped by political fragmentation, were suc- World Bank seminars; the 1999 World Bank Economists cessful in Colombia when they combined ex ante con- Forum; the annual American Political Sciences Associ- straints on subnational borrowers with imposition of ation meetings in 1998; the Fourth International Semi- stricter banking regulations to motivate banks to hold nar on Fiscal Federalism at La Plata University, Argentina; back lending. the Institutional Development Seminar at University The project is currently comparing the institutions of of San Andres in Buenos Aires; the Yale University Col- fiscal federalism in Argentina, Brazil, and Mexico. It is loquium on Decentralization and Development; and the studying how politics have affected the institutional 1999 Annual Bank Conference on Development in Latin arrangements of fiscal federalism, how those effects America and the Caribbean, Valvidia, Chile. shape fiscal outcomes, and how politics affects the divi- The results of this project have contributed to the sion of power, both vertically between levels of govern- Bank's policy dialogue in Argentina, Brazil, and especially ment and horizontally across states. This effort is being Mexico, with the Decentralization Adjustment Loan. complemented by an econometric analysis of the fiscal The project also laid some of the groundwork for a world- behavior of states in Brazil and Mexico and the treatment wide research project on hard budget constraints and was they receive from the federal government. (Other the basis for its case studies of Argentina and Brazil. researchers have already done extensive research on Responsibility: Latin America and the Caribbean Region, these issues for Argentina.) The study tests whether Poverty Reduction and Economic Management Sector Macroeconomics 95 Unit-Steven B. Webb (swebb@worldbank.org) and other institutional and policy variables for the period William Dillinger; and Development Research Group, 1965-97. The growth analysis will be based on a dynamic Public Economics-Heng-fu Zou and Gunnar Eske- endogenous growth model, and the comparative advan- land. With Stephan Haggard, University of California at tage analysis on an extended Heckscher-Ohlin frame- San Diego; Ricardo Paes de Barros and Fernando Blanco, work. Both analyses will emphasize rigorous econometric Instituto de Pesquisa Econ6mica Aplicada (IPEA); modeling to ensure that the estimated models permit pol- Francesca Fornasari, Cecilia Bresceno, and Christian icy simulations. Gonzalez, Georgetown University; Alberto Diaz Cayeros, If the results should show that Sub-Saharan Africa's Stanford University and University of California at Los geography is not destiny, yet does influence the region's Angeles; and Barry Weingast, Stanford University. growth and international competitiveness, they would Completion date: June 2001. suggest a balanced approach to development that would also require strategic measures in technology and infra- Reports structure. In particular, there would be a need to empha- Dillinger, William, and Steven 13. Webb. 1999. "Decentralization size the development of technology (especially in and Fiscal Management in Colombia." Policy Research Work- agriculture) to deal with the unique features of geogra- ing l'aper 2122. World liank, Latin America and the Caribbean phy and climate in Africa as well as regional cooperation Region, Poverty Reduction and Economic Management Sec- in developing infrastructure and communication to reduce tor UJnit, Washington, D.C. economic isolation and expand markets. 1999. "Fiscal Management in Federal D)emocracies: This research effort will contribute to a larger, collab- Argentina and Brazil." Policy Research Working lPaper 2121. orative research project, Explaining Economic Growth World Bank, Latin America and the Caribbean Region, Ploverty Performance in Sub-Saharan Africa, which involves many Reduction and Economic Management Sector Ulnit, Wash- researchers and policymakers from Sub-Saharan Africa. An ington, D.C. interagency initiative, this collaborative project is led by the African Economic Research Consortium and includes Geography, Growth, and (omporative the United Nations Economic Commission for Africa, Advantage in Sub-Saharan Africa the World Bank's Development Research Group, Oxford University, and Harvard University as collaborating Sub-Saharan Africa has experienced a sustained eco- institutions. nomic slowdown for the past 20 years or more and, The findings will be disseminated in 2001 through a despite some notable success stories, the trend is likely session organized as part of the collaborative project and to continue for the region as a whole well into the 21st a seminar at the World Bank. And the papers produced century. Reversing this economic decline is the most by the project will be posted on the Web at www. serious challenge faced by the development commu- worldbank.org/research/growth/. nity. Efforts to identify the root causes of the deep, per- Responsibility: Development Research Group, Public Eco- sistent decline have pointed to disadvantages in nomics-Ibrahim A. Elbadawi (ielbadawi@worldbank. geography and, more recently, in health and population. org) and Development Research Group-Paul Collier. To the extent that these factors are found to be critical With Anke Hoeffler, Oxford University; and Siham for Africa's growth and international competitiveness, Mohamedahmed, University of Arizona, Tucson. what implications would this finding have for develop- Completion date: June 2001. ment policy in the region? This project aims to contribute to the understanding Joint Development Research Group-Africa Region of these issues by analyzing Africa's growth performance Work Program on African Development as well as its potential comparative advantage in labor- intensive manufactured exports. The research will draw Achieving accelerated economic growth and poverty on global panel data sets on geographic, demographic, and reduction in Sub-Saharan Africa may be the biggest chal- 9 6 Macroeconomics lenge for the development economics profession and tative process involving both public forums and field for the World Bank as well. The Bank's Development investigations. The project aims to improve under- Research Group and Africa Regional Office initiated a standing notonly of the effects of adjustment policies but joint effort to develop a work program on salient issues also of how broad participation of local civil society can on which further analytical work could lead to improved improve policymaking. The initiative will attempt to policy outcomes in Africa. Preliminary work has identi- identify practical changes in economic policies for both fied several issues: debt, finance, country selectivity, governments and the World Bank. public resource management, equitable rural develop- In each of the countries participating in the project- ment, and trade and industrial policy. Bangladesh, Ecuador, Ghana, Hungary, Mali, and The work program consists of a set of research pro- Uganda-nongovernmental and civil society organizations jects on these topics carried out in 10 sample countries have set up local networks and representative commit- so that the interaction among the topics can be assessed. tees to work with representatives from the Bank and from The work involves collaboration with African researchers different parts of the government in designing the work. and outside institutions. The tripartite steering committee in each country is Current research projects focus on early childhood edu- responsible for planning an opening public forum, a field cation in Kenya, regional integration in Africa, bank investigation into the impact of selected policies, and a insolvency in Zambia and Zimbabwe, the impact of debt closing forum, at which the results of the analysis will be on investment in Africa, the political economy of aid presented. The project was officially launched at a global and reform in the region, and the privatization of telecom- forum in Washington, D.C., in July 1997, attended by all munications in Cote d'Ivoire, Ghana, and Tanzania. the country participants. The project will end with a Responsibility: Development Research Group, Public global forum once all the country studies have been Economics-Shantayanan Devarajan (sdevarajan completed. @worldbank.org) and Howard Pack, Regulation and The fieldwork forms the core of the project's research. Competition Policy-Mary Shirley, Finance-Gerard Consistent with the consultative, participatory nature Caprio Jr., Poverty and Human Resources-Paul Glewwe, of the project, the research uses several methods of and Macroeconomics and Growth-David Dollar; and analysis, including qualitative, quantitative, and partic- Africa Regional Office, Office of the Vice President-Alan ipatory methods. Gelb. With Ndjuguna Ndungu, Tunji Osobudi, Samuel Most of the countries are in the research phase of the Wangwe, Tchetche Nguessan, Mathieu Meleu, Jean-Paul project. Hungary held its closing forum June 26-27, Azam, Jean-Jacques Laffont, and Torgny Holmgren. 2000. Its results make clear that growth is a necessary but Completion date: June 2001. not sufficient condition for well-balanced development with social cohesion and participation of all citizens in a Report society. Hungary's experience will be used as an impor- Devarajan, Shantayanan, David Dollar, and 'I'orgny Holmgren. tant input into the Bank's work in the preparation of the 1999. "Aid and Reform in Africa: Lessons from ''en Case Stud- country assistance strategy. ies." World Bank, Development Research Group, Washington, The remaining countries will hold their closing forums D.C. Draft. [www.worldbank.org/research/aid/]. by December 2000. An international workshop is being scheduled for February 2001 in Kampala to discuss the Structural Adjustment Participatory results and policy findings. Review Initiative Responsibility: Office of the Senior Vice President, Devel- opment Economics-Jozef M. Ritzen (jritzen This is a joint project with seven governments and an @worldbank.org) and Justus Hartkamp; Bangladesh Res- international network of nongovernmental and civil soci- ident Mission-Fred Temple, Syed Nizammuddin, and ety organizations. The objective is to examine the impact Zaidi Sattar; Ecuador Resident Mission-Paul Becker- of structural adjustment through a broad-based consul- man and Marcelo Romero; Ghana Resident Mission- Mtanroeconomics 97 Peter Harrold and Kofi Marrah; Hungary Resident Mis- and Mary Bitekerezo. The Belgian, Netherlands, Nor- sion-Roger Grawe and Mihaly Kopanyi; Mali Resident wegian, and Swedish Trust Funds have contributed Mission-Grace Yabrudy and Youssouf Thiam; and funding for this research. Uganda Resident Mission-James Adams, Robert Blake, Completion date: June 2001. 98 Macroeconomics International Economics Implementation of Uruguay Round Commitments: be done, or whether it will support their development The Development Challenge efforts. Findings have been presented at the Wilton Park At the Uruguay Round developing countries took on Conference on Multilateral Trade Negotiations: The unprecedented obligations not only to reduce trade bar- Way Forward, in West Sussex, United Kingdom, and at riers, but to implement significant reforms in trade pro- the World Trade Organization Seminar on Implementa- cedures (such as import licensing procedures and customs tion of the WTO Agreements, organized under the aus- valuation) and in many areas of regulation that establish pices of the WTO Committee on Trade and the basic business environment in the domestic economy Development, in Geneva on July 26, 2000. (such as intellectual property law and technical, sanitary, Responsibility: Development Research Group, Trade- and phytosanitary standards). J. Michael Finger (jfinger@worldbank.org). With Philip Drawing on World Bank project experience, this Schuler, University of Maryland. The research was sup- research project investigated what is involved and how ported by the Global and Regional Trust Fund Compo- much it will cost for developing countries to implement nent of the World Bank-Netherlands Partnership these obligations in customs valuation, intellectual prop- Program. erty rights, and sanitary and phytosanitary methods. It (ompletion dote: October 1999. found that implementing such reforms will require pur- chasing equipment, training people, establishing sys- Reports tems of checks and balances, and so on. This will cost Finger, J. Michael, and Philip Schuler. 2000. "Implementation of money, and the amounts involved are substantial. In U ruguay Round Commitments: The Development Challenge." many of the least developed countries an entire year's WorldEconomy 23(4): 511-25. (Also issued as Policy Research development budget is at stake. Working Paper 2215, World Bank, Development Research In the least developed countries the institutions in Group, Washington, D.C., 1999.) these areas are weak and would benefit from strength- --. Forthcoming. "Developing Countries and the Millen- ening and reform. But the analysis shows that the World nium Round." In Klaus Gunter Deutsch and Bernard Speyer, Trade Organization (WTO) obligations reflect little eds., Freer Trade inthe Next Decade: The Millennium Round in the awareness of development problems and little appreci- World Trade Organization. Frankfurt: Deutsche Bank Research. ation of the capacities of least developed countries to carry out the functions addressed by regulations in such areas Market Access Advances and Retreats: as customs valuation, intellectual property, and sanitary The Uruguay Round and Beyond and phytosanitary standards. The content of these oblig- atons _an be characterized as the advanced countries say- This research project addressed three questions: What ing to the others, Do it my way! were the market access commitments made at the Moreover, because of the least developed countries' Uruguay Round? Have they been implemented? And limited capacity to participate in the Uruguay Round how extensive has been the use of World Trade Organi- negotiations, the WTO process has generated no sense zation (WTO) provisions that allow for backsliding (that of "ownership" of the reforms to which WTO member- is, for new import restrictions)? To answer these ques- ship obligates them. From their perspective, the imple- tions, it examined the Uruguay Round agreements, mentation exercise has been imposed in an imperial reports submitted to the WTO, and complaints submit- way, with little concern for what it will cost, how it will ted to the WTO about nonimplementation. 99 The conclusion: the Uruguay Round market access States. Like the antidumping cases of industrial coun- negotiations were a success. The tariff cuts were broader tries, these cases are most frequently against other devel- (covered a larger share of world trade) than those of the oping countries. Kennedy or Tokyo Round. They will save importers Responsibility: Development Research Group, Trade- some $50 billion a year. Trade-distorting agricultural J. Michael Finger (jfinger@worldbank.org). With Ludger policies were taken up substantively for the first time Schuknecht, World Trade Organization. The research in any round of international trade negotiations, was supported by the Global and Regional Trust Fund voluntary export restraints outside the Multifibre Component of the World Bank-Netherlands Partner- Arrangement (MFA) were eliminated, and a legally ship Program. binding agreement was reached to eliminate MFA- (ompletion date: November 1999. sanctioned restraints on exports of textiles and clothing. Industrial countries agreed to tariff cuts on textiles and Reports clothing that are deeper than those on other industrial Vinger, J. Michael,and Ludger Schuknecht. 1999. "Market Access products. Advances and Retreats since the Uruguay Round Agreement." Developing countries stepped forward as equal part- Policy Research Working Paper 2232. World Bank, Develop- ners with industrial countries. Their tariff cuts covered ment Research Group, Washington, D.C. (Also presented at the as large a share of imports as those of industrial countries Annual World Bank Conference on Development Economics, and were deeper-because developing countries' tar- Washington, D.C., April 29-30, 1999); and at the Irade Poli- iffs are higher, their tariff cuts will save more for importers cies and Industrial Development Workshop, Bogota, June (per dollar of imports covered) than will the cuts of 23-24,1999.) industrial countries. In most developing countries tariff . Forthcoming. "Avances y retrocesos: La Ronda Uruguay bindings-though often above applied rates-were y su implementaci6n." In Marcelo Olarreaga and Ricardo extended to 90 percent or more of imports. Rocha, eds., a nuevaagenda del/omerioy la OMC. Bogota: Ter- In services, though, few countries-industrial or cer Mundo. developing-agreed to give foreigners unlimited market access or full national treatment in more than a few activ- Global Development Network: ities. Industrial countries agreed to some liberalization Researching the Researchers of cross-border provision in about 70 percent of services activities, developing countries in about 25 percent. This project surveyed research institutes in developing Less positive, although trade restrictions on agricul- countries to determine their priority needs. The purpose tural products were converted to tariffs, border protec- was to inform the choice of activities to be pursued by tion was reduced less on agricultural than on industrial the Global Development Network, a program estab- products, and not much was agreed on in the reduction lished to strengthen economic research capacity in the of trade-affecting subsidies. The textiles and clothing developing world. agreement, although binding industrial countries to elim- Of the 512 institutes surveyed, 202 responded. The inate all MFA-sanctioned restrictions, will allow them to response rate (39.5 percent) was fairly even across regions. put off most of this elimination until 2005. The conces- About half the respondents were nongovernmental, non- sions that developing countries gave at the Round are due profit research institutes (52.3 percent); about a quarter now, and the reciprocal concessions of particular inter- were university departments (27.7 percent). Most est are either to be delivered in the future (elimination reported that economics is their principal discipline (81.1 of the MFA) or still to be negotiated (liberalization of agri- percent), with political science taking second place (18.4 cultural trade). percent). The vast majority of the institutes (74.3 per- Also disquieting, since the Uruguay Round develop- cent) seek to influence policy. An important finding is ing countries have undertaken antidumping cases at a rate that more than half are electronically connected: 54 per- per dollar of imports three times that of the United cent report that most of their staff have personal email 100 International Economics access. That finding has led the Global Development Report Network to rely heavily on electronic means to further GDN Secretariat. 1999. "Researching the Researchers: Estab- its objectives, primarily its Web site, GDNet (www.gdnet. lishing the Priorities." World Bank, Washington, I).C. orgl). Asked to identify their top three priorities from a list The Influence of World Bank Research on Policy of possible capacity building and networking activities, in the Developing World respondents most preferred an annual global develop- ment meeting (60 percent of respondents), staff This project conducted a survey of 271 high-level poli- exchanges and fellowships (58 percent), and information cymakers in 36 developing and transition economies to about funding (54 percent). On the basis of these results, find out the extent to which World Bank research is con- the Global Development Network has organized the sidered in the policy dialogue in the Bank's client coun- Global Development Meeting to be held in Tokyo in tries. The survey investigated the policymaking process December 2000. It has also been encouraging staff itself, the sources of information used in decisionmak- exchange programs through the International Monetary ing, government officials' access to Bank research find- Fund and the University of Maryland. That information ings, the relevance of Bank research to the policy about funding rated so highly indicates a strong need problems they face, policymakers' perceptions of the for additional financing. For this reason the Global Devel- quality of analysis in Bank research, and the effective- opment Network organized a donors meeting in Brussels ness of its dissemination. It also solicited suggestions for in June 1999, at which 30 donor agencies were improvement. represented. The survey, administered by a consulting firm, was Other activities were ranked as follows: training (39.6 conducted in six languages. The majority of respon- percent), data directory (22.3 percent), journal (20.3 per- dents were high-level policymakers who report to min- cent), research abstracts (19.3 percent), directory of istersorsecretaries.SlightlymorethanhalfwerefromAsia researchers (13.4 percent), electronic bulletin board (11.4 and Sub-Saharan Africa, and the rest were distributed percent), directory of think tanks (11.4 percent), online approximately equally across the other developing discussions (7.4 percent), calendar of training activities regions. (5.9 percent), and data guidelines (5.0 percent). The policymakers broadly commended Bank research The survey results have been widely disseminated. for its quality and usefulness. They rely on the Bank for The main results are available on the network's Web site, data and analysis, citing the Bank as their most impor- GDNet. Results also were presented at the launch of the tant information source among 17 domestic and inter- Global Development Network in Bonn in December national organizations. Eighty-four percent say that they 1999, to the Board of the World Bank, to the Asian use Bank analytical reports, and of those users, the vast Development Bank, at a public meeting in Tokyo, and majority (71 percent) find the reports very useful. The at the donors meeting in Brussels in June 1999. More majority believe that Bank research is technically sound, important, the results have fed into the selection of relevant, and objective. More than 80 percent of the activities to be supported by the Global Development respondents are familiar with the Bank's World Develop- Network, which will be reviewed by network members mentReport, and more than 50 percent with the World Bank and the donor community at the Tokyo conference in Economic Review. December 2000. While offering strong support overall, the policy- Responsibility: Global Development Network-Lyn Squire makers believe that the Bank should devote more effort (Isquire@worldbank.org); and Office of the Senior Vice to capacity building. When asked which improvements President, Development Economics-Lawrence Mac- in research activities were most desirable, policymakers donald. With Ambar Naryan; and John Daniel, Howard most often identified more involvement of country University. nationals in the conduct of research as a priority. They (ompletion date: December 1999. also would like better access to information, data, and Internationol Economics 101 research findings. In conducting their own research, and low reserves in relation to short-term debt have either in-house or contracted out, the policymakers use been priced in the expected manner by international national sources of data (government agencies and local banks. The high level of short-term debt in East Asia was universities) more often than information from any inter- supported by high growth rates but characterized by a national organization. knife-edge quality. The survey results suggest that although Bank research The results suggest that banks react to macroeco- is going in the right direction, challenges remain. As the nomic and financial information in much the same way Bank's funds for research remain constrained and its as the bond market. But the relationship between macro- purview grows, researchers will need to develop part- economic and financial variables and pricing behavior is nerships with agencies and foundations in client coun- noticeably more stable over time for bank loan commit- tries and involve more developing and transition economy ments than for bonds. This may reflect the the greater nationals and institutions in the conduct of research. maturity of bank lending. And reports of research findings should be disseminated The large number of small bank loans issued in the in the style, language, and medium that make them 1990s, in comparison with the smaller number of larger most relevant for and accessible to policymakers. bond issues, suggests that international banks play an Responsibility: Research Advisory Staff-Clara Else important role in meeting the external financing needs (celse@worldbank.org), Anupa Bhaumik, and Kazim of borrowers, in ways that the bond market cannot dupli- Saced. With Abt Associates, United States. cate. Evidence suggests that this reflects banks' superior Completion date: December 1999. ability to overcome information asymmetries. Results are also consistent with the notion that the ability to recon- Pricing of Bonds and Bank Loans in the Market tract is another comparative advantage of international for Developing Country Debt bank lending. Whether bank intermediation is also encouraged by the moral hazard associated with explicit Private financial flows to developing countries have and implicit guarantees is more difficult to say. For East increased dramatically since 1990, with most resulting Asia spreads change over time with the level of short-term from bond issues or private bank loans. But recent events debt, a pattern that may reflect moral hazard. in emerging markets have heightened long-standing Collective action clauses in bond contracts. The second concerns about the efficiency and stability of the market study undertook the first systematic analysis of the impact for developing country debt. This project used data on on borrowing costs of collective action clauses, which are international bonds and bank loans to emerging markets meant to facilitate the orderly restructuring of debt for in the 1 990s to examine the pricing of this debt and the emerging market borrowers. It did so through comparisons workings of the debt market in three different studies. of American- and British-style bonds. The analysis was Syndicated bank lending The first study investigated the complicated by the fact that borrowers are able to choose pricing of syndicated bank loans to emerging markets in which type of security to issue. It was further complicated the 1990s. It focused on loans priced off the London inter- by the fact that borrowers can decide whether to borrow, bank offer rate (LIBOR)-loans on which the interest and lenders whether to lend. The model attempted to take paid by the borrower is LIBOR plus a spread that reflects these complications into account. the risk premium. In 1991-97 just over 5,000 LIBOR- The results show that collective action provisions based loans were made to emerging markets. The study tend to reduce the cost of borrowing for more creditworthy analyzed the determinants of spreads on about 4,500 issuers, but to increase it for less creditworthy issuers. This loans, the subset for which complete data on loan and finding suggests that for less creditworthy borrowers the country characteristics are available. advantages of provisions facilitating orderly restructur- The findings highlight the role of international banks ing are offset by the moral hazard and additional default in providing credit to smaller borrowers about which risk associated with these provisions because of the per- information is least complete. Domestic lending booms ception that they are friendly to renegotiation. Still, the l02 lInterintionol Eonomics results do not support the dire consequences of collec- Reports tive action clauses predicted by some market partici- Fichengreen. Barry, and Ashoka Mody. 1999. "Lending Booms, pants. Moreover, the differential effects suggest that Reserves, and the Suscainability of Short-Term Debt: Inferences collective action clauses should become more attractive from the lPricing of Syndicated Bank Loans." NBER Working as economic and financial development proceeds and Paper 7113. National Bureau of Economic Research, Cam- emerging markets improve their creditworthiness. bridge, Mass. (Also issued as Policy Research Working Paper Contagion. The third study developed evidence on how 2155, World 13ank, Development Prospects Group, Washing- the Mexican, Asian, and Russian crises in the 1990s affected ron, D.C., 1 999; and forthcoming in Journal of Devtlopment the price, volume, and maturity of loans extended through Economicr.) the bond market. It estimated an integrated model of the - 2000. "Would Collective Action Clauses Raise Borrowing borrowing and lending, pricing, and maturity decisions, Costs?" NBER Working 1Paper 7458. National Bureau of Eco- which made it possible to distinguish different margins along nomic Research, Cambridge, Mass. which emerging markets were affected. Richengreen, Barry, Galina Hale, and Ashoka Mody. 2000. "Flight Not surprising, both fundamentals and market senti- to Quality." Paper presented at the conference Contagion: ment played a role following each of the crises. But the How It Spreads and How It Can Be Stopped, World Bank, Inter- dominant effect of changes in market sentiment was national Monetary Fund, and Asian Development Bank. limited to the region in which the crisis originated. There is evidence of persistent unfavorable market sentiment Commodity Risk Management in the behavior of primary market spreads in Latin Amer- ica but not East Asia after the end of 1994, and in East This research examined the impact of commodity price Asia but not Latin America after the first half of 1997. The instability on economic growth. It tested the effects of same is true for issue volumes: while the volume of new ex post shocks and ex ante commodity price uncertainty issues by East Asian borrowers was depressed by unfa- on economic growth using the Burnside-Dollar data set vorable market sentiment in 1995, and that by Latin (this contains data on average annual per capita growth American borrowers in the second half of 1997, interre- in four-year periods from 1970 to 1993 for almost 60 gional spillovers operating through this channel appear developing countries, along with various explanatory to have died out quickly; in contrast, the within-region variables). Shock and uncertainty variables were con- impact persisted. structed using a new data set of aggregate commodity In addition, compared with other regions, in Latin price indexes for 113 developing countries over the America changes in market sentiment appear to have period 1957-97. Each index is a unique, country-specific, been felt more through their impact on prices and less geometrically weighted index of 57 commodity prices. through their impact on quantities. One interpretation The analysis showed that per capita growth rates are is that when market sentiment deteriorates and spreads significantly reduced by large, discrete, negative com- begin to widen, East Asian countries delay borrowing, modity price shocks. The effect of negative shocks on which they are able to do because of relatively high real- growth is substantial and appears to work independent side flexibility and pliable current accounts. Latin Amer- of investment, suggesting that adjustment is achieved ican countries, with less current account flexibility, through severe reductions in capacity utilization. The continue to approach the market despite the less attrac- effect of negative shocks remains after controlling for gov- tive terms. Finally, while changes in market sentiment ernment economic policy and institutional quality, indi- affect the price and quantity of new issues, there is much cating that the result cannot be attributed exclusively to less evidence that they affect maturity. inappropriate policy responses on the part of governments. Responsibility: Development Prospects Group-Ashoka The analysis also showed that positive shocks have no Mody (amody@worldbank.org). With Barry Eichengreen, lasting impact on growth. This is consistent with find- University of California at Berkeley. ings of some recent studies but overturns an earlier Completion date: December 1999. result, which suggests that the long-run effects of posi- International Economics 1 03 tive temporary shocks are negative. The analysis found patterns. These factors include market structure and little evidence that ex ante uncertainty affects growth. competition; the quality of domestic financial institutions; This result holds for various definitions of uncertainty. local characteristics of production (such as the types of The results are robust to changes in sample composition, available natural resources, which determine the shocks changes in the time-series dimensions of the data, instru- to which the economy is subject); home bias effects menrarion for endogenous regressors, and different esti- (related to, for example, the importance of nontradable mation methods. consumption); foreign exchange risk; and government Responsibilily: Development Research Group, Rural Devel- expropriation risk. opment-Panos Varangis (pvarangis@worldbank.org) The research combined simulation of models derived and Donald Larson. With Jan Dehn, Oxford University. from first principles with econometric estimation of sim- The Danish Trust Fund contributed funding for the pie portfolio allocation models. A preliminary step in research. this strategy was construction of a cross-country time- Completion date: June 2000. series database on international investment positions detailing the gross holdings of domestic and foreign Report assets by resident and nonresident investors. This data- I)ehn, Jan. 2000. "Commodity lPrice (Incertainty and Shocks: base will be made available to other researchers. Implications for Economic Growth." World Bank, Development The main findings include the following: Research Group, Washington, D).C. * A country's foreign asset position is generally small relative to its overall wealth. A small amount of capital (urrent Account Sustoinability flows from rich countries to poor countries. Countries' for- eign asset positions are remarkably persistent. In both The Mexican and East Asian financial crises of the 1990s industrial and developing countries the foreign asset and the current turmoil in world financial markets brought position takes the form largely of foreign loans rather than to the fore the role of current account imbalances in foreign equity. external payments crises. This research aimed to iden- * Foreign asset positions can be explained fairly well tifv and understand the factors determining the sus- by risk-return considerations and overall wealth, espe- tainability of current account deficits, in order to provide cially in the case of middle- and high-income countries. macroeconomic policy recommendations on the man- The risk-return framework thus permits the sustain- agement of the external balance. ability of net foreign asset positions and hence their Departing from the standard savings-investment change over time (that is, the current account) to be approach to the current account, this research took a assessed. stock equilibrium approach, in which the current account * Changes in the terms of trade generate income balance is viewed primarily as the result of investors' effects and cause changes in the expected return to cap- achievement of their desired portfolio allocation between ital. Empirical evidence from episodes of large shocks to domestic and foreign assets. According to this approach, the terms of trade indicate that adjustment costs to an external situation is sustainable if it is consistent with investment are an important feature of current account international and domestic investors' achieving their adjustment over time. desired portfolio allocation across countries. As implied Results have been disseminated at professional con- from standard portfolio theory, investors' desired levels ferences, including a special session at the Latin Amer- of gross foreign assets and liabilities depend on factors ican meetings of the Econometric Society (August 1999), affecting domestic mean returns relative to those abroad- a session at the Latin American Economic Association factors such as technological improvement, economic meeting (October 1999), and workshops at the Univer- reforms, and taxation-as well as factors affecting the per- sity of Chicago (March 2000), the Massachusetts Insti- ceived risk profiles of domestic investment projects rel- tute of Technology (April 2000), and the National Bureau ative to foreign ones and to domestic consumption of Economic Research (June 2000). Within the Bank, the 104 Inlernolionol EtonomiEi results were presented at a macroeconomics seminar explored different rules through which negotiations in (May 2000) and a Latin America and the Caribbean eco- the WTO may help achieve more efficient outcomes. nomic policy seminar (April 2000). Results have also Two studies explored two different aspects of tariff been reflected in numerous policy-oriented presentations determination using different data sets. The first study by the chief economist of the Latin America and the investigated the effects of foreign direct investment on Caribbean Region and in the 2000 flagship report of the Mexico's tariff structure. It examined how foreign firms Latin America and the Caribbean Region (Securing Our lobby and whether they are more successful in the polit- Future in a Global Economy, Washington, D.C.: World ical game than domestic firms. Bank, 2000). The second study explored the importance of terms- Responsibility: Latin America and the Caribbean Region, of-trade effects on the tariff structure within Mercosur. Chief Economist Unit-Luis Serven (Iserven Do sectors with large world market shares tend to have @worldbank.org); and Development Research Group, higher levels of protection? If so, how important is this Macroeconomics and Growth-Norman Loayza, Alberto effect? This is an important question for trade economists, Chong, and Aart Kraay. With C6sar Calder6n, University since many models explain the existence of tariffs based of Rochester; Jaume Ventura, Massachusetts Institute of on terms-of-trade effects. The study also explored Technology; Rashmi Shankar, University of California at whether terms-of-trade externalities have been inter- Santa Cruz; and George Monokroussos. nalized within Mercosur and what main forces drove Completion date: June 2000. formation of the customs union. The analytical approach was based on the Grossman- Reports Helpman model of trade policy formation. Tariff data Calder6n, Cesar, Alberto Chong, and Norman Loayza. 2000. were drawn from national sources, trade data from the "Determinants of Current Account Deficits in Developing United Nations Statistics Division's Commodity Trade Countries." P'olicy Research Working Paper 2398. World l3ank, Statistics Database (Comtrade), and industrial data from l)evelopment Research Group, Washington, D.C. national censuses reported at the firmi level for Mexico Calder6n, Cesar, Norman l,oayza, and Luis Serven. 2000. "Fxter- and the industry level for Mercosur. nal Sustainability: A Stock Equilibrium Perspective." Policy Foreign firms in Mexico have an important effect on Research Working P'aper 2281. World Bank, Latin America the tariff structure. The presence of foreign direct invest- and the Caribbean Region, Poverty Reduction and Economic ment tends to lead to lower levels of protection overall, Management Sector Unit, Washington, D.C. a result that is consistent with the theoretical literature. Kraay, Aart, and Jaume Ventura. Z000. "Current Account Adjust- But the trade orientation of the foreign direct investment ment." World 13ank, I)evelopment Research Group, Washing- (import competing or export oriented) is crucial in deter- ton, D.C. mining the effect that lobbying by foreign firms has on Kraay, Aart, Norman Loayza, Luis Serv6n, and Jaume Ventura. the tariff structure. In import-competing sectors indus- "Country Plortfolios." World Bank, Development Research tries with a large share of foreign direct investment have Group, Washington, D).C. higher levels of protection than industries with no for- eign direct investment. The explanation may be better lob- The Political Economy of Trade Policy bying techniques by foreign firms or noneconomic rationales for the presence of foreign direct investment in Despite trade economists'centuries-long advocacy of free sensitive sectors. Within Mercosur the study found that trade, trade barriers exist in all World Trade Organization terms-of-trade effects can explain 6-28 percent of the (WTO) members except Hong Kong (China) and Macao variation in the common external tariff and that terms-of- (China). Why has such a gap between policymakers' prac- trade effects have been internalized within the common tices and trade economists' recommendations persisted? tariff. This research investigated the forces behind the exis- Two other studies explored how WTO rules can be tence of tariffs and the structure of tariff schedules. It also modified to achieve more balanced multilateral trade International Economics 105 negotiations that fully incorporate developing countries' Mattoo, Aaditya, and Marcelo Olarreaga. 2000. "Reciprocity across interests. The first study suggests the introduction of an Modes of Supply in the WTO: A Negotiating F ormula." CEIR ex ante rule to give credit for unilateral trade liberaliza- Discussion Paper 2481. Centre for Economic Policy Research, tion undertaken outside multilateral negotiations. This London. rule would not only enhance liberalization in some coun- . Forthcoming. "Should Credit Be Given for Autonomous tries between negotiating rounds (by reducing the gains Liberalization in Multilateral 'T'rade Negotiations?" Policy from retaining protection as negotiating currency), it Research Working laper. World Bank, Development Research would also lead to deeper levels of multilateral liberal- Group, Washington, D.C. ization within rounds. Most important, it would not rely Olarreaga, Marcelo. 1999. "Foreign-Owned Capital and Endoge- on altruism to be generally acceptable. nous Tariffs." Journal of Economir Integration 14(4): 606-24. The second study developed a negotiating formula for Olarreaga, Marcelo, Isidro Soloaga, and L. Alan Winters. 1999. trade in services that fully exploits the scope for the "What's Behind Mercosur's CET?" Ilolicy Research Working exchange of market access concessions across different Paper 2231. World Bank, Development Research Group, Wash- modes of supply (cross-border delivery and movement ington, I).C. of capital and persons). Adoption of this formula as a basis for negotiations could help increase commitments to Innovative Mechanisms for Raising liberalization for all modes, producing substantial gains Development Finance in global welfare and more balanced outcomes for devel- oping countries. During a liquidity crisis developing countries need inno- The research findings provide a better understanding vative ways to raise external finance. This research of how policies are formed and how reforms should be focuses on one such mechanism, asset-backed securiti- undertaken. In particular, an understanding of the polit- zation of future flow receivables, which provides a means ical economy forces behind trade protection can help in of securing credit agency ratings for new issues that are developing politically sustainable reforms. The findings higher than the sovereign ratings and thereby reduce the also provide suggestions for a new set of WTO rules cost of funding. that may bring developing countries back to the nego- The research examines recent securitized transac- tiating table. tions undertaken by issuers in Latin America that have Findings have been presented at World Bank trade sem- used the technique widely in recent years. Led by inars and at World Bank Institute seminars in Bogota and Argentina, Brazil, Mexico, and Republica Bolivariana Medellin, Colombia, and in Mexico. They have also been de Venezuela, they have collectively raised more than $16 presented at seminars at the Universities of Geneva, billion in international capital markets since 1994. Neuchatel, and Sussex and at the Latin American Eco- Through extensive cataloging of rated future flow nomic Society Meeting in Santiago, Chile (October 1999). receivable-backed transactions and detailed discussions RespomI .y Development Research Group, Trade-Marcelo with Wall Street investment bankers, legal experts, and Olarreaga (molarreaga@worldbank.org), Isidro Soloaga, rating agency professionals, the study has derived a num- and Aaditya Mattoo. With Jean-Marie Grether, University ber of conclusions about the potential size of this asset of Neuchatel, Switzerland; Jaime de Melo, University of class and the constraints on its growth. It has also taken Geneva; and L. Alan Winters, University of Sussex. up several additional issues for analysis, including the legal Completion date: June 2000. and institutional setup necessary to promote securitiza- tion and the behavior of spreads on such credit-enhanced Reports (asset-backed) securities. de Melo, Jaime, Jean-Marie Grether, and Marcelo Olarreaga. 1999. The main finding is that securitization of future flow "Who Determines Mexican Trade Policy?" lPolicy Research and existing receivables can provide a way of raising Working Paper 2187. World Bank, D)evelopment Research development finance for many low-income and, even Group, Washington, D.C. more so, middle-income countries, especially during liq- 106 International Economics uidity crises. But as a result of various constraints, coun- of potential gains and losses from a preferential trade tries outside Latin America have not used this instrument agreement (the customs union theory). and even issuance from Latin America falls short of the The preliminary findings suggest that, contrary to potential. The constraints on issuance arise from the expectations based on member countries' trade structure high costs associated with such transactions, the long in the 1980s, the regional trade agreement resulted in a lead times involved in arranging them, the absence of strong expansion of intragroup trade. While intragroup high-quality corporate issuers in many developing coun- trade amounted to just over 5 percent of the five mem- tries, and the lack of legal clarity on bankruptcy proce- ber countries' aggregate trade in the late 1980s, the dures. And in some cases policymakers are simply equivalent share in the trade expansion over the 1990s unfamiliar with this mechanism. was about 18 percent. The typical intensity ratio of each Transactions costs could be reduced by increasing member country in another's trade increased from 6-7 the scale of these deals-by planning a series of deals by percent to around 20 percent over that period. the same issuer (the so-called master trust arrangement) A strong presumption exists that the agreement's or by combining several issuers' receivables into one impact on intraregional trade was related mostly to the securitization deal. Clarifying bankruptcy laws would reduction of nontariff barriers. Given the Andean coun- be helpful for all financial deals, including securitization. tries' current low tariffs, future expansion of trade among Educating policymakers and potential issuers would also them could be achieved by eliminating nontariff barri- help promote this asset class. ers rather than reducing tariffs. Since these barriers relate A workshop was held in late July 2000 to discuss the mostly to agricultural products, the increase in trade draft report of the research results. Participants included flows would be trade creating rather than trade divert- representatives from credit rating agencies, investment ing. In addition, trade agreements between the Andean banks, the investor community, legal firms specializing Group and NAFTA, the European Union, or Mercosur in securitization, and staff from the World Bank and would be, in that order of priority, welfare improving. International Finance Corporation. The findings of the study will be discussed with Responsibility: Development Prospects Group-Dilip Ratha authorities in the Andean countries, and a final report will (dratha@worldbank.org). With Suhas Ketkar, IRSA LLC. be circulated within and outside the Bank. Completion date: August 2000. Responsibility: Latin America and the Caribbean Region, Colombia, Ecuador, and Rep6blica Bolivariana de Regional Trade Integration: The Andean Group- Venezuela Country Management Unit-David Evolution, Performance, and the Remaining Yuravlivker (dyuravlivker@worldbank.org) and Mario Agenda Cuevas. With Michael Michaeli, Hebrew University; Sarath Rajapatirana, American Enterprise Institute for The Andean Group is one of the longest existing regional Public Policy Research; and Ravindra Yatawara, Colum- trade arrangements in Latin America, where massive bia University. trade liberalization has taken place in the past decade. (ompletion date: October 2000. This study analyzes the options facing the Andean Group in the remaining trade reform agenda, both as a group and Regionalism and the Terms of Trade for individual countries. The study updates work on trade policy in the Andean A standard approach in analyzing the effects of regional Group done by the World Bank several years ago. It ana- integration arrangements (trade blocs) has been to assume lyzes trade performance in the group-looking at bilat- homogeneous goods. Under this assumption it can be eral trade flows both between pairs of countries and shown that if small open economies form a trade bloc and with the rest of the world-describing the changing continue to trade with outside countries, only trade structure of trade and the main reasons for those changes. diversion will result-with no trade creation-and mem- The methodology follows the Viner-Meade delineation ber countries' welfare will decline. If goods are differ- Iniernotional Economics 107 entiated by country of origin, however, the welfare effects eign assistance can help trigger and sustain reforms may differ because giving preferential access to member through policy dialogue, advisory services, and finan- countries may force outside countries to lower their cial aid. Conditionality can help reform-minded tech- export price to the bloc, resulting in an improvement in nocrats lock in reforms, but probably cannot generate the bloc's terms of trade. sustainable reforms. These findings could influence how This study is examining the effects of regional inte- aid is used-and what types and amounts are used- gration on import prices in two countries-Mexico (North during different phases of a reform program and how American Free Trade Agreement) and Tunisia (free trade donors allocate their resources among countries and agreement with the European Union). The analysis is sectors. based on detailed trade data at the commodity level. Preliminary case study findings and potential con- Responsibility: Development Research Group, Trade- clusions on cross-cutting issues were discussed at a June Maurice Schiff (mschiff@worldbank.org). 1999 conference, jointly sponsored by the World Bank (ompletion date: December 2000. and the German Agency for Technical Cooperation, in Frankfurt, Germany. Participants included the case study Aid and Reform in Africa authors, host country officials, and representatives of the Bank, European donors, research institutions, and Recent cross-country studies have found that foreign international organizations. Preliminary findings were aid has a strong, positive effect on a country's economic also disseminated at a conference jointly sponsored by performance if the country has undertaken certain pol- the Bank and the Overseas Development Council on Sep- icy and structural reforms. But the evidence also shows tember 27, 1999, at the annual meetings of the Bank and that less aid goes to countries that have undertaken International Monetary Fund in Washington, D.C. A these reforms than to those that have not. Moreover, final conference will be held in Africa for African poli- there is evidence that "aid cannot buy reform." cymakers as well as the project team and bilateral and This study aims to go beyond the cross-country regres- multilateral donors. sions and arrive at a better understanding of the causes General project information and draft case study of reforms and of the link between foreign aid and reports are available on the Web at www.worldbank.org/ reform. Its focus is on the real causes of reform and research/aid. whether and how aid has encouraged, generated, influ- Responsibility: Development Research Group, Macroeco- enced, supported, or retarded reforms. Accordingly, it ana- nomics and Growth-David Dollar (ddollar@worldbank. lyzes the reform processes rather than the results of the org) and Torgny Holmgren, Public Economics- reforms. Shantayanan Devarajan, Office of the Director-Paul Case studies of 10 African countries are examining the Collier, and Poverty and Human Resources-Martin nature of external assistance, investigating the causes and Rama, Deon Filmer, and Waly Wane. With Elliot Berg, paths of policy reforms, and attempting to trace the rela- Universite d'Auvergne; Patrick Guillaumont and Syl- tionship, if any, between aid and reform. The studies are viane Guillaumont, University of Clermont; Jacques based largely on interviews and on reviews of available Pegatienan; Jerome Chevallier; Gilbert Kiakwama; data, literature, and documentation. The data come from Berhanu Abegaz, College of William and Mary; Yvonne International Monetary Fund, Organisation for Eco- Tsikata; Kwesi Botchwey, Harvard University; Stephen nomic Co-operation and Development, and World Bank O'Brien; Cheikh Sidibe, Ministry of Finance, Mali; Jef- sources. frey Herbst, Princeton University; Charles Soludo, Uni- Preliminary findings indicate that reforms are gener- versity of Nigeria; Arne Bigsten, University of Goteborg, ated largely by causes not directly related to aid-such Sweden; Louis Kasekende, Bank of Uganda; Lise Rakner, as crises, political leadership, committed local tech- Christian Michelsen Institute; and Dominic Mulaisho, nocrats, country role models, and consensus among social Shonga Steel Limited. The Norwegian Ministry of For- groups. But in certain circumstances and phases, for- eign Affairs, Swedish International Development Coop- 108 Internationol Economics eration Agency, Swedish Consultant Trust Fund, German parative static estimates. It also uses computable Agency for Technical Cooperation, and Netherlands general equilibrium models to investigate the impor- Consultant Trust Fund have contributed funding for tance of having a variety of imported inputs available the research. in domestic production and of opening service sectors Completion date: June 2001. to foreign competition. The analysis draws on the Global Trade Analysis Project database, the Trade The Dynamic Impact of Trade Liberalization Unit's database on tariffs, and input-output tables as in Developing Countries appropriate. The project has produced three papers. The first International trade economists and World Bank policy extends a comparative static analysis of Chile's trade advice have typically argued that an open trade regime policy options to a Ramsey-type dynamic model of Chile is very important for economic growth and develop- with constant returns to scale and perfect competition. ment. This view has been based in part on neoclassical It shows that simply adding a dynamic element to the trade theory, which generally finds that trade liberaliza- analysis does not increase the welfare gains from trade tion improves a country's welfare; in part on casual empir- liberalization much. ical observation that countries that remain highly 'rhe second paper develops a stylized, somewhat protected for long periods appear to suffer significantly aggregate computable general equilibrium model of a and perhaps cumulatively; and in part on empirical work small open economy with endogenous growth entering that also finds trade liberalization beneficial to welfare through a productivity multiplier of the Ethier-Dixit- and growth. Stiglitz variety. Trade liberalization in this model dra- Yet numerical estimates of the impact of trade liber- matically increases welfare because it results in a alization have generally shown that it increases the wel- significant increase in the number of varieties (tech- fare of a country by only about 1 percent of GDP. These nologies) available in the economy. The paper shows that estimates have been based on comparative static mod- when the impact of trade liberalization on technology dif- els, however, and researchers typically claim that the fusion is taken into account, the estimated welfare gains estimates would be much larger if they incorporated the are very large and consistent with the large econometri- dynamic gains from trade liberalization. These gains cally estimated effects on growth. have not yet been quantified. The third paper examines the impact of liberalizing The development of endogenous growth theory has foreign direct investment in service sectors. It shows provided a clear theoretical link from trade liberalization that not only does liberalizing foreign investment have to economic growth. Because of the complexity of the a large welfare impact, but opening business services to models, the theoretical literature has necessarily been foreign competitors is likely to significantly benefit based on rather aggregate models, and it has focused on domestic skilled labor. Even the pattern of what the the steady-state growth path, making it difficult to gain country exports and imports can change. insight into the dynamic growth path of the key variables. The study's results support the strong version of the Moreover, since the theoretical literature does not eval- link between trade liberalization and economic growth, uate the adjustment costs, it cannot clearly indicate that as well as the importance of opening service sectors to welfare is significantly increased even if the long-run foreign direct investment. They should buttress the growth rate increases. intellectual case in the development community for the This study quantifies the dynamic gains from trade importance of openness for growth. liberalization in a small developing country in an applied Liberalizing services is particularly important in coun- general equilibrium model, taking into account the tries acceding to the World Trade Organization, and the adjustment costs associated with forgone consumption. project's innovation in allowing a practical assessment of It assesses the claim that the dynamic welfare gains from the impact of service liberalization should prove trade liberalization are considerably larger than the com- extremely useful in the policy dialogue with such coun- International Economics 109 tries. The results have been incorporated in the World more aggressively than insured depositors to bank risks, Bank Institute's course on trade policy. while in Argentina no significant differences were Responsibility: Development Research Group, Trade-David observed in the responses of the two groups. The results Tarr (dtarr@worldbank.org). With Thomas Rutherford and suggest that depositors might exercise market discipline, James Markusen, University of Colorado. even if covered by deposit insurance, when there is Completion date: June 2001. uncertainty about the future availability of their deposits-for example, if the government has reneged Reports on its promises in the past, if the deposit insurance Markusen, James, 'I'homas Rutherford, and David 'larr. 2000. scheme is undercapitalized, or if depositors are con- "F-oreign I)irect Investment in Services and the Domestic cerned about the cost of repayment (typically in the Market for Fxpertise." N13ER Working Paper 7700. National form of delays) through the deposit insurance fund. 13ureau of Economic Research, Cambridge, Mass. Crises seem to be wake-up calls for depositors. With- [www.nber.org/papers/w7700]. drawals become more frequent immediately after bank- Rutherford, 'T'homas, and David '[arr. 1998. "'I'rade L,iberalization ing crises, but this kind of market discipline is much more and Endogenous Growth in a Small Open Economy: An Illus- limited before and during crises. Interest rates were trative Model." Policy Research Working Plaper 1970. World responsive to bank risk taking throughout the sample l3ank, D)evelopment Research Group, Washington, D).C. period. These results suggest that depositors become [www.worldbank.org/research/trade/archive.html]. (Flor a more more aware of the risk of losing deposits, and start to shift recent version of this paper, "'I'rade Liberalization, Product Vari- them, after they observe bank failures. ety and Growth in a Small Open Economy: A Quantitative Second, the project studied the effects of financial inte- Analysis," contact mkasilag@worldbank.org.) gration on firms' financing choices, using data on a large . 1998. "RegionalT''rading Arrangements for Chile: Do the panel of nonfinancial companies in East Asia and Latin Resultsl)ifferwithalDynamic Model?" laperpresentedatthe America. This study focused on seven emerging conference Using )ynamic Computable General Equilibrium economies that have experienced financial liberaliza- Models for Ploticy Analysis, Assens, D)enmark, June 14-17. tion and crises-Argentina, Brazil, Indonesia, the Repub- lic of Korea, Malaysia, Mexico, and Thailand. The data Financial Development and Contagion cover the 1980s and 1990s, allowing comparison of pre- and post-liberalization periods. This project consists of several studies aimed at improv- The main results show that integration of financial ing the understanding of the functioning of financial markets does affect firms' financing choices and that markets, the benefits of financial integration, and the the effects seem to be uneven. Firms that participate effects of financial and banking crises. in international markets obtain better financing First, the project examined the interaction between opportunities-gaining the ability to extend their debt deposit insurance and market discipline in the banking maturity structure, for example. Debt maturity tends to sector, and the impact of banking crises on market dis- shorten, however, when countries undertake financial lib- cipline. This study used bank-level data for Argentina, eralization. This implies that firms that do not participate Chile, and Mexico, all of which had experienced bank- in international markets are probably increasing their ing crises during the sample period (1980s and 1990s). short-term liabilities. The results show that in these countries depositors-large Some authors have argued that the maturity structure or small, with local or foreign currency deposits-do of debt played a crucial role in recent crises. The shift exert marketdiscipline, punishing banks for risky behav- in the maturity structure toward the short term after ior by withdrawing their deposits and by requiring higher financial liberalization suggests, therefore, that it could interest rates. be important to accompany liberalization with pruden- Deposit insurance need not decrease market disci- tial regulation to prevent a mismatch between the matu- pline. In Chile uninsured depositors seem to respond rity of assets and liabilities. 110 International Economics Third, the project examined stock market cycles in Their information seems superior to that revealed by 28 countries-in the G-7, Europe, East Asia, and Latin macroeconomic and financial data and by markets. America-characterizing the amplitude and duration of Findings have been presented at the Central Bank of cycles over time and across regions. It also examined the Chile, Federal Reserve Board, Federal Reserve Bank of claim that financial cycles are more protracted after New York, American Economic Association meetings domestic and external financial liberalization. (Boston and New York), European Econometric Society The findings show that financial liberalization does meetings, Latin American and Caribbean Economic not necessarily lead to financial excesses. Financial cycles Association meetings, and World Bank conferences (on become more severe only in the aftermath of the open- deposit insurance and on financial stucture). ing of the economy to international capital flows. Over Responsibility: Development Research Group, Macroeco- time, liberalized capital markets become more stable. nomics and Growth-Sergio Schmukler (sschmukler Why? Markets with fewer capital controls are more @worldbank.org) and Maria Soledad Martinez Peria; and exposed to shocks from abroad and thus more prone to World Bank Institute, Governance, Regulation, and contagion. But elimination of capital account restrictions Finance Division-Daniel Kaufmann. With Jon Tong; favors the development of capital markets. As financial Sergio Kurlat; Graciela Kaminsky and Akiko Terada, markets deepen and investors become more diversified, George Washington University; Gil Mehrez, George- markets become less prone to wild gyrations. town University; Arun Sharma, Federico Guerrero, To continue this research, the project is creating a data Francisco Vazquez, Jose Pineda, and Kevin Wang, set on financial liberalization for the same 28 countries, University of Maryland; Carlos Arteta, University of Cal- from the early 1970s through the 1990s, with information ifornia at Berkeley; Cecilia Harun, Columbia University; on restrictions on the domestic financial sector and inter- Marco Sorge, Stanford University; Matias Zvetelman, national capital flows. This data set will be valuable for University of Buenos Aires; Matteo Ciccarelli, Univer- measuring financial integration. sity of Pompeu Fabra; and Miana Plesca, McGill Fourth, the project examined whether resident firm University. managers have an informational advantage in predicting Completion dote: June 2001. currency fluctuations and crises. This study was based on a data set from the Global Competitiveness Survey, con- Reports ducted for the Global Competitiveness Report of the World Kaminsky, Graciela, and Sergio Schmukler. 1999. "On Booms and Economic Forum of Davos and the Harvard Institute for Crashes: Stock Market Cycles and Financial Liberalization." International Development. In countries around the world, World 13ank, Development Research Group, Washington, the survey gathers managers' perspectives on the eco- D.C. nomic, political, and institutional situation of their coun- Kaufmann, Daniel, Gil Mehrez, and Sergio Schmukler. 1999. "Pre- try. The data used in this research are from surveys at the dicting Currency Fluctuations and Crises: Do Resident Firms end of 1995, 1996, and 1997, and thus precede the crises Have an Informational Advantage?" Policy Research Working in Asia, the Russian Federation, and Brazil. P'aper 2259. World Bank, World Bank Institute, Washington, The results suggest that local managers were able to D.C. predict the crises in the Republic of Korea and Thailand, Peria, Maria Soledad Martinez, and Sergio Schmukler. 1999. "Do but not those in Indonesia or Malaysia. The evidence also Depositors Punish Banks for 'Bad' Behavior? Market Discipline suggests that there were information asymmetries: local in Argentina, Chile, and Mexico." Policy Research Working residents were shifting funds out of the country before P1aper 2058. World Bank, Development Research Group, Wash- foreign investors were. Foreign market participants (such ington, D.C. as international mutual funds) and market analysts largely Schmukler, Sergio, and Esteban Vesperoni. 2000. "Globalization did not expect the Asian crisis. and Firms' Financing Choices: Evidence from Emerging The results also show that local managers' private Economies." Policy Research Working Paper 2323. World Bank, information can help predict exchange rate fluctuations. Development Research Group, Washington, D.C. Internalional Economics 111 International Capital Flows Finally, the project explores the sensitivity of local inter- est rates to international interest rates and how it is affected This project compiles new measures of financial liber- by countries' choice of exchange rate regime. It uses a alization and capital controls, gathering data on 28 indus- reduced form empirical approach to compute both panel and trial countries (in the G-7 and Europe) and emerging single-country estimates of interest rate sensitivity for a markets (in East Asia and Latin America) since 1973. The large sample of developing and industrial economies in project collects information on regulations in the domes- 1970-99. The full-sample estimates appear to support the tic financial sector, including controls on interest rates conventional wisdom: more rigid exchange rate regimes tend (lending and deposit), on quantities (credit controls and to exhibit higher transmission than more flexible regimes, reserve requirements), and on other aspects (foreign and countries with rigid regimes typically have lower inter- currency deposits). It also collects data on restrictions on est rates than those with flexible regimes. But a closer capital flows, both inflows (borrowing abroad by banks analysis of the 1990s using both panel and country-specific and corporations and acquisitions by foreign investors) estimates shows that in most cases full transmission cannot and outflows (repatriation of capital and income). This be rejected, even for countries with floating regimes. Only data set will be extremely useful for studying the effects large industrial countries can benefit from independent of financial integration. monetary policy. During the 1990s interest rates in Euro- The project also looks at the effectiveness of capital pean countries were fully sensitive to German interest controls. The recent turmoil in currency markets has rates, but insensitive to U.S. interest rates. reignited the debate on whether restrictions on interna- A related study looks at mutual fund flows to devel- tional capital mobility can help reduce the perhaps oping countries (see the abstract in this volume for "excessive" euphoria of investors, attenuate the sever- Mutual Funds in Emerging Markets). ity of crises, or contain contagion. The debate has not Responsibility: Development Research Group, Macroeco- been just theoretical. Malaysia introduced restrictions on nomics and Growth-David Dollar (ddollar@worldbank. capital outflows in August 1997, in the midst of the East org), Sergio Schmukler, and Hairong Yu; and Latin Amer- Asian crisis, and Chile and Colombia introduced restric- ica and the Caribbean Region, Chief Economist Unit- rions on capital inflows in the early 1990s. Luis Serven. With Jeffrey Frankel, Harvard University; But do capital controls in fact prevent international Graciela Kaminsky, George Washington University; financial spillovers and help central banks regain mon- Richard Lyons and Changqing Sun, University of Cali- etary independence? Although the debate has fueled fornia at Berkeley; Andrea Bubula, Columbia University; an immense empirical literature on the effectiveness of Eduardo Fajnzylber, University of California at Los capital controls, the answer is far from clear. Some stud- Angeles; Federico Guerrero, Francisco Vazquez, and ies suggest that controls do insulate domestic financial Jose Pineda, University of Maryland; Jon Tong; Nong markets; others conclude that they are ineffective in Thaicharoen, Massachusetts Institute of Technology; stopping the international transmission of shocks. and Sergio Kurlat. The National Science Foundation, The study examines the effect of capital controls at United States, has contributed funding for the research. different frequencies, to gain information about the Completion date: June 2001. dynamic aspects of the comovement of domestic and for- eign returns in episodes of financial liberalization and Reports repression. It uses the band-pass filter, which makes it lFrankel, Jeffrey, Luis Serven, and Sergio Schmukler. "Global possible to assess whether capital controls sever the 'l'ransmission of Interest Rates: Monetary Independence and transmission of volatility in world financial markets and, Currency Regime." World Bank, Washington, D.C. if so, at what frequencies. It applies this technique not Kaminsky, Graciela, and Sergio Schmukler. Forthcoming. "Short- only to stock prices but also to overnight interest rates, Lived or Long-Lasting? A New Look at the Effects of Capi- to determine whether central banks gain monetary inde- tal Controls." Brookings Trade Forum. Washington, ).C.: pendence with the use of capital controls. Brookings Institution Press. 112 Interrnational Economics Micro Foundations of International and Finance-Simon Evenette. With Gary Anderson, Technology Diffusion University of Maryland; Bee-Yan Aw, Mark Roberts, and James Tybout, Pennsylvania State University; Marc Bac- Developing country governments often seek to spur chetta and Felix Eschenbach, World Trade Organization; adoption of foreign technologies through policy inter- Howard Pack, University of Pennsylvania; Kamal Saggi, ventions designed to encourage domestic firms to enter Southern Methodist University; and Francis Teal, Oxford into joint ventures with foreign partners, import sophis- University. ticated capital goods, license technology, and export to (ompletion date: June 2001. industrial country markets. The correct policy inter- vention, if any, depends crucially on which of these Reports activities are causally associated with improvements in Anderson, Gary. 2000. "Multinational Corporations and Tacit firm performance, how large the effects are, and whether Knowledge: Determination of Entry Mode and Impact of the effects are internal or external to the firm. Entry." University of Maryland. Much of the research on these questions for devel- D)eardorff, Alan, and Simeon Djankov. Forthcoming. "Knowledge oping countries relies on cross-sectional data, which 'lransfer under Subcontracting: Evidence from Czech Firms." make it difficult to identify the direction of causation WorldDevelopment. between activities and performance; aggregate time- Djankov, Simeon, and Bernard Hoekman. 1998. "Conditions of series data, which are difficult to interpret; or case stud- Competition and Multilateral Surveillance." World Bank, Wash- ies, which are difficult to generalize. The premise of ington, D.C.; and Centre for Economic Policy Research, this research project is that analysis of firm-level panel London. data is most likely to shed light on the issues. --. 2(0(1. "Market Discipline and Corporate Efficiency: Evi- The objective of the project is to document cross- dence from Bulgaria." Canadian Jour-nal of Economicr 33(1): country and sectoral patterns in the incidence of the 190-202. activities associated with technology transfer and, where - . Forthcoming. "Foreign Investment and Productivity possible, to relate the patterns to country policies. This Growth in Czech Enterprises." lVorldBank EconomicReview. research uses firm-level panel data sets for 10 develop- Navaretti, Giorgio, IsidroSoloaga, and WendyTakacs. 1999. "Vin- ing and transition economies: Bulgaria, Colombia, the tage lTechnology and Skill Constraints: Evidence from U.S. Czech Republic, Ghana, Indonesia, the Republic of Exports of New and Used Machines." Universita'degli Studi Korea, Morocco, Poland, Romania, and Taiwan (China). di Milano; World Bank, Washington, D.C.; and University of Econometric techniques are used to investigate the Maryland, College Park and Baltimore. causal relationship between firm activities and firm per- Pack, Howard. 1999. "Modes of 'T echnology Transfer at the Firm formance and the size of the effects. Level." I Iniversity of Pennsylvania, Philadelphia. Results to date suggest that in high- and medium- Saggi, Kamal. 1999. "T1rade, Foreign Direct Investment, and Inter- technology sectors foreign investors that are technology national Technology ''ransfer: A Survey." Southern Methodist or marketing leaders in their industries are more likely UJniversity, Dallas. to engage in wholly owned projects than to share Smarzynska, Beata. 2000. "Composition of Foreign Direct Invest- ownership (Poland), total factor productivity growth ment and Protection of Intellectual Property Rights in Transi- tends to be higher in wholly owned firms than in firms tion Economies." World Bank, Development Research Group, with joint ventures and firms without foreign partnerships Washington, D.C. (the Czech Republic, Indonesia), and that as foreign - 2000. "Technological Leadership and the Choice of Entry owners relinquish their equity stake, productivity falls Mode by Foreign Investors." World Bank, Development (Indonesia). Research Group, Washington, D.C. Responsibility: Development Research Group, Trade- 'leal, Francis. 2000. "Micro Foundations of l'echnological Diffu- Bernard Hoekman (bhoekman@worldbank.org) and sion: An African Data Set." Oxford tUniversity, Centre for the Isidro Soloaga, Macroeconomics and Growth-Aart Kraay, Study of African Economies. Inlernationol Economics 113 Mutual Funds in Emerging Markets Latin America mutual funds from April 1993 to January 1999. (At the end of 1998 there were 25 Latin America The currency crises that plagued the last decade of the funds; the 13 account for 88 percent of the value of these 20th century were not confined within national borders, funds.) nor within regions. The Thai crisis engulfed-within The data are used to address two main questions: Do days-Indonesia, Malaysia, and the Philippines, while the funds engage in momentum trading-systematically Russian crisis spread as fast to countries as far apart as buying winning stocks and selling losing stocks? And do Brazil and Pakistan. Not even industrial countries have funds engage in contagion trading-systematically sell- been spared, with the Russian default and devaluation ing stocks from one country when stock prices are falling reverberating in financial markets in Germany, the United in another? In addressing the second question, the study Kingdom, and the United States. establishes a first direct empirical link between contagion A growing literature examines the possible role of and trading strategies. The study's methodological con- financial links in the transmission of crises. There is evi- tribution is its approach to attributing actions to fund man- dence that banks, for example, were important in spread- agers rather than underlying investors. ing the East Asian crisis. The transmission channel was The results show that emerging market funds do lending: countries were exposed to the same banks. indeed engage in momentum trading, and that this is due Portfolio investors have also been scrutinized, particu- to momentum trading at the level of both fund managers larly such institutions as hedge funds, pension funds, and and investors. The study distinguishes between con- mutual funds. A common conclusion is that institutions temporaneous momentum trading (buying current win- sometimes panic, spreading crisis even to countries with ners and selling current losers) and lagged momentum strong fundamentals. Individuals can contribute to this trading (buying past winners and selling past losers). It panic by fleeing from funds-particularly mutual funds- finds that contemporaneous momentum trading is forcing fund managers to sell when fundamentals do stronger during crises and stronger for fund investors not warrant selling. than for fund managers. Lagged momentum trading is This research project is aimed at contributing to that stronger during noncrisis periods and stronger for man- literature by examining the behavior of mutual funds. agers. It also finds that funds engage in contagion trad- Though there is some evidence that mutual funds help ing, and that this trading is due primarily to underlying crisis to spread, that evidence is indirect and highly investors, not managers. aggregative. The project is reviewing the importance of The study's analysis of the role of mutual funds in mutual funds in the context of capital flows to develop- spreading crises focuses on whether mutual fund flows ing countries and comparing the investments of differ- are linked to the degree of fragility of the emerging ent kinds of mutual funds. It is studying the behavior of economies, the openness and liquidity of their capital managers of Latin America mutual funds and of investors markets, or the risk associated with each country. It also in these funds, following the tradition in the finance lit- examines the behavior of U.S.-based Latin America erature. And, taking a more traditional macroeconomic mutual funds, with special attention to the effects of approach, it is studying the links between the behavior redemptions on mutual funds' choices relating to their of mutual funds and the macroeconomic fundamentals. liquid positions. In contrast to studies that emphasize The examination of the behavior of mutual fund man- herding behavior unrelated to market fundamentals, the agers and investors departs from the more aggregate study finds that mutual fund managers take account of analysis by conducting analysis at the portfolio level. the characteristics of countries' economies and finan- The project has developed a novel data set that includes cial markets when deciding whether to adjust their expo- individual portfolios, making it possible to examine trad- sure to those countries. Interestingly, economic fragility ing strategies at much higher resolution. The data, from is not the only factor triggering withdrawals from emerg- Morningstar and the U.S. Securities and Exchange Com- ing economies-the decision to withdraw depends cru- mission, include the quarterly holdings of 13 dedicated cially on liquidity. Thus the countries most affected by 114 Internalional Economits financial market turmoil had either vulnerable economies program of research, capacity building, and knowledge or highly liquid financial markets. dissemination. Among the major policy questions it Results have been disseminated through seminars addresses are the-following: What issues should be and conferences, including the World Bank-Universidad included in a multilateral negotiation with a view to pro- Torcuato Di Tella conference on contagion in Buenos moting economic growth and development? How might Aires, Argentina, in June 1999; a special session at the such issues be addressed in the WTO? And how can the Latin American and Caribbean Economic Association WTO framework help to establish domestic incentive meetings in August 1999; a session at the American Eco- regimes that are conducive to international trade and nomic Association meetings in January 2000; a World investment? Bank-International Monetary Fund (IMF) conference The research is being undertaken in large part by on contagion in January 2000; a joint World Bank-IMF developing country analysts, drawing on a series of the- research seminar in March 2000; a seminar at the Fed- matic studies by international specialists. Studies focus eral Reserve Bank of Philadelphia in May 2000; and a con- on issues related to the liberalization of services and ference on liquidity risk sponsored by the University of agriculture, the participation of developing countries in Frankfurt and the Center for Financial Studies in Frank- the WTO system, and "new" agenda issues such as furt, Germany, in June 2000. investment and competition policy. Results have been Responsibility: Development Research Group, Macroeco- discussed in regional workshops (nine such events have nomics and Growth-Sergio Schmukler (sschmukler been held so far) and in a major international conference @&worldbank.org). With Jon Tong; Sergio Kurlat; Gra- hosted by the WTO Secretariat in September 1999. The ciela Kaminsky, George Washington University; Richard conference was intended to publicize major recom- Lyons and Allen Cheung, University of California at mendations relating to the interests of developing coun- Berkeley; Cecilia Harun, Columbia University; and Jose tries in the coming WTO negotiations. Pineda, University of Maryland. The National Science The capacity building efforts focus on research on the Foundation, United States, has contributed funding for new trade agenda and on policy formulation. To support the research. the research in developing countries, the project empha- (ompletion date: June 2001. sizes collaboration between international experts and developing country researchers and research institu- Reports tions. This is complemented by training and dissemi- Kaminsky, Graciela, Richard K. Lyons, and Sergio Schmukler. nation activities supported in part by the trade program 2000. "Rconomic F ragility, Liquidity, and Risk: The Behavior of the World Bank Institute's Economic Policy and of Mutuat Funds during Crises." World Bank, Development Poverty Reduction Division. Once the WTO negotiations Research Group, Washington, D.C. Draft. [www.worldbank. begin, the project will sponsor a series of meetings and org/research/interest/confs/past/papersfeb34/behmutfds.pdfl. workshops for policy advisers and senior policymakers, - 2000. "Mlanagers, Investors, and Crises: Mutual Fund complemented by outreach activities for the press, cham- Strategies in Emerging Markets." P'aper presented at the con- bers of commerce, and nongovernmental organizations. ference Liquidity Risk: Rethinking Risk Management, Cen- These sessions will center on a handbook for trade nego- ter for Financial Studies, Frankfurt, Germany, June 30-July l. tiators, which will be completed by the end of 2000. lwww.itk-cfs.de/pages/verans/data/200006301iqu/papers/ The World Bank Institute will play a major role in these index_d.htm]. activities. Research findings emerging from the project suggest Preparing for the WTO 2000 Negotiations that developing countries have a great interest in using the WTO as a forum for undertaking reform in major ser- This project aims to help developing countries identify vice sectors (such as transport, finance, and communi- and assess negotiating options in the next round of World cations), where current policies may impose a significant Trade Organization (WTO) talks through an integrated implicit tax on the economy. Analysis also supports a International Economics 115 broadening of the negotiating agenda to include indus- University of Nairobi; Augustin Karanga; William triat tariffs, which remain a major barrier to export growth Lyakurwa and Dominique Njinkeu, African Economic for many developing countries. It is also clear, however, Research Consortium; R. Koenigsberg, James Markusen, that some WTO obligations involve significant imple- and Keith Maskus, University of Colorado; Peter Lloyd, mentation costs and thus raise concerns for some devel- University of Melbourne; Petros Mavroidis, University oping countries. of Neuchatel; Patrick Messerlin, Sciences Politiques; A large number of papers have been prepared under Ademola Oyejide, University of Ibadan; Wisam Pup- this project (a selection is listed below). Most are avail- phavesa, National Institute of Development Adminis- able on the Web at www.worldbank.org/trade. Papers tration, Bangkok; Raed Safadi, Organisation for can also be obtained on the joint WTO-World Bank site Economic Co-operation and Development; Tohamy (www.itd.org). Five of the best papers presented at the Sahar, Egyptian Center for Economic Studies; Dean regional workshops and the World Services Congress Spinanger, Kiel University; Souleymane Soulama, Cen- (held in Atlanta on September 20, 1999) will be published tre d'Etudes de Documentation de Recherche by the University of Michigan in a book on trade in ser- Economique et Sociale, Universite de Ouagadougou; vices edited by Robert Stern. And a selection of the Nattapong Thongpakde, Thailand Development papers are being translated into Spanish for publication Research Institute; Subidey Togan, Bilkent University; by the Universidad del Rosario, in Colombia, and the Weeraworawit Weerawit, Thai Department of Intellec- World Bank Institute under the title La nueva agenda del tual Property; Obie Whichard, U.S. Bureau of Economic comercio y la OMC. Analysis; L. Alan Winters, University of Sussex; Jamel Project results have been disseminated through World Zarrouk, Arab Monetary Fund; and Benson Zwizwai, Bank Institute courses in Argentina, India, Mexico, the University of Zimbabwe. Major partner institutions Russian Federation, and South Africa and through a include the World Trade Organization; Latin American videoconference series, Beyond the WTO Seattle Min- Trade Network, Facultad Latinoamericana de Ciencias isterial, targeted to Africa and Ukraine. Sociales, Buenos Aires; Economic Research Forum for Responsibility: Development Research Group, Trade- the Arab Countries, Turkey, and Iran; the African Eco- Bernard Hoekman (bhoekman@worldbank.org), Will nomic Research Consortium; Coordinated African Pro- Martin, J. Michael Finger, Aaditya Mattoo, Francis Ng, gram of Assistance on Services, UNCTAD; Trade Policy and David Tarr; and World Bank Institute, Economic Pol- Forum, PECC, Philippines; National Council for Applied icy and Poverty Reduction Division-Philip English. Economic Research, New Delhi; and Centre for Eco- With Florian Alburo and Joy Arbrenica, University of the nomic Policy Research, London. The U.K. Department Philippines; Kym Anderson and Christopher Findlay, for International Development, the governments of University of Adelaide; Drusilla Brown, Tufts University; Italy and the Netherlands, and Societe Generale de Rim Chatti and Mohamed Lahouel, University of Tunis; Surveillance, Geneva, contributed funding for the Lin Sien Chia, University of Singapore; Inbom Choi, research. Korea International Institute for Economic Policy; Peter (ompletion date: June 2001. Cowhey, University of California; Alan Deardorff, Alan Fox, and Robert Stern, University of Michigan; Hanaa Reports Kheir El Din, University of Cairo; Nabil Chaherli and El- Anderson, Kym. "Agriculture and the WTO." Said Moataz, International Food Policy Research Insti- Anderson, Kym, Bernard Hoekman, and Anna Strutt. "Agricultural tute; Riad El Khouri, MEBA Consulting; Erwidodo, Policy and the WTO: Next Steps." Bogor University; Tubagus Feridhanusetyawan and Marn 1l3ackhurst, Richard, William Lyakurwa, and Ademola Oyejide. Pangestu, Center for Strategic and International Stud- 2000. "Improving African Participation in the WTO." World ies, Manila; Joseph Francois, Erasmus University, Rot- Economy 23(4). terdam; Thomas Hertel, Purdue University; Lorenza Bora, Bijit, Peter l,oyd, and Mari Pangestu. 2000. "Industrial lPol- Jachia, lJNCTAD; Gerrishon Ikiara and Francis Mwega, icy and the WTO." World Economy 23(4). 116 International Economics 13rown, D)rusilla, and Robert Stern. "Assessing the Impact of Lib- Database on Measures Affecting Trade in Services eralization of'l'rade and Investment in Services." Cowhey, Peter. "'I'elecommunications and the GAI'S." This project aims to generate and disseminate informa- Deardorff, Alan. "Outsourcing, Fragmenration and Global tion on measures affecting trade in services and, where Production Sharing." possible, estimate their trade-restrictive effect. Its pur- Fvenett, Simon, and B3ernard Hoekman. "Government lProcure- pose is to help design programs for policy reform, to ment: How Does Discrimination Matter?" facilitate the next round of trade negotiations on services, Finger, J. Michael, and Philip Schuler. 2000. "Implementation of to advance empirical research on trade in services, and tlruguay Round Commitments: 'I'he Development Challenge." to provide the private sector with more information on World Economy 23(4): 511-25 conditions of access to foreign markets. The output of I rancois, Joseph. "Credibility and Multilateral Surveillance." the project will include a set of conceptual and empiri- Franqois, Joseph, and Ian Wooton. "Competition Policy and cal papers analyzing trade and regulatory policy in ser- Liberalization of Maritime 'I'ransport." vices; a database containing information on measures Hertel,'tbm, and Will Martin. "Liberalizing'rrade in Manufactures." affecting trade in services and statistics on trade flows, Hoekman, Bernard, and lPetros Mavroidis. 20)0. "WT(o Dispute market structure, and patterns of ownership; and outreach Settlement, 'Transparency and Surveillance." lVorld Economy activities, including creation of a Web site and organiza- 23(4): 527-42 tion of and participation in workshops and conferences. Holmes, Peter. "Competition lPolicy." A preliminary database on maritime transport ser- Kimberly, P3aul. "}-commerce." vices has been created. This database draws together Lahouel, Mohamed, and Keith Maskus. 2000. "Competition Pol- information from Asia Pacific Economic Cooperation, the icy and Intellectual lroperty Rights in Developing Countries: World Trade Organization, the Organisation for Eco- Interests in UJnilateral Initiatives and a WTO Agreement." nomic Co-operation and Development (OECD), and World Aronomy 23(4). other sources to identify impediments to trade in mar- Laird, Sam. "latterns of lProtection l'ost Uiruguay Round." itime transport services. It covers 58 countries, 37 of Markusen, James. "Foreign D)irect Investment: Developing which are developing economies. A comprehensive data Country Interests." set for the telecommunications sector, drawing on infor- . lIrade and Foreign l)irect Investment: A Framework for mation from the International Telecommunication Union, Analysis." the OECD, the World Bank, and other sources, is being Martin, Will, and Keith Maskus. "Labor Standards: Analytical constructed. Notes." Among other issues, the study examines the deter- Maskus, Keith. "Ilarallel Imports." minants of maritime transport costs, which have a sig- Mattoo, Aaditya. 2000. "Developing Countries in the New Round nificant influence on international trade. Two expla- of GA''S Negotiations: Towards a lroactive Role." VoridEcon- nations have been suggested for their high levels in om-v 23(4): 471-89. some countries: restrictive trade policies, particularly in Messerlin, Patrick, and Jamel Zarrouk. 2000. "Trade Facilitation: the form of cargo reservation schemes, and private anti- 'I'echnical Regulations and Customs lrocedures." WVorldEcon- competitive practices associated with maritime confer- omy 23(4). ences. Results suggest that both matter but that private Rollo, Jim, and L. Alan Winters. 2000. "Domestic Reguilation and anticompetitive practices associated with maritime con- 'Irade: Subsidiarity and Governance Challenges for the WTO." ferences have a greater influence on costs. These find- lWorld Economy 23(4). ings suggest a need not only for further liberalization of Spinanger, Dean. "Textiles and Clothing." government policy in developing countries, but also for Stiglitz, Joseph. 2000. "Two Principles for the Next Round or, strengthened international discipline on restrictive busi- How to Bring D)eveloping Countries in from the Cold." World ness practices. Economny 23(4): 437-54. A Web site devoted to the basic structure of trade in Whichard, Obie. "Statistics on Services." services has been established (wwwworldbank.org/trade/ Internationol Etonomics 117 services.hrml) and will serve as the prime vehicle for dis- database will be complemented by trade data sources at seminating research on trade in services conducted within the World Bank and other multilateral and regional orga- and outside the Bank. The Web site currently includes nizations, such as IJNCTAD. a description of and links to information on trade in ser- Case studies in Central America indicate that devel- vices, including measures, trade flows, and other eco- oping countries face major challenges in gaining access nomic variables. Over the next few months more to information on international standards and that many information will be added to the site, which, it is hoped, countries have difficulties in implementing World Trade will soon become the first stop for anyone seeking infor- Organization (WTQ) obligations in the area of product mation on trade in services. standards. Research findings suggest that there is a role In the process of providing policy advice and techni- for development agencies to assist in areas of clear pub- cal assistance, the study is building partnerships with lie good. Findings also suggest that such policy tools as other institutions and regional networks. Results have mutual recognition agreements, aimed at reducing tech- been presented to the Coalition of Services Industries nical barriers, may not provide the expected benefits. (Atlanta, October 1999); the National Council of Applied The project has organized two seminars on standards, Economic Research (New Delhi, December 1999); the one in Panama City with participants from seven Cen- Coordinated African Programme of Assistance for Services tral American governments (June 27-29, 2000) and one (Abidjan, December 1999; Nairobi, March 2000); the in Geneva for 21 developing country WTO missions Andean Community Secretariat (Lima, February 2000); (February 24, 2000). A workshop was also held in Wash- the Caribbean Community (the Bahamas, March 2000; ington, D.C., for academics, trade experts, WTO repre- Barbados, May 2000); the Institute for International sentatives, and others (April 27, 2000). A conference will Affairs (Rome); and the Economic Research Forum be held in Singapore in September 2000 to launch work (Cairo). with researchers in the Asia Pacific region. Responsibility: Development Research Group, Trade- Results of the research will be incorporated in the Aaditya Matcoo (amattoo@worldbank.org) and Carsten World Bank Institute core course on global trade and the Fink. With Randeep Rathindran and Cristina Neagu. The new agenda. Information on project activities and find- ,.K. Department for International Development is con- ings is available on the Web at www.worldbank.org/trade. tributing funding for the research. Responsibility: Development Research Group, Trade-John Completion dote: October 2002. S. Wilson (jswilson@worldbank.org). With Tsunehiro Otsuki; Mirvat Sewadeh; and Keith Maskus, University Trade, Standards, and Regulatory Reform of Colorado. The U.K. Department for International Development Trust Fund has contributed funding for the This project aims to expand the understanding of the research. effects on trade of product standards and government reg- (ompletion date: November 2002. ulations. It also seeks to produce recommendations on priorities relating to product standards and on actions to Agriculture and the New Trade Agenda in the strengthen the capacity of developing countries to address WTO 2000 Negotiations: Economic Analyses technical and regulatory barriers to trade. It will attempt of Interests and Options for Developing and to identify what roles governments and the private sec- Transition Economies tor can play to reduce transactions costs and how useful international cooperation is in facilitating trade. This integrated program of research, policy analysis, and The project has launched efforts, through a work- capacity building aims to strengthen the participation of shop and a series of papers, to design new approaches to developing countries in the next round of World Trade quantifying the trade effect of product standards. The Organization (WTO) negotiations. The program involves project also is developing a new database on standards, quantitative research and policy analyses of the interests regulations, and trade using a survey instrument. This of developing countries in the new trade agenda and I 1 8 International Economics "second-generation" trade issues in agriculture. The ing countries to capture the benefits of integration into initial analytical work is designed to influence the agenda global markets in agriculture, food products, and related for the next negotiations in agriculture and to provide ana- industries. lytical capacity for deeper trade and agricultural liberal- The analytical results will be presented in a series of ization in developing countries. The analyses will also regional workshops and training seminars for senior pol- provide new estimates of protection, taking into account icymakers from developing countries. Country-specific trade and domestic policy measures implemented since support will be provided during the negotiations. In the Uruguay Round. The outputs will provide a basis for addition, an edited volume on agricultural trade issues further analytical work and country-specific support and a handbook with analytical tools and databases on designed to strengthen developing countries' analytical agricultural protection will be prepared. capacity and participation in the negotiations and facil- Responsibility: Rural Development Department-Merlinda itate trade and domestic policy reforms in the next round D. Ingco (mingco@worldbank.org); Development of negotiations. Research Group, Trade-Will Martin and Francis Ng; and The first phase of the project involves robust and World Bank Institute, Economic Policy and Poverty focused analyses of the interests of developing countries Reduction Division. With Alexander McCalla; Alberto in each area of the built-in agenda-market access, Vald6s; Kym Anderson, University of Adelaide; Tim domestic support, and export competition-as well as Josling, Stanford University; L. Alan Winters, University issues on the new trade agenda-including standards, of Sussex; Spencer Henson, University of Reading; Brent state trading, intellectual property, technical barriers to Borrell, Center for International Studies; John Whalley, trade, and sanitary and phytosanitary measures. This University of Western Ontario; Joseph Fran,ois, Erasmus phase also includes preparatory research and analyses on University, Amsterdam; Thomas Hertel and Aziz Elbehri, selected regions, subregions, and countries to assist Purdue University; Ammar Siamwalla, Thailand Devel- developing countries in analyzing policy options and opment Research Institute; Ademola Oyejide; Olawale objectives. The research and analytical work will be Ogonkula, University of Ibadan, Nigeria; Gavin Maas- done by a team of local and regional experts from devel- dorf, Imani-Capricorn Economic Consultants; Ashok oping countries and international experts. The outputs Gulati; and Prema-Chandra Athukorala, Australian from this phase will be used to directly assist policy- National University. The World Bank-Netherlands Part- makers in developing countries in evaluating their inter- nership Program and the U.K. Department for Interna- ests and the effects of different negotiating strategies. tional Development are contributing funding for the Research will also be conducted to identify new Bank research. instruments for strengthening the capacity of develop- Completion date: December 2002. International Economics 119 Domestic Finance and Capital Markets Benchmarking Financial Systems Report Beck, Thorsten. Aslh Demirgy-Kunt. and Ross l,evine. 1999. "A World Bank staff often try to compare a country's finan- New Database on Financial Development and Structure." Pol- cial system with those of benchmark countries. Part of icy Research WVorking Paper 2146. World Bank, T)evelopment this comparison relates to the size and mix of financial Research (Group, Washington, I).C. intermediaries and markets across countries. The other part relates to the activity and efficiency of institutions Financial Structure and Economic Development and markets of countries at similar or higher levels of eco- nomic development. For example, Mexico's insurance What legal, regulatory, and policy changes can govern- industry is small relative to that in the United States, but ments implement to produce financial systems that does it differ importantly from Argentina's or the Repub- encourage economic development? To shed light on this lic of Korea's? issue, this research project studied the determinants of 1?'aken in isolation, such cross-country comparisons do financial structure-defined as the mix of banks, secu- not yield a clear financial sector development strategy: find- rities markets, and nonbanks in an economy-and the ing that a country's insurance industry is small relative to importance of financial structure for economic develop- those in countries with similar GDP per capita does not ment. The research was based on firm-level, country- necessarily imply a problem. But informed cross-country level, and cross-country analyses. comparisons can help identify irregularities needing more The project constructed measures of financial structure rigorous analysis, such as an inactive stock exchange. and documented the changes that occur in financial struc- Unfortunately, the Bank has lacked a database for simple ture as countries develop. In measuring financial structure, cross-country comparisons of financial systems. it emphasized the classic distinction between bank-based To allow comparison of financial systems at different and market-based financial systems. In addition, the pro- benchmark dates, this initiative contributed to the com- ject examined some of the legal, regulatory, and policy pilation of a data set on financial institutions for a large determinants of stock market development, banking devel- sample of industrial and developing countries over time. opment, and the overall structure of financial systems. Data were collected on the size, activity, and efficiency Finally, it evaluated the implications of different financial of different types of financial intermediaries and markets structures for economic development. Although past (banks, nonbank financial institutions, insurance com- research suggests thatwell-functioning banks and stock mar- panies, pension funds, development banks, and stock and kets spur growth in firms and the overall economy, there had bond markets). This database will simplify cross- been little analysis of the links between financial structure country comparisons for country officials and World Bank and economic performance in developing countries. staff and support additional research. The study found that economies do not grow faster, The database is available on the Web at www. industries dependent on external financing do not expand worldbank.org/research/projects/finstructure/, along with faster, new firms are not created more easily, firms' access a paper detailing the data sources and defining the to external finance is not greater, and firms do not grow variables. faster in either market- or bank-based financial systems. Responsibility: Development Research Group, Finance- But there is overwhelming evidence that the overall Asli Demirgiiu-Kunt (ademirguckunt@worldbank.org). level of financial development and the legal environment With Ross Levine, University of Minnesota. in which financial intermediaries and markets operate crit- Completion date: September 1999. ically influence economic development. 120 The papers produced by this research project (listed Scr,mukler, Sergio. 2000. "Financial Structure in Emerging below) were presented at a World Bank conference on Economies' Firms: The Effects of International Financial Inte- Financial Structure and Economic Development, held gration." World Bank, Development Research Group, Wash- in Washington, D.C., on February 10-11, 2000. All the ingron, I).C. papers, as well as the database produced by the project, Stulz, Rene M. 2000. "Does Financial Structure Matter for Eco- are available on the Web at wwwworldbank.orgj'research/ nomic Growth? A Corporate Finance Perspective." projects/finstructure/. Responsibility: Development Research Group, Finance- Operating Costs and Investment Returns Ashl Demirguc,-Kunt (ademirguckunt@worldbank.org). of Pension Funds With Ross Levine, Rene Stulz, Vojislav Maksimovic, Sheridan Titman, and Mustafa Gultekin. Two major issues have arisen relating to the feasibility (ompletion date: June 2000. and desirability of social security reforms that involve funding and private management: administrative costs Reports and annuities markets. Critics of Chilean-style pension Beck, 'I'horsten, and Ross Levine. 2000. "External Dependence systems claim that they are extremely expensive to and Industry Growth: Does Financial Structure Matter?" administer and will eventually lead to low net returns and Chang, Chun. 2000. "'I'he Informational Requirement on Finan- pensions. Moreover, it is argued that annuities markers cial Systems at l>ifferent Stages of FEconomic Developmentr 'l'he are poorly developed in most countries, so it will be dif- Case of South Korea." ficult to convert retirement savings into annuities through Chui, Andy, Sheridan 'l'itman, and K.C. John Wei. 2000. "Corpo- the private market. This project used data from many rate Groups, Financial Liberalization, and Growth: 'I'he Case countries to analyze the size and determinants of admin- of Indonesia." istrative costs as well as the operations of annuities Copelman, Martina. 2000. "Financial Structure and Economic markets. Activity in Mexico." Chile uses the retail market for investing the funds Demirguc-Kunt, Asti, and Harry Huizinga. 2000. ''inancial Struc- in the second (mandatory, privately managed) pillar. The ture and Bank lProfitability." World l3ank, lDevelopment study found that costs in Chile have been greatly over- Research Group, Washington, D.C. stated, but that nevertheless a second pillar could be run Demirgfic-Kunt, Aslh, and Ross Levine. 2000. "Bank-Based and much more cheaply through the use of the institutional Market-Based Financial Systems: Cross-Countrv Compar- market. It reached this conclusion after analyzing data isons." World Bank, Deveiopment Research Group, Washing- from mandatory pension funds in Chile and other Latin ton, D.C. American countries and from voluntary mutual funds in Demirgtic-Kunt, Aslh, and Vojislav Maksimovic. 2000. "Funding the United States. For the institutional market it used Growth in 13ank-Based and Marker-13ased Financial Systems: data from individual account systems in Bolivia and Swe- Evidence from Firm-Level Data." World B3ank, Development den and from large pension plans and the federal Thrift Research Group, Washington, D.C. Savings Plan in the United States. These institutional L)enizer, Cevdet A., Mustafa N. Giiltekin, and Nihat 13iient Gull- approaches aggregate numerous small accounts into large tekin. 2000. "Distorted Incentives and Financial Develop- blocks of money and negotiate fees on a centralized ment in'l'urkey." basis, often through competitive bidding. Choice by Dromowitz, Ian, Jack Glen, and Ananth Madhavan. 2000. "Interna- workers remains, among a limited number of funds. But tional Evidence on Aggregate Corporate Financing Decisions." fees and costs are kept low by reducing incentives for mar- Gallego, Francisco, and Norman Loayza. 2000. "Financial Strac- keting, avoiding excess capacity at the start of the new ture in Chile: Macroeconomic Developments and Microeco- system, and limiting choice to investment portfolios that nomic Effects." are inexpensive to manage. The tradeoff is the increased Levine, Ross. 20()). "Bank-Based or Market-Based Financial Sys- probability of corruption, collusion, and regulatory cap- tems: Which Is 13etter?" ture; decreased performance incentives; rebidding prob- Domestic Finonte and (opiiol Mlorkeis 121 lems; and inflexibility in the face of unforeseen contin- Conference, Washington, D.C.; and Organisation for Economic gencies. In countries where these problems can be sur- Co-operation and Development meeting, Paris. mounted, the institutional approach is worth serious - 1999. "The Decumulation (Payout) Phase of Defined consideration, especially for systems with small asset Contribution Pillars." Paper presented at Pension Forum, Asia bases and at the start-up of a new multipillar system. Pacific Economic Cooperation, Chile. For the analysis of annuities markets, the study com- James, Estelle, James Smalhout, and Dimitri Vittas. 1999. "Admin- missioned separate papers on Australia, Canada, Chile, istrative Costs and the Organization of Individual Account Sys- Israel, Singapore, Switzerland, and the United King- tems: A Comparative Perspective." Paper presented at World dom. In each case it obtained information on the struc- Bank Pension Research Conference, Washington, D.C.; and ture of the market and on the "money's worth ratio" Organisation for Economic Co-operation and Development (the ratio of the present value of expected benefits to ini- meeting, Paris. (Also presented at Organisation for Economic tial capital cost) for consumers. Comparing these num- Co-operation and Development meeting in Prague, 2000; at Asia bers with previous work for the United Kingdom and the l'acific Economic Cooperation meeting, Bangkok, 200(1; and at United States, it found a surprisingly high ratio for nom- meeting of Association of lPublic Policy Analysts and Man- inal annuities in most countries, but a substantial reduc- agers, 2(0(00.) tion for real annuities. If governments wish to use the James, Estelle, Gary Ferrier, James Smalhout, and Dimitri Vittas. private annuities market, they may have to play a role by 1999. "Mutual Funds and Institutional Investments: What Is issuing some of their public debt in the form of indexed the Most Efficient Way to Set I p Individual Accounts in a Social bonds, in which insurance companies can invest. And the Security System?" N13ER Working Paper 7049. National Bureau private market, in turn, will need to develop mecha- of Economic Research, Cambridge, Mass. (Also issued as Pol- nisms for sharing investment and inflation risk with icy Research Working Paper 2099, World Bank, Development consumers. Research Group, Washington, D.C., 1999; and forthcoming in The papers on annuities markets in various countries John Shoven, ed., Administrative Costs and Social Security Pri- will be assembled, with comparative analysis, in a book. vatization, Chicago: University of Chicago Press.) Responsibility: Development Research Group, Poverty Shah, Ajay. 1999. "The UJses and Limits of lassive Investing in and Human Resources-Estelle James (ejames3 Mandatory Social Security Systems." Paper presented at World @worldbank.org), and Finance-Dimitri Vittas. With 13ank Pension Research Conference, Washington, D.C. James Smalhout, Hudson Institute; Gary Ferrier, Uni- versity of Arkansas; Jeffrey Brown, Harvard University; The Political Economy of Pension Reform Ajay Shah, Indira Gandhi Institute, India; Michael Orszag, Birkbeck College, University of London; Peter Orszag, During the past two decades 20 countries-including University of California at Berkeley and Sebago Associ- Argentina, Australia, Colombia, Denmark, Hungary, ates; David Knox, Price Waterhouse, Australia; Hyun Italy, Latvia, Peru, Poland, Sweden, and Uruguay-have Tae Kim and Keith P. Sharp, University of Waterloo, undertaken significant but differing structural reforms in Canada; Peter Zweifel and Michael Breuer, University their social security systems. One of the most important of Zurich; Jonathan Callund, Callund Associates, Chile; differences relates to the relative roles of the public and Avia Spivak, Beer Sheva University, Israel; Chiu-Cheng private sectors in the reformed systems. Other coun- Chang, Chang Gung University, Taiwan (China); and Xue tries face serious problems in their current systems and Song, Johns Hopkins University. are considering reforms, but are encountering intense Completion date: June 2000. opposition, especially from unions and pensioner orga- nizations. This study analyzed why countries have Reports reformed in different ways and how policymakers can James, Estelle, and Dimitri Vittas. 1999. "Annuities Markets in overcome political obstacles to reform. Comparative lPerspective: Do Consumers Get 'l'heir Money's The study used two approaches. The first involved Worth?" Paper presented at World 13ank lension Research econometric analysis to examine what factors influence 122 Domestic Finance and Capifal Markels the probability of structural reforms and what variables Orenstein, Mitchell. 20(). "A Plolitical-Institutional Analysis of Pen- determine the public and private shares in the new sys- sion Reform in the Posteommunist Countries." D)evelopment tem. The most important finding of this analysis is that Research Group Discussion P'aper. World Bank, Washington, D).C. a large implicit pension debt-the present value of the accumulated rights that workers have earned in the old Primary Financial Markets: Macroeconomic system-increases the probability of getting pension Conditions and Market Development reform on the agenda but reduces the relative size of the privately managed funded pillar that ultimately emerges. The broad goal of this project was to improve the under- The reason is that a large implicit pension debt increases standing of how and why primary debt and equity markets the transition costs of shifting to a fully funded privately develop and the role they play in providing finance to managed system and thus leads to a less complete shift. local companies. Primary markets are where firms raise cap- A second important finding is that preexisting vol- ital by issuing financial securities, while secondary markets untary pension plans leads to a larger role for the manda- are where financial securities trade after issuance. tory private pillar in the new system. These are examples 'rhe study analyzed primary market activity-domes- of path dependency in policy formulation: prior systems tic and foreign, fixed income and equity-in 30 countries *nfluence but do not completely determine the shape of (including 19 emerging markets) over the period 1980-97. new systems. It documented the rise of equity markets in these coun- The second approach was the use of carefully struc- tries as well as the relative paucity of domestic corporate tured case studies to analyze how governments have bond markets in most emerging markets. In a bivariate overcome obstacles to reform, such as potential opposi- framework it examined the implications of a variety of tion from key groups (unions, older workers, pensioner institutional and macroeconomic variables for primary organizations, social security bureaucracies), and to market behavior. Those variables include inflation, GDP explain why they ended up with quite different struc- growth, accounting standards, investor protection, and tural reforms. Governments' strategies have included openness to foreign investors. The study found that all compensating potential losers through monetary pay- the variables can be linked to primary market behavior. offs, political positions, and tradeoffs in other policy are- More important, the development of domestic cor- nas. The case studies included three transition economies porate bond markets-much more so than that of domes- (Hungary, Kazakhstan, and Poland) and three tic equity markets-appears to be dependent on a stable, Latin American countries (Argentina, Mexico, and market-oriented economy. The study's multivariate Uruguay). framework largely supports the bivariate analysis and The findings of the study will give policymakers suggests that macroeconomic instability hinders the some idea of the range of outcomes that may be feasi- development of bond markets and induces issuers to ble in their own countries and provide them with a range source capital abroad. of tools that they can use as they attempt to implement The results were presented at a World Bank seminar pension reform. in November 1999 and at a Bank conference in Febru- Responsibility: Development Research Group, Poverty ary 2000. They have been used by Bank and International and Human Resources-Estelle James (ejames3 Finance Corporation staff to guide work related to cap- @worldbank.org). With Sarah Brooks, University of San ital market development, including policy advice to Diego; and Mitchell Orenstein, University of Syracuse. client governments. Completion date: June 2000. Responsibility: International Finance Corporation, Corpo- rate Portfolio Management Group-Jack Glen (jglen@ifc. Reports org). With Ian Domowitz, Pennsylvania State University; Brooks, Sarah, and Estelle James. 1999. "'I'he Political Economy and Ananth Madhavan, University of Southern of Structural Pension Reform." Paper presented at World Bank California. Plension Research Conference, Washington, I).C. Completion date: July 2000. Domestic Finante and Capital Markets 123 Report diversify risks internally, as firms' market risk is influenced Glen, Jack. Ian Dormowitz, and Ananth Madhavan. 2000. "Inter- not only by own characteristics-such as size and the ratio national Evidence on Aggregate Corporate Financing Deci- of price to book value-but also by group characteristics, sions." I'aper presented at the conference Financial Structure especially in Chile. There are costs to groups, however. and Economic Development, World 13ank, Washington, D.C., In East Asia, for example, controlling owners use group Februarv I 0-11. structures to expropriate other shareholders. On bal- ance, it appears that business groups are not beneficial The Costs and Benefits of Business to shareholders in either Chile or East Asia. Group Formation The Asian Development Bank (ADB) and the Asian Development Bank Institute (ADBI) in Tokyo have dis- In many countries, particularly in Asia and Latin Amer- seminated the findings through capacity building work- ica, individuals, families, or coalitions of families often shops on corporate governance in Manila (October 1999), own a number of related firms. In this type of organiza- Tokyo (May 2000), and Bombay (October 2000). The tion, known as a business group, management and own- ADB and ADBI invited senior delegates from the mon- ership are usually tied. itoring authorities in each Asian economy to attend the Business groups can be associated with three effects: workshops. Results from the project were also presented expropriation of minority shareholders, development of at the European Financial Management Conference in internal financial markets, and a reduction in the role of Paris (July 1999), the European Finance Association external markets in monitoring firm behavior. The impor- meetings in Finland (July 1999), the Korea Development tance of these individual effects and their interaction have Institute (July 1999), the National Bureau of Economic not been rigorously tested. Research conference in Boston (August 1999), Vander- To shed light on the importance of business groups, bilt University (September 1999), the University of Illi- this project uses data on publicly listed companies in nois (November 1999), the American Economic Chile and nine Asian economies-Hong Kong (China), Association meeting in Boston (January 2000), Ohio Indonesia, Japan, the Republic of Korea, Malaysia, the State University (February 2000), the International Mon- Philippines, Singapore, Taiwan (China), and Thailand- etary Fund Institute (February 2000), and the Univer- for the years 1994-97. The study finds that on average sity of Michigan Business School (May 2000). Several group-affiliated firms have lower values than indepen- presentations were also made to audiences at the World dent firms. Group-affiliated firms in which the ultimate Bank. This research also served as background to World owners have voting rights that exceed cash flow rights Bank publications EastAsia: The Road to Recovery (Wash- sold at a discount. Group-affiliated firms in which there ington, D.C., 1998) and East Asia: Recovery and Beyond is no divergence between voting and cash flow rights sold (Washington, D.C., 2000). at a small premium over independent firms. The results Responsibility: Financial Sector Strategy and Policy Depart- of the study are robust to different valuation measures, ment-Stijn Claessens (cclaessens@worldbank.org) and time periods, and estimation techniques. The evidence Simeon Djankov; and Development Research Group, is consistent with the view that the anticipation of expro- Finance-Leora Klapper. With Larry H. P. Lang, Chi- priation associated with group affiliation more than off- nese University of Hong Kong; and Tatiana Nenova, sets any possible benefits of group membership. Harvard University. The study also finds that in times of financial distress, (ompletion dale: September 2000. group-affiliated firms are less likely than other firms to seek formal bankruptcy protection, relying instead on Reports other group affiliates for loans. This "insurance" against Claessens, Stijn, Simeon Djankov, and Leora Klapper. 1999. "Reso- the likelihood of bankruptcy during bad times may come lution of Corporate Distress: Evidence from East Asia's Financial at the expense of minority shareholders. The study doc- Crisis." Policy Research Working l'aper 2133. World Bank, Finan- uments some evidence that group structures are used to cial Sector Strategy and Policy Department, Washington, D.C. 124 Domestic Finance and Capital Markets F. orthcoming. "'I'he Role and Functioning of 13usiness cross-country data set. The third is to use this data set Groups in East Asia and Chile." ABAN7'E. to test hypotheses about how variations in the design of Claessens, Stijn, Simeon Djankov, and Larry H.P. Lang. Forth- deposit insurance affect the banking system, the fre- coming. "'I'he Separation of Ownership and Control in East quency and cost of banking crises, and overall financial Asian Corporations." Journal of Finanrial Economirs. system development. Claessens, Stijn, Simeon Djankov, Joseph PH. Fan, and Larry The ultimate purpose of the research is to turn the con- H.P. Lang. 1999. "The Expropriation of Minority Sharehold- siderable theoretical work on financial regulation in ers: Evidence from Asia's Financial Crisis." Policy Research industrial countries into a tested body of theory that can Working Paper 2088. World Bank, Financial Sector Strategy and support reliable policy recommendations on how to tai- Policy Department, Washington, D.C. lor deposit insurance to the circumstances of developing countries. World Bank policy advice must be sensitive Deposit Insurance: Issues of Principle, to variations in institutional starting points and transition Design, and Implementation costs. Thus the research will produce design lessons for many different initial conditions. Most countries have some form of protection for bank Papers produced for this project (listed below) were deposits, but the arrangements vary considerably in presented at a World Bank conference on Deposit Insur- design. While there are formal systems that explicitly ance in Washington, D.C., on June 8-9, 2000. All these guarantee deposits, implicit systems-in which partici- papers are available on the Web at www.worldbank.orgl pants simply take it for granted that the government research/interest/confs/upcoming/deposit-insurance/ will step in if there is a crisis-are also widespread. home.htm, along with the data set and a video of the Explicit systems vary in coverage, in whether member- conference. ship is voluntary or mandatory, in funding and premium Responsibilioy: Development Research Group, Finance- structures, and in management. Some deposit insurance Ashl Demirguc-Kunt (ademirguckunt@worldbank.org) institutions are also responsible for supervising the and Robert Cull. With Edward Kane, Boston College. insured institutions. While most policymakers consider Completion date: September 2000. deposit insurance a stabilizing tool that spares countries from banking crises, a growing literature emphasizes the Reports destabilizing effects of deposit insurance systems that end Beck, Thorsten. 2000. "Deposit Insurance as Private Club: 'I'he up exacerbating the very crises they were meant to Case of Germany." prevent. Boyd, John, and Bruce Smith. 2000. "Deposit Insurance Design Policymakers often ask the World Bank for advice on and Bailout Costs." the design of deposit insurance. In responding to such Calomiris, Charles W, and Andrew Powell. 2000. "Can Fmerging inquiries, Bank staff are hampered by the lack of pro- Market Bank Regulators Establish Credible Discipline? The fessional consensus on the main issues and the unavail- Case of Argentina, 1992-99." ability of a cross-country data set on design characteristics Cull, Robert, Lemma W. Senbet, and Marco Sorge. 2000. "Deposit of deposit insurance and safety nets. This project is Insurance and Fsinancial Development." aimed at improving Bank advice on the design of deposit Demirgu,c-Kunt, Asti, and Enrica Detragiache. 2000. "Does Deposit insurance. Insurance Increase Banking System Stability? An Empirical The project consists of three main tasks. The first is Investigation." to survey theory and policy experience to articulate Demirguc,-Kunt, Asli, and Harry Huizinga. 2000. "Market Disci- whether and how deposit insurance can be fitted into an pline and Financial Safety Net Design." efficient and incentive-compatible system for regulating Honohan, Patrick, and Daniela Klingebiel. 2000. "Controlling financial institutions. The second is to catalog variations Fiscal Costs of Banking Crises." in deposit insurance systems around the world so as to Kane, Edward J. 2000. "Designing Financial Safety Nets to Fit convert information on different design features into a Country Circumstances." Domestic Finance and (apital Markets 125 Kane, Edward J., and Berry Wilson. 2000. "Evidence of Safety-Net deterioration in the incentives for sound risk management Support for 13anks during Fconomic Development in Canada, and corporate governance of financial intermediaries. the U.K., and the IU.S.: A lProgress Report." This study assesses the degree to which complementary leria, Maria Soledad Martinez, and Sergio Schmukler. 2000. "Do policies need to be in place to improve the performance I)epositors lPunish 13anks for 'Bad' Behavior? Market D)iscipline, of the financial sector in the liberalized environment. The I)eposit Insurance, and Banking Crises." World Bank, Devel- methodology includes case studies chosen to reflect con- opment Research Group, Washington, I).C. trasting conditions in countries with chronically high inflation, transition economies, industrial economies, Policy for Small Financial Systems low-income countries, countries that have relied heav- ily on directed credit, and economies with severe fiscal Two-thirds of the World Bank's members have small problems. The study also tracks the role of poorly phased financial systems. Do these countries require different and implemented liberalization in contributing to the policy advice on the design of financial sector regulatory 1997 crisis in the Republic of Korea. The underlying eco- institutions and practices and competition and entry nomic theory is presented, and cross-country econo- policies? This research investigates the ways in which metrics are used. small and very small financial systems are likely to under- In practice, financial liberalization has been far from perform other systems, gauges the importance of each smooth. In many countries interest rate volatility has dimension, and identifies policy options that could alle- contributed to banking fragility. In the former Soviet viate the problem. Union de facto liberalization unsupported by contract The study finds that small banking systems have enforcement led to an implosion of the monetary econ- higher intermediation costs than large ones, suggesting omy. In most countries interest rate spreads widened to that they are less competitive. The effects may represent levels that suggest competition remains limited, despite a significant share of GDP. The research also finds clear free entry. quantitative evidence of economies of scale in actual A much more measured and nuanced approach to official regulatory costs, though the magnitudes are not liberalization would have been better. Eliminating the large. Potential hidden costs of small size, including most severe interest rate distortions did not necessitate reduced regulatory autonomy, remain hard to confirm. complete and immediate removal of interest rate controls, Results were presented at a World Bank Finance especially in the presence of insolvent or fragile banks. Forum. The lessons will be incorporated in the Bank's Removal of controls on foreign capital (especially those Policy Research Report on finance, scheduled for com- affecting short-term flows) could have been phased in pletion in 2001. They could have immediate and sig- later than it was. Adequate capitalization and appropri- nificant impact on the Bank's policy approach, including ate management should have been required before firms the approach used in the Financial Sector Assessment could enter the market. A longer lead-in would have Program. allowed more thorough training and professional prepa- Responsibility: Development Research Group, Finance- ration of regulatory personnel, though their effectiveness Patrick Honohan (phonohan@worldbank.org) and might still have been limited by political interference. Anqing Shi; and Financial Sector Strategy and Policy Even after liberalization it is possible to regain some of Department-Biagio Bossone. With Millard Long. the lost ground by moving beyond supervised capital Completion date: September 2000. requirements to the occasional use of more activitist measures, which, although blunt and imperfect, could be Financial Liberalization more effective. The results of the study were discussed at a World Many countries have encountered difficulties moving to Bank workshop in March 1999 and are posted on the Web market-based interest rates, experiencing heightened at www.worldbank.org/research/pfojects/finliber.htm. asset market volatility, distributional shifts, and a net The study provided input into the Bank's financial sec- 126 Domestic finonce and Capital Markets tor strategy paper and its forthcoming Policy Research The work on mutual funds focuses on the compila- Report on finance. tion of a database covering about 40 countries. A paper Responsibility: Development Research Group, Finance- is under preparation that analyzes the economic deter- Patrick Honohan (phonohan@worldbank.org) and Ashl minants of mutual fund growth and examines the regu- Demirgiiu-Kunt; East Asia and Pacific Region, Philip- latory framework necessary for the sound development pines Resident Mission-Irfan Aleem; Financial Sector of the sector. Strategy and Policy Department-Gerard Caprio Jr. and Responsibility: Development Research Group, Finance- James A. Hanson; and Latin America and the Caribbean Dimitri Vittas (dvittas@worldbank.org), Patrick Honohan, Region, Mexico Country Management Unit-Luis Landa and Deepthi Fernando. With Max Alier, International and Fernando Montes-Negret. With Yoon Je Cho, Sogang Monetary Fund; and Monika Queisser, Organisation for University, Seoul; David Cole; Betty Slade; Fabrizio Economic Co-operation and Development. Coricelli, Universita de Siena; Enrica Detragiache, Inter- Completion date: December 2000. national Monetary Fund; Louis Kasekende, Central Bank of Uganda; Charles Wyplosz, Graduate Institute of Reports International Studies, Geneva; C. Calomiris, Columbia Alier, Max, and Dimitri Vittas. 2000. "Personal P"ension Plans and University; S. Janjua, State Bank of Pakistan; E. Kane, Stockmarket Volatility." World Bank, Development Research Boston College; H. Pill, European Investment Bank; Group, Washington, D.C. and Paolo Vieira da Cunha, Lehman Brothers. James, Estelle, and Dimitri Vittas. 1999. "The Decumulation Completion date: December 2000. (Payout) Phase of Defined Contribution Pillars." World Bank, Development Research Group, Washington, D.C. Reports Qucisser, Monika, and Dimitri Vittas. 2000. "The Swiss Multi- Caprio, Gerard, Jr., and Patrick Honohan. 1999. "Restoring Bank- Pillar Pension System: 'Triumph of Common Sense?" Policy ing Stability: Beyond Supervised Capital Requirements." Jour- Research Working Paper 2416. World Bank, Development nal of Economic Perspectives 13(4): 43-64. Research Group, Washington, D.C. - 2000. "Reducing the Cost of Bank Crises: Is Basel Vittas, Dimitri. 2000. "Pension Reform and Capital Market Devel- Enough?" World Bank, Development Research Group, Wash- opment: 'Feasibility' and 'Impact' Preconditions." World Bank, ington, D.C. Development Research Group, Washington, D.C. Caprio, Gerard, Jr., Patrick Honohan, and Joseph E. Stiglitz, eds. Forthcoming. Financial Liberalization: How Far? How 4a~iJ? (orporate Governance, Corporute finance, and Cambridge: Cambridge [Jniversity Press. Economic Performance in Developing Countries Honohan, Patrick. Forthcoming. "Plerverse Effects of a Ratings- Related Capital Adequacy System." Economic Notes. Issues relating to corporate governance in developing countries have assumed special significance since the East Institutional Investors Asian financial and economic crisis. This study looks at corporate behavior in four Asian countries in an attempt This project covers second-generation issues involved in to understand the implications of some corporate gov- setting up private pension funds and developing mutual ernance variables for corporate capital structure. funds. It examines the impact of stock market volatility The study analyzes corporate finance and economic on personal pension plans and the insulating effect of performance in India, the Republic of Korea, Malaysia, various investment strategies; the design, structure, and Thailand. It compares intertemporal and inter- and performance of the Swiss multipillar pension country debt-equity ratios in developing and industrial system; and the "feasibility" and "impact" precondi- countries and uses multivariate analysis to investigate the tions for the launching of funded pension plans and the determinants of debt-equity ratios in the four Asian mar- realization of their potential benefits for capital market kets. Finally, it analyzes the cross-sectional and inter- development. national variation in debt ratios and investigates Domestic Finance and Copital Markets 127 links between debt ratios and corporate ownership The research finds that the effects of most of the structures. financial and economic variables thought to affect the Findings on the implications of corporate governance probability of crisis-ranging from economic growth to variables for corporate decisionmaking, as expressed in the liberalization of interest rates-differ significantly in corporate capital structure, should prove helpful in World the presence of political checks and balances. At the Bank policy advice on matters relating to corporate gov- mean level of checks and balances, for example, liber- ernance structures. In addition, findings on the link alization of interest rates increases the probability of a between corporate governance and capital structure banking crisis by 19 percent; at the lowest level of checks should be helpful for policymakers, shedding light on the and balances, the probability rises to 35 percent. These implications of different policy regimes for corporate results indicate the potential to improve the design of decisionmaking. This could be significant in the devel- financial sector regulation in institutionally diverse opment of domestic corporate bond markets, which countries. remain largely absent in most developing countries. Future research will focus on the magnitude of crises Responsibility: International Finance Corporation, Corpo- (research to date has looked at the occurrence of crisis). rate Portfolio Management Group-Jack Glen (jglen@ifc. It will also make more systematic use of the Develop- org); and Private Sector Development Department, Busi- ment Research Group's database on political institu- ness Environment Unit-Rughvir K. Khemani. With tions to test additional hypotheses about the determinants Ajit Singh, Cambridge University. of efficient government policy, include case studies that Completion date: March 2001. chart government decisions before and immediately after financial crisis in at least six countries in different Bank Insolvency parts of the world, and examine more closely the broad institutional determinants of crises that emerge from The analysis of bank crises is important in its own right, the cross-country work. but it also sheds light on the institutional roots of gov- Responsibility: Development Research Group, Regulation ernment policies more generally. This research examines and Competition Policy-Philip Keefer (pkeefer two crucial issues. First, what regulatory decisions per- @worldbank.org); and Financial Sector Strategy and mitted crises, and why were those decisions made? Why, Policy Department-Daniela Klingebiel and Patrick for example, was the exposure of bank portfolios to for- Honohan. eign currency-denominated assets permitted to reach Completion doae: June 2001. high levels? Since most policy advice is based on coun- tries' regulatory practices, understanding how regula- Report tory decisions were made before crises is crucial to Keefer, lPhilip. 1999. "'Political Institutions and Crisis: ''he Effects understanding the potential and limitations of this advice. of Political Checks and Balances on the I)ynamics of 1;inancial Second, how have countries responded to crisis? Gov- Sector Discress." Paper presented ac the meetings of the West- ernment decisions made early in a crisis have a sub- ern Economic Association, July 6-10, San Diego, Calif. stantial impact on subsequent financial and economic development. These decisions include, for example, Measuring Financial Regulation and Supervision whether to rescue bank owners, borrowers, and deposi- tors and other holders of bank liabilities. The institutional This project will investigate whether a particular mix of analysis of both questions entails issues that are relevant financial regulations and supervisory standards is closely to the broader analysis of government policymaking in associated with successful banking operations and, more developing countries, such as the role of political com- generally, with well-functioning financial systems. It will petition and checks and balances in encouraging or dis- also trace the effect, initially on the financial system and couraging government actors from serving the public then on overall economic performance, of different reg- interest with strict prudential regulation. ulatory and supervisory features. The research will use 128 Domestic Finance and Capital Markets a variety of approaches but will be mostly cross-country relatively inexpensive to administer and is not subject empirical work using regression, logit, and probit to the adverse selection and moral hazard problems asso- analysis. ciated with traditional crop insurance schemes. The project will collect comprehensive data on finan- The study is first assessing the feasibility of area- cial regulations and supervisory standards, the structure based rainfall insurance in four countries-Ethiopia, of regulatory and supervisory agencies, and the capabil- Morocco, Nicaragua, and Tunisia. In a second phase it will ities of regulatory and supervisory authorities in a broad use the results from this analysis to select two countries cross-section of developing and industrial countries. in which it will pursue a more in-depth analysis that will Information on supervision will include the data and lead to the design of pilot projects for implementation. information collected by supervisors, supervisory pow- The feasibility assessment involves the following ers, the number of on-site exams, the budget for super- steps: visory work, and supervisors' compensation relative to that * Evaluate thepotential demandfor rainfall insurance. To of private sector counterparts. empirically evaluate the potential demand for insurance, The data collection will cover the broad financial sys- the project will carry out field research at selected sites. tem, not only because the definition of banking varies This work will involve interviews with different types of widely but also because financial crises can originate rural households to determine which catastrophic events among nonbank financial intermediaries, as seen most they are most concerned about, how frequent they per- recently in Thailand. Moreover, World Bank research has ceive those events to be, how they cope with those risks, shown that both banking and nonbank financial devel- and how much they would be willing to pay for insurance opment matters for growth. if it were available. The findings will allow the Bank to fine-tune its rec- * Ascertain thefeasibility of supplying the insurance. In this ommendations on key improvements in regulation and step the study will determine whether there are insur- supervision at various levels of financial sector develop- able weather events, particularly rainfall events, recorded ment. And they will allow countries to see how they com- at local weather stations that correlate highly with the risks pare with others. The results will feed into the Bank's that most people are concerned about (such as lower Policy Research Report on finance planned for 2001. income or loss of assets). This may require some bio- Responsibility: Financial Sector Strategy and Policy Depart- physical modeling work to identify critical rainfall events ment and Development Research Group, Finance- in the agricultural calendar that predict catastrophic pro- Gerard Caprio Jr. (gcaprio@worldbank.org). With James duction outcomes. If the study can identify such events, Barth, Auburn University; and Ross Levine, University it will use historical data from the rainfall stations to cal- of Minnesota. culate the actuarially fair premium rates that would have (ompletion date: September 2001. to be charged for the insurance and compare these rates to the prices that households would be willing to pay. Weather-Based Index Insurance * Evaluate the institutionalfeasibility of supplying the insurance. The study will assess the private insurance This study is exploring the feasibility of area-based industry's interest in supplying the insurance and its index insurance as a mechanism for providing rural peo- capacity to do so, any constraints that would have to be ple with effective, low-cost means of managing the risks overcome to sell the insurance and how this might be of weather events with catastrophic impacts on agricul- done, and the possibilities for selling part of the risk in tural production and rural incomes, The essential prin- the international financial and reinsurance markets. This ciple of index insurance is that contracts are written step also involves developing links with financial com- against specific outcomes (rainfall amounts, tempera- panies abroad that would be willing to participate in the ture, soil moisture, or even area yields) verified by inde- underwriting of rainfall insurance contracts. pendent systems. Because the insurance is triggered by The study will conclude with an international work- these outcomes, not by individual farm inspections, it is shop in the fall of 2001 to present the results to policy- Domestic Finance and Capital Markets 129 makers, insurers, bankers, aid agency officials, and A study on the potential benefits and pitfalls of bank researchers. privatization in Egypt provides guidelines on the regu- Responsibility: Development Research Group, Rural Devel- latory conditions needed for a robust banking sector and opment-Panos Varangis (pvarangis@worldbank.org) indicates where Egypt stands relative to selected other and Donald Larson; Financial Sector Development economies in terms of meeting those conditions. Department-Vijay Kalavakonda, Rodney Lester, Responsibility: Development Research Group, Public Eco- and Don McIsaac; Middle East and North Africa nomics-George Clarke (gclarke@worldbank.org) and Region, Private Sector Development and Finance Robert Cull. Group-Stephanie Gober; and Human Development (ompletion date: January 2002. Network, Social Protection Team-Paul Siegel. With Peter Hazell, International Food Policy Research Insti- Reports tute; Pasquale Scandizzo, Universita di Roma and Sichel- Caprio, Gerard, Jr., and Robert Cull. 2000. "Bank Privatization and gaita, Italy; Jerry Skees, University of Kentucky; Mario Regulation for Egypt." Egyptian Center for Economic Stud- Miranda, Ohio State University; and Roberto Pasca, ies, Cairo. Universita di Roma. The Italian Trust Fund and the Clarke, George, and Robert Cull. 1998. "The Political Economy Development Marketplace have contributed funding of Privatization: An Empirical Analysis of Bank Privatization in for the research. Argentina." Policy Research Working Paper 1962. World Bank, Completion dote: October 2001. Development Research Group, Washington, D.C. . 1999. "Why Privatize? The Case of Argentina's Public Bank Privatization in Developing Countries Provincial Banks." World Development 27(5): 865-86. ____. 20(X). "Provincial Bank Privatization in Argentina: The Why, This project summarizes the problems some countries the How, and the So What." In Harvey Rosenblum, ed., Bank have had selling insolvent, loss-generating state-owned Privatization: Conferenre Proceedings of a Policy Research Workshop. banks to the private sector. It analyzes the political econ- Dallas: Federal Reserve Bank of Dallas. omy factors that affected the method of privatization and studies how post-privatization performance differed Financing of Small and Medium-Size Enterprises for each method used. The study assumes that political and economic constraints dictate the timing and design Many small and medium-size firms are believed to lack of bank privatizations and that timing and design, in adequate access to external sources of financing. The turn, affect post-privatization performance. problem is of concern because small businesses are The research is based on detailed country case stud- believed to be important in promoting technological ies and econometric analyses of bank-level panel data in innovation and expanding employment. Argentina, China, the Czech Republic, Egypt, Hungary, This study examines the sources of outside capital Mexico, and Poland. These studies are complemented available to small and medium-size enterprises and by a cross-country analysis of the political economy of identifies the factors that affect firms' access to external bank privatization in the transition economies of East- credit. The analysis includes country-specific and ern Europe and the former Soviet Union and by a the- cross-country studies that examine both bank and oretical model of the features of privatization contracts. nonbank sources of financing. Cross-country studies Data from the country case studies are used to test include data on about 55 countries, including countries whether outcomes were consistent with the theoretical in East Asia, Eastern Europe, and Latin America, for model. The variety of approaches tested should provide which published statistics are available. Data from Firm World Bank task managers with useful information on Analysis and Competitiveness Surveys in various coun- when it is most advisable to pursue bank privatization, tries and regions are also used. The analysis focuses on how alternative transaction designs affect outcomes, and the role of nonbank financing, such as supplier credit and how to avoid common obstacles. leasing. 130 Domestic Finance and Capital lMorkets The research project also includes a detailed study of tic and foreign banks and among borrowers of different bank lending in Argentina, using detailed credit infor- quality. mation data that have been obtained from the country's Responsibility: Development Research Group, Finance- central bank. The analysis of the Argentine data focuses Leora Klapper (Iklapper@worldbank.org). on the segmentation of bank lending between domes- (ompletion date: Ongoing. Domestic Finance and Capital Markets 131 Transition Economies Chinese State-Owned Enterprises in the 1 980s nese State-Owned Enterprises." Journal of Comparative Eco- nomirs 28: 1-31. Little has been known about the financing of Chinese Xu, Lixin Colin. 2000. "Control, Incentives, and Competition: state-owned enterprises or about their performance con- 'The Impact of Reform in Chinese State-Owned Enterprises." tracts with the government. To shed light on these issues, Economics of 7ransition 8(1): 151-73. this project used panel data on Chinese state-owned Xu, Lixin Colin, and Robert Cull. 1998. "Who Gets Credit? 'I'he enterprises to examine banks' behavior in allocating 13ehavior of Bureaucrats and State Banks in Allocating Credit credit to them and the effectiveness of performance to Chinese SOEs." World Bank, Development Research Group. contracts. Washington, D.C. The research found that banks outperform govern- Xu, Lixin Colin, and Mary Shirley. 1998. "The Empirical Effects ment grant programs in allocating credit. Once the gov- of Performance Contracts." World Bank, Development Research ernment shifted bailout responsibility to banks, however, Group, Washington, D.C. the relative effectiveness of bank financing declined significantly Examination of bank and government deci- Pension Reform in China: Implicit Pension Debt sions to grant credit found that bank finance was more and Transition Costs positively related to firm performance and a series of efficiency-enhancing reforms. The lack of an effective, sustainable pension system is The research found that, on average, performance a serious impediment to economic reform in China. A contracts did not improve the productivity of Chinese 1997 World Bank analysis of China's current pension state-owned enterprises. But the provisions of the con- system pointed to two main issues: the short-run prob- tracts did matter. In particular, wage incentives were lem of the pension burden of state-owned enterprises and significantly and positively correlated with productivity. the longer-term problem arising from the rapid aging of Performance contracts were also more effective when the the population. These problems have become even more targets they set focused on profits. And those with longer severe since that analysis. terms were associated with higher productivity growth. After examining international experience with pen- The findings suggest that performance contracts can sion reform, this study estimated the effects of pension improve productivity when they simultaneously set the reform in China and compared different options for right targets, offer incentives, and specify a longer contract financing the implicit pension debt and the costs of tran- term. Most of the performance contracts signed by the Chi- sition to a reformed pension system, using a newly nese government did not do these things, however, and designed computable general equilibrium model. It also the overall effect on productivity was negligible. examined the effects of different reform options on the Responsilility: Development Research Group, Regulation and sustainability of the system and on overall economic Competition Policy-Lixin Colin Xu (cxu@worldbank. growth. Results from these simulations are promising. org) and Mary Shirley, and Finance-Robert Cull. Tran- * The baseline scenario. The labor force is expected to sition Seed Money contributed funding for the research. stop growing in 2015-20 and then to shrink, but the age (ompletion date: June 2000. group 65 and over will continue to grow. Thus the old age dependency ratio will rise steadily from 11 percent Reports today to 25 percent in 2030 and 36 percent in 2050. The C(ull, Robert. and Lixin Colin Xu. 2(XY). "Bureaucrats, State Banks, system dependency ratio, 30 percent today (meaning and the Efficiency of(CredirAllocation:'T'he Experience of Chi- that three workers support every retiree), will rise 132 rapidly-to 69 percent in 2030 and 79 percent in Report 2050. Wang, Yan, Dianqing Xu, Zhi Wang, and Fan Zhai. "Implicit len- a Scenario assuming no change in the current system. The sion Debt and 'rransitional Cost in China's Pension Reform- simulation results confirm that the current pay-as-you- A Computable General Equilibrium Analysis." World Bank go system (with a notional individual account) is unsus- Institute, Economic Policy and Poverty Reduction Division, tainable. Expanding coverage under the current system Washington, I).C. would improve its financial situation in the short run but undermine financial viability in the long run. The Political Economy of Social Policy * Set of scenarios assuming reform, with the transition costs in Transition Economies t financed by differenttaxes. These scenarios assume reforms that include a new, fully funded individual account, A simple political economy model might conceptualize established in 2001. The transition costs would be about economic reform and social policy in transition economies 0.6 percent of GDP annually in 2000-10, declining to 0.3 as the outcome of decisions by self-interested politi- percent by 2050. A comparison of various options for cians weighing the expected payoffs of favoring rent financing-general, value added, corporate, personal recipients (state enterprise workers and managers) against income, and private consumption taxes-found that those of favoring transfer recipients (mostly pension- using personal income taxes would be best for promot- ers). Such a model might predict similar social policy out- ing economic growth and reducing income inequality. comes in the Czech Republic, Poland, and the Russian After fiscal resources are injected to finance the tran- Federation, which started transition with similar condi- sition costs, the reformed public pillar (basic pension tions and with similar shares of pensioners in the popu- system) becomes financially sustainable. To finance a lation. Yet this has not been the case. benefit equivalent to 20 percent ofu the average wage, a In Russia there has been massive redistribution of contribution rate of only 10-12.5 percent would suffice income and wealth, with privatization favoring insiders to balance the basic pension system annually. If the (managers and workers), tax revenue falling, and pen- retirement age of women were gradually increased by five sioners losing much ground relative to workers. In Poland years, the balanced contribution rate would be around privatization has proceeded more slowly, there has been 9-10 percent. If the retirement ages of both men and much less redistribution and rent seeking, and pen- women were gradually increased by another five years, sioners have fared better than workers. the balanced contribution rate would decline to 6 per- This study sought to explain these disparate out- cent. If a new social security tax were levied to replace comes through case study analysis of policy formulation the current contributions to the public pillar, the pension in Poland and Russia. It developed a political economy system would become not only financially sustainable but model in which policy is the outcome of an interaction also nationally unified. among the government, managers and workers, and Findings were presented to a senior policy seminar transfer recipients. The government, which seeks to (Managing Fiscal Risks) for Ministry of Finance officials remain in power, needs the support of either transfer in Beijing in May 2000; to a conference organized by the recipients or managers and workers. It can opt for slow Chinese Economist Society and the government of privatization, with little asset stripping and significant tax- Shanghai in Pudong (Shanghai) in July 2000; and to a sem- ation, and protect its fiscal base, out of which it pays pen- inar at the Bank in May 2000. sioners relatively well (as in Poland). Or it can give away Responsibility: WVorld Bank Institute, Economic Policy assets and tax exemptions to managers and workers, and Poverty Reduction Division-Yan Wang (ywang who then deliver the vote, while providing little to pen- @worldbank.org). With Dianqing Xu, Western Ontario sioners (as in Russia). University; Zhi Wang, U.S. Department of Agriculture; The case study of Russia indicates that the privati- and Fan Zhai, State Council, China. zation method chosen (including the loan-for-shares (ompletion date: June 2000. deal) reflected the political forces operating at the time Transition Economies 133 key decisions were made. Empirical analysis of voting the impact of land reform and farm restructuring on the behavior in the 1996 presidential election indicates that rural population, including the relative efficiency of col- better educated, richer, and younger Russians and those lectives and family farms. Finally, it aims to analyze the with more favorable expectations of the future tended causes of the observed transformation patterns; establish to vote for Boris Yeltsin. Pensioners tended to vote relationships between progress in agricultural reforms and against Yeltsin, and entrepreneurs to vote for him. the country's political, economic, social, and cultural Responsibility: Development Research Group, Poverty and profile; and formulate policy conclusions based on an inte- Human Resources-Branko Milanovic (bmilanovic grated overview of the processes and experiences @worldbank.org). With Ethan Kapstein, University of throughout the region. Minnesota. The University of Minnesota contributed staff The research combines several methodological time for the research. approaches. The first involves generalizing and synthe- (ompletion date: June 2000. sizing information on agricultural transformation in the region, evaluating progress in land reform and farm Reports restructuring through a detailed comparison between Kapstein, Ethan, and Branko Milanovic. 2000. "Dividing the farming structures in the formerly socialist countries and Spoils: I'ensions, P'rivatization, and Reform in Russia's Transi- those in market economies. The second develops a mul- ti in." lolicy Research Working laper 2292. World lBank, Devel- tivariate typology of agricultural reform in different coun- opment Research Group, Washington, D).C. tries through cluster analysis, supplementing and - 2000. "Responding to Globalization: Social lolicy in validating existing subjective rankings. The third Emerging Market Economies." Paper presented at Russell approach applies statistical and econometric tools to Sage-Rockefeller Seminar on Social lPolicy in Emerging Mar- detect the impact of reform by analyzing differences in ket Economies, New York, March 24. performance, income, and satisfaction between different groups of stakeholders, between regions with different Agriculture in Transition: Land Reform and FarmX levels of reform, and between countries with different Restructuring in Formerly Socialist Countries political orientations. Data envelopment analysis is applied to estimate differences in efficiency between col- In the formerly socialist countries of Europe and Cen- lectives and family farms. Individual choice models (logit tral Asia land reform and farm restructuring are among and probit regressions) are used to examine the decisions the main components of the transition to the market in of individuals to become private farmers or to remain in agriculture. The World Bank has been monitoring a collective. progress in these aspects of transition since 1992 for all The research will produce a book summarizing and 23 countries of the former Soviet Union and Central generalizing the experiences of the first decade of agri- and Eastern Europe through country sector reviews sup- cultural transition. The book will be aimed at giving plemented by extensive farm-level surveys. This mon- policymakers in the region a cross-country perspective itoring work shows that despite the countries' common and thus enabling them to judge on the basis of empir- heritage of socialist command economy with pervasive ical information what transition strategies work better and collectivization of agriculture, they are not following the why. And it will be aimed at giving the international same path in market reforms. donors and audience outside the region a competent This research is assembling and generalizing country overview of the experience in the first decade of reforms, materials on the various paths of land reform and farm contributing to the development of assistance strategies restructuring in Europe and Central Asia in order to syn- for the next decade. thesize a coherent picture of agrarian transformation in As part of ongoing dissemination efforts, partial results the context of general sectoral reforms in the region. In of the research have been presented to international addition, it is applying a range of analytical tools to audiences, including scholars from Europe and Central empirically assess the performance of agriculture and Asia. Upon completion of the research, a special work- 134 Transition Economies shop will be organized for scholars, policymakers, and gov- - Forthcoming. "Agriculture in 'I'ransicion Economies: From ernment officials in the region. Common Heritage to D)ivergence." Agricultural Economics. Responsibility: Europe and Central Asia Region, Environ- mentally and Socially Sustainable Development Sector Evaluation of Active Labor Market Unit-Csaba Csaki (cesaki@worldbank.org); Develop- Programs in China ment Research Group, Rural Development-Gershon Feder, and Africa Region Technical Families, Rural Devel- As reforms of state enterprises in China have accelerated, opment 1-Karen Brooks. With Zvi Lerman, Hebrew addressing labor redundancy in these enterprises has University, Israel. gained urgency. But downsizing has been hindered by (ompletion date: September 2000. enterprise-based provision of social benefits to workers. A practical response to this problem has been the emer- Reports gence of a new category of workers, xiagang workers, Lerman, Zvi. 1999. "Comparison of Restructured and Non-restruc- who are laid off but retain their links to their enterprises tured Farm Enterprises in [Ikraine." Paper presented at the as well as subsistence wages and access to housing and Fourth Annual Convention of the Association for the Study of medical benefits. Nationalities, Columbia [Iniversity, New York, April. The government's main response to the unemploy- - 1999. "Farm Restructuring Experience: Comparison of For- ment threat has been the Reemployment Project, mer Soviet llnion and Eastern Central Europe." IPaper pre- launched as a pilot in 30 cities in 1994 and expanded to sented at the Golitsino Workshop on Farm Profitability, 200 cities in 1995-96. The project encompasses a range Sustainability, and Restructuring, U.S. Agency for Interna- of active labor market policies, including retraining, job tional Development and lnstitute for Economy in 'I'ransition, search assistance and counseling, wage subsidies and Moscow, October. tax breaks for enterprises that employ laid-off workers, - 1999. "From Commonality to Divergence: How ECE and and assistance for self-employment designed to redeploy CIS Agricultures Are Drifting Apart." IPaper presented at the unemployed workers in productive activities. conference Land Ownership, Land Markets, and 'I'heir Influ- This research is evaluating the cost-effectiveness of ence on the Ffficiency of Agricultural Prodtuction in Central and retraining and employment services in two cities in Eastern Europe, Institute of Agricultural Development in Cen- China, Shenyang and Wuhan. The study is using a quasi- tral and Fastern Europe (JAMO) and Food and Agriculture experimental evaluation design that involves collecting Organization, Halle, Germany, May. data from individuals who participated in retraining and - 1999. "Land Reform and Farm Restructuring-What Has data from a comparison group drawn randomly from a list 13een Accomplished to Date?" American E&onomic Review 89(2): of retrenched workers. The study will compare such 271-75. outcomes as probability of reemployment and earnings - 1999. "Record of Land Reform in Transitional Economies." after reemployment for the groups to derive the net Paper presented at the Organisation for Economic impact of the programs. Finally, using data on the costs Co-operation and Development Forum on Agricultural Policies of administering the programs, it will compare the cost- in Non-member Countries, P'aris, April. effectiveness of different interventions. -. 1999. "Status of Land Reform and Farm Restructuring in The random sample of retraining participants was the CEE Countries-A Regional Overview." I'aper presented drawn from program lists kept at the training institutes. at the Second European [Jnion Accession Workshop in the For the comparison group a random sample was drawn Rural Sector, World Bank and Food and Agriculture Organi- from the lists of redundant workers maintained at the zation, Warsaw, June. municipal labor bureaus. The Institute of Labor Stud- 2(XX). "From Common Heritage to D)ivergence: Why the 'fIran- ies collected data for a sample of participants and the com- sition Countries Are Drifting Apart by Measures of Agricultural parison group in May-June 2000 and has also collected Performance." IPaper presented at annual meeting of American data on program costs. Analysis of these data will be Agricultural Economics Association, 'Tampa, Florida, July. undertaken soon. Transition Economies 135 A conference on labor market policies was held in Bei- The project covers the Czech Republic. Other stud- jing in May 1999 to discuss the urban labor market ies have argued that Czech voucher privatization led to adjustment in China, lessons of international experi- poor firm performance because it produced a dispersed ence with active labor market policies, and evaluation structure of ownership that induced weak corporate gov- methodologies. A conference to disseminate the research ernance in a country in which protection of minority results of the evaluation study to policymakers and prac- owners was weak. But these studies were not able to titioners in China is planned. establish a clear link between ownership structure and The WVorld Bank already funds projects with active firm performance, and they do not explain why a one- labor market components, and such programs are increas- shot activity like asset stripping became a dynamic ingly being considered in several East Asian economies process. Using a new data set on firms privatized between affected by the economic crisis. This study will add to 1993 and 1996, this study shows that even after control- the body of research on the evaluation of active labor mar- ling for size and structure, joint stock companies priva- ket policies, and its results will be useful in designing and tized with vouchers did indeed perform worse than firms evaluating such interventions. with concentrated shareholdings that had to be pur- Responsibility: East Asia and Pacific Region, Poverty Reduc- chased for cash (that is, limited liability companies and tion and Economic Management Sector Unit-Homi foreign joint stock companies). The study argues that sta- Kharas (hkharas@worldbank.org), Tamar Manuelyan tic asset stripping was combined with dynamic looting, Atinc, and Benu Bidani. With Christopher O'Leary, because the joint stock companies had privileged access W. E. UIpjohn Institute for Employment Research; and to credit from state-controlled banks that had little incen- Institute of Labor Studies, Beijing. tive to enforce debt contracts. The study shows that, con- Completion date: October 2000. trolling for firm performance, liabilities increased at a much faster rate in joint stock companies than in limited Privatization and Corporate Governance liability companies. If, as the study contends, the prob- in Transition Economies lems stemming from ownership structures were com- pounded by looting, financial incentives and regulation E'stablishing effective corporate governance in transi- are as important as ownership structure in privatization [ion economies has proved difficult. Large-scale voucher design. privatization was the preferred vehicle for achieving Responsibility: Development Research Group, Regulation rapid ownership changes at many state-owned enter- and Competition Policy-Mary Shirley (mshirley prises. The widely dispersed shareholdings that resulted, @worldbank.org), Robert Cull, and Jana Matesova. however, have not generated substantial improvements (ompletion date: January 2001. in performance. This project documents the evolution of sharehold- Trade Policy in Transition Economies ing and describes the changes in firm performance that have occurred since privatization. Using panel esti- Integration with the international economy is an essen- ination techniques, it provides econometric evidence tial part of the transition from central planning to a mar- on how well various ownership structures have improved ket system. Price distortions, so common under central firm performance. The results should provide insight planning, can be maintained only through formidable into the longer-term advantages and drawbacks of trade and foreign exchange controls that divorce the different privatization methods, especially large-scale domestic from the international market. Dismantling voucher privatization. By focusing on the performance these barriers promotes efficient domestic resource allo- characteristics of the weakest governance structures, cation. International prices pose a competitive challenge the research should also help identify ways to improve to domestic producers and signal needed structural the existing post-privatization situation in many changes. Trade policy reform allows the link between countries. domestic and international prices and markets and is I 36 Tronsiiion Etonomies thus a key determinant of the pace and scope of the overvalued exchange rates on growth and trade policies, structural change necessitated by the transition, initially focusing on Kazakhstan. It found that overval- This project has looked at trade policy reform issues ued exchange rates have a strongly negative effect on in the countries of the former Soviet Union. A report sum- growth, just as in other parts of the world. marizing trade performance and the experience with The study's findings and recommendations have been trade policy reform in these countries recommended communicated to the governments in policy dialogue on strategies for increasing their integration with the inter- international trade reform, discussed with representatives national economy-strategies that entail actions by the of transition economies, and presented at conferences. countries as well as by their main trading partners, the Responsibility: Development Research Group, Trade-David OECD countries. Tarr (dtarr@worldbank.org); and Europe and Central Asia A study of customs unions showed that although pref- Region, Brussels Office-Constantine Michalopoulos. erential trade areas in the Commonwealth of Indepen- Completion date: June 2002. dent States (CIS) may have served a useful purpose in the past as a transitional device, the time for customs Reports unions and free trade areas in the CIS is over. Integrat- Kaminski, Bartlomiej. 1999. "'I'he EU I Factor in the'I'rade l'olicies ing with the world economy should be the highest pri- of Central European Countries." Policy Research Working ority now, and customs unions will retard that integration. Paper 2239. World Bank, Development Research Group, Wash- Work on the issue of accession to the World Trade Orga- ington, D.C. nization by the transition economies emphasized that Michalopoulos, Constantine. 1998. "WTO Accession for Countries accession provides a unique opportunity for the acced- in 'I'ransition." Policy Research Working Paper 1934. World ing country to "lock in" a trade policy that is beneficial Bank, Development Research Group, Washington, D.C. to that country, as long as it adopts a less than minimal- - . 1999. "Integration of the 'Transition Economies into the ist approach in its accession offer. World Trading System." Policy Research Working Paper 2182. The project has also examined issues relating to tar- World Bank, Development Research Group, Washington, D.C. iff policy and tariff uniformity for transition economies, Michalopoulos, Constantine, and David 'Tarr. 1996. T:ade Perfor- focusing on the Russian Federation. And it has assessed mance and Poly in the New Independent States. Directions in the progress of the transition economies in integrating Development Series. Washington, D.C.: World Bank. (Also into the world trading system and acceding to the World published in Russian.) Trade Organization. This research concluded that for --. 1997. "rhe Economics of Customs UInions in the Com- many countries of the former Soviet Union, integrating monwealrh of Independent States." Post-Soviet Geography and effectively will require considerable reform and adjust- Economics 38(3): 125-43. (Also issued as Policy Research Work- ment. But the United States and the European Union also ing Paper 1786, World 13ank, Development Research Group, may need to make some changes, especially in their Washington, D.C., 1997.) designation of some of these countries as "nonmarket" Shatz, Howard, and David 'Iarr. 2000. "Exchange Rate Overval- economies. uation and Trade Protection: Lessons from Experience." Pol- Research in the past year focused on the impact of the icy Research Working Paper 2289. World Bank, Development European Union on the trade policies of Central Europe. Research Group, Washington, D.C. Except for certain "sensitive products," the link with the 'Iarr, David. 1999. "Design of Tariff Plolicy for Russia." In Harry European Union has offset'protectionist pressures in Broadman, ed., Russian Trade Policy Reform for W7O Aaession. Central Europe. The project also examined the effect of World Bank Discussion Paper 401. Washington, D.C. TronsiVion Economies 137 Private Sector Development and Public Sector Management The Role of Interfirm Linkages (fiscal incentives, public investments) need to be revis- in Emerging Industrial Clusters ited, and greater attention given to promoting produc- tive linkages between firms. A public subsidy for making Interest in regional growth has grown substantially in a "first point of contact" may be justified. recent years, particularly in the emergence of small Responsibility: Private Sector Development Department, regions with very rapid growth in the midst of average- Business Environment Unit-Rughvir K. Khemani sometimes even declining-national economic condi- (rkhemani@worldbank.org) and Hong Tan; and East tions. What distinguishes these rapid growers is that Asia and Pacific Region, Poverty Reduction and Eco- their successes relate not to individual firms but to a nomic Management Sector Unit-Manjula Luthria. With collection of firms connected to each other through a vari- Izak Atiyas, Sabanci University, Istanbul. ety of linkages that reduce transactions costs and enhance (ompletion dote: October 1999. competitiveness-often referred to as an industrial clus- ter or district. Report This study undertook an empirical investigation of the Luthria, Manjula, and Izak Atiyas. "Fighting Poverty with Social role of such linkages in enhancing firm-level productivity Capital: An Empirical Investigation of Cooperation among using panel data collected through a survey of firms in an Rivals." World Bank, East Asia and Pacific Region, Poverty emerging industrial cluster in Corum, a province of Turkey. Reduction and Economic Management Sector Unit, Wash- It identified various types of linkages-both horizontal ington, D.C. (peer firms) and vertical (suppliers)-and examined sev- eral activities that signify cooperative behavior Does More Intense Competition Lead The results show that activities that facilitate a low- to Higher Growth? ering of transactions costs in the creation and maintenance of a specialized asset-physical or human-have the Theoretical work does not provide clear-cut answers to greatest effect in raising the productivity of a firm. Ver- the question of whether a monopolist's greater tendency tical linkages are more important than horizontal linkages to innovate is outweighed by the productivity gains for performance in Corum, pointing to the importance induced by competition. Many empirical studies have of coded (as opposed to tacit) knowledge in the early attempted to settle this issue by using industry- or firm- stages of this cluster's formation. level data, but these studies fail to capture broader, econ- Exploring the empirical correlates of cooperative omywide effects. behavior, the study found that neither size nor age seems This project developed empirical evidence on the to have any influence on a firm's propensity to engage impact of competition on economic growth in order to in cooperative activities-nor does the firm's sector. quantify the aggregate gains from promoting competition. Instead, a firm engages in cooperative behavior if it per- It tested the relationship between domestic competition ceives that cooperation will enhance its performance. The (beyond trade liberalization) and growth in cross- best way to promote cooperation may therefore be to country time-series data. It identified three groups of vari- make firms aware of its potential benefits. ables that capture the intensity of competition at the econ- The research provides an empirical underpinning for omywide level: competition policy variables, which cluster development projects aimed at improving regional capture the effectiveness of antitrust or other domestic economic development. And its findings suggest that policies in promoting competition; structural variables, techniques used previously to foster regional growth which reflect the extent to which market structure is con- 138 centrated from an economywide perspective; and mobil- country data, it identified the determinants of corruption ity variables, which capture the ease with which new and its correlates, including the relation between cor- enterprises can enter and grow in any market. The study ruption and openness, decentralization, and gender. then examined whether any of these variables can explain Using firm-level data on estimated bribe payments, it some of the cross-country variation in economic growth identified the determinants of graft. that conventional variables (such as initial income level, The results suggest that corruption is negatively asso- trade openness, human and physical capital accumula- ciated with openness and with the degree of fiscal decen- tion, government finances, and macroeconomic stability) tralization and that in an environment characterized by cannot explain. systemic corruption, the amount that a firm needs to The results indicate that competition policy could be pay in bribes depends on the firm's characteristics. That an important determinant of long-run growth. Only one of is, bribes demanded are not fixed sums for given public the potential measures of intensity of competition- services but depend on the firm's ability to pay. There the effectiveness of antitrust enforcement (based on is also evidence that greater participation of women in direct responses from a large number of market partici- government is associated with less corruption across pants across all countries in the sample)-has a strong cor- countries and that highly variable tariff rates-which relation with unexplained growth. The only other variable create greater opportunities for discretionary behavior by exhibiting some robust correlation is a mobility variable, public officials-are associated with more corruption. emphasizing the importance of free entry and mobility The results refute the "efficient grease" hypothesis, in the economy. The work highlights the need to collect which posits that bribery allows firms to get things done and compile internationally comparable data on measures in an economy plagued by bureaucratic delays. Cross- of economywide competition, particularly corporate and country data reveal that firms that face more bribe demands entrepreneurial mobility. are likely to spend more, not less, management time nego- Results have been discussed in academic forums, tiating regulations with bureaucrats. Moreover, firm-level including a conference, Industrial Organization and evidence indicates that the rate of bribery has a significant Development, in Toulouse in November 1998. A draft negative correlation with firm growth. New data from paper was circulated at the competition policy course orga- transition economies were used to study the incidence of nized by the World Bank Institute in December 1998. state capture, in which firms and individuals manipulate Responsibility: Office of the Senior Vice President and Chief the political process to obtain special favors. Economist, Development Economics-Mark Dutz Empirical research on governance and corruption is (mdutz@worldbank.org). With Aydin Hayri, Deloitte and plagued by lack of consistent cross-country data spanning Touche LLP; Gregorio Impavido; Richard Caves, Har- a large set of.countries. To overcome this problem, this vard University; and Ross Levine, University of Virginia. project constructed a large database, which includes (ompletion date: December 1999. more than 300 indicators. An unobserved components framework was used to combine related governance Report indicators from various sources into aggregate gover- Dutz, Mark, and Aydin Hayri. 2000. "Does More Intense Competi- nance indicators. These aggregates are more reliable tion Lead to Higher Growth?" Policy Research Working Paper and span a larger set of countries than individual indi- 2320. World Bank, Office of the Senior Vice President and Chief cators, and they also have associated standard errors that Economist, Development Economics, Washington, D).C. are useful for drawing inferences about cross-country differences in governance. The data reveal a strong Corruption causal link between six aggregate governance indica- tors and development outcomes. This study aimed to provide evidence on the determi- The findings have been presented at workshops at the nants and consequences of corruption and the policy World Bank and in client countries, at universities, and options that can be used to combat it. Using cross- at academic meetings. Private Sector Development and Public Sector Monagement 139 Responsibility: Development Research Group, Macroeco- dence." Policy Research Working Paper 2360. World Bank, nomics and Growth-Jakob Svensson (jsvensson D)evelopment Research Group, Washington, D.C. @worldbank.org) and Aart Kraay, and Public Economics- Svensson, Jakob. 1999. "The Cost of Doing Business: tgandan Gunnar Eskeland; East Asia and Pacific Region, Poverty Firms' Experiences with CorrLption." World Bank, I)evelop- Reduction and Economic Management Sector Unit- ment Research Group, Washington, D.C. Mary Hallward-Driemeler, and World Bank Institute, Gov- . 1999. "Who Must Pay and How Much? Evidence from a ernance, Regulation, and Finance Division-Daniel Cross-Section of Firms." World Bank, Development Research Kaufmann. With S. Filipov, C. Arevalo-Correa, R. Fisman, Group, Washington, D).C. V Kartamyshev, G. Mehrez, A. Terada, H. Thiele, T Vish- Wei, Shang-Jin. 1999. "Corruption in Economic Development." wanath, Shang-Jin Wei, and Pablo Zoido-Lobaton. Policy Research Working Paper 2048. World Bank, Develop- Completion dote: June 2000. ment Research Group, Washington, D.C. - . 1999. "Does Corruption Relieve Foreign Investors of the Reports Burden of l'axes and Capital Controls?" Policy Research Work- Dollar, D)avid, Raymond Fisman, and Roberta Gatti. 1999. "Are ing Paper 2209. World Bank, D)evelopment Research Group, Women Really the 'Fairer' Sex? Corruption and Women in Washington. D.C. Government." World Bank, I)evelopment Research Group, Washington, D.C. Delivery of Social Justice in Decentralized Fskeland, Gunnar, and H. 'I'hiele. 1999. "Optimal Corruption Arrangements: A Study of the Uganda Situation under Moral Hazard." World Bank, I)evelopment Research Group, Washington, D.C. This study examines whether decentralization has Fisman, Raymond, and Roberta Gatti. 2(000. "Decentralization improved the delivery of judicial services to both men and Corruption across Countries." Policy Research Working and women in Uganda. Specifically, the study: lPaper 2290. World Bank, Development Research Group, Wash- * Assesses whether the decentralized mechanism for ington, D.C. dispute resolution at lower levels is fully used to help lFisman, Raymond, and Jakob Svensson. 1999. "The Effects of Cor- women resolve differences in an appropriate and equi- ruption and 'laxation on Growth: Firm-Level Evidence." World table manner. 13ank, D)evelopment Research Group, Washington, D.C. * Assesses how social evils such as corruption affect Gatti, Roberta. 1999. "Corruption and Trade Tariffs, or a Case for men's and women's efforts to use local council courts. U niform 'l'ariffs." Policy Research Working Paper 2216. World * Identifies factors that influence women's prefer- Bank, Development Research Group, Washington, D.C. ence for alternative systems in seeking social redress. 1999. "Explaining Corruption: Are Open Countries Less * Makes recommendations that address the inequities Corrupt?" World Bank, Development Research Group, Wash- in the legal framework within a decentralized setting. ington, D.C. The study is based on interviews with women and local Kaufmann, Daniel, and Shang-Jin Wei. 1998. "Does Grease Money council members and a review of lowercourt records, local Speed l,p the Wheels of Commerce?" World Bank, Develop- council records, and secondary sources on procedures, juris- ment Research Group, Washington, D.C. diction, capability of justices, supervision of decisions, insti- Kaufmann, Daniel, Aart Kraay, and Pablo Zoido-Lobaton. 1999. tutional capacity, and other factors. The findings help "Aggregating Governance Indicators." Policy Research Work- understand the environment in which Bank-supported ing Paper 2195. World 13ank, I)evelopmenr Research Group, projects operate-byshowing, for example, whether newly Washington, D).C. decentralized structures have enabled women to enforce 1999. "Governance Matters." Policy Research Working theirsocioeconomic rights at the local level. The study's rec- Ilaper 2195. World 13ank, Development Research Group, Wash- ommendations will provide insight into the need for invest- ington, I).C. ing in improving local judicial institutions. Smarzynska, 13eata, and Shang-Jin Wei. 2000. "Corruption and The study's results are applicable to other countries, the Composition of Foreign Direct Investment: F irm-Level Evi- especially those that have embarked on the process of 140 Private Sector Development and Public Sector Management decentralization as a way of including the ordinary per- context in a sample of 177 developing and industrial son in development decisionmaking and creating local countries. These data allow the identification of regimes judicial and administrative structures as avenues for (presidential and parliamentary) that permit reelection adjudicating local disputes. of the chief executive and the existence of checks and Responsibility: Operations Evaluation Department, Country balances that may affect the extent to which executive Evaluation and Regional Relations-Gita Gopal (ggopal branch officials are held accountable for the performance @worldbank.org); and World Bank Resident Mission, of their lower-level staff. Kampala-Mary Bitekerezo. With Dora K. Byamnukama, 'The study tests the hypothesis that accountable local Law and Advocacy for Women in Uganda. The Danish governments are less corrupt. This hypothesis has both Governance Trust Fund contributed funding for this an institutional and an economic dimension. To exam- research. ine the institutional dimension, the study uses a variable Completion date: July 2000. on the existence of local elections. The economic dimen- sion is related to the question of whether voters have an The Causes of Corruption incentive to hold local and central governments account- able. One proxy for this is the revenue raised by central This study examines empirically the determinants of and local governments as a share of GDP. The underly- corruption, paying particular attention to variables that ing assumption is that voters' incentive to hold elected help determine the extent to which policymakers can be officials (and their lower-level staff) accountable is pro- held accountable for the actions of their staff. The study portional to the taxes they pay relative to their incomes. focuses on public rather than private corruption. And it The study requires modern econometric techniques focuses on petty corruption (low-level officials extract- for time-series cross-country data with instrumental vari- ing small sums through extortion, bribery, theft, or mis- ables, to account for the fact that corruption itself may use of official property), because this is what empirical influence some of the explanatory variables, including measures of corruption assess. public wages, policy distortions, and revenue collection. A preliminary step was to collect indicators of the Responsibility: Latin America and the Caribbean Region, incidence of corruption in a global sample of developing Poverty Reduction and Economic Management Sector and industrial countries from various sources, including Unit-Daniel Lederman (dlederman@worldbank.org), the International Country Risk Guide, Transparency and Chief Economist Unit-Ana Maria Menendez. With International, and a set of governance indicators con- Norman Loayza, Central Bank of Chile. structed by Bank researchers. Completion date: September 2000. Among the potential determinants of corruption, three sets of variables are considered. The first consists of vari- The Regulation of Entry ables reflecting the economic incentives of public ser- vants (such as the relative wages of public officials). The This research project collected information on the reg- second consists of indicators of the size of the "rent pool" ulation of new entry by firms, including the procedures (foreign aid, natural resource wealth, and state-owned they are required to follow and the time and cost of fol- enterprises' share of economic activity) and indicators of lowing these procedures, in 75 countries. It focused on policy distortions, such as the black market premium and legal requirements that a business must meet before it trade barriers. These two sets act as the control variables. can officially open its doors, the official cost of meeting The third set of variables reflects the degree of these requirements, and the minimum time it takes to accountability of politicians and public servants, which meet them if the government does not delay the process. can be determined by institutional and economic features. It then used the data to evaluate alternative economic The data are drawn from the Database of Political Insti- theories of regulation. tutions, constructed in the Development Research Group, There are two broad views of regulation in econom- which contains qualitative information on the institutional ics, the helping hand and the grabbing hand. The help- Private Sector Development and Public Sector Malnagement 141 inghandview holds that unregulated markets exhibit fre- higher profitability of firms. But it did find that stricter quent failures, ranging from monopoly power to exter- regulation of entry is associated with sharply higher nalities. A good government-one that pursues social corruption and a relatively large unofficial economy. efficiency-must counter these failures and protect the On the face of it, the evidence on the consequences of public through regulation. The helping hand view, ini- entry regulation does not support the helping hand or tially a normative theory on how regulation should be the capture theories, instead favoring the tollbooth used, has emerged as a descriptive theory on how gov- view. But a helping hand theorist could perhaps argue ernments actually regulate. that corruption and a large unofficial economy are inad- The grabbing hand view sees the government as less vertent consequences of benevolent regulation and benign and regulation as socially inefficient. It comes in thus cannot be used as evidence against the helping two flavors. In the regulatory capture theory, industry hand view. incumbents are able to obtain regulations that create The study found that more democratic countries rents for themselves, since they typically face lower (those with more open access to political power, greater information and organization costs than do the dispersed constraints on the executive, and greater political rights) consumers. A second strand of the grabbing hand view- have fewer required procedures for entry-even when the tollbooth view-holds that regulation is pursued for per capita income is controlled for-than do less demo- the benefit of politicians and bureaucrats. Politicians cratic countries. The per capita income control is crucial use regulation to favor friendly firms and other political for this analysis because it could be argued that richer constituencies and thereby obtain campaign contributions countries are both more democratic and have a lower need and votes. for entry regulation, perhaps because they have fewer The research assessed the regulation of entry around market failures or better ways of dealing with them. the world from the perspective of these three theories The fact that among countries with similar levels of by addressing two broad sets of questions. First, what are income, those whose governments have objectives closer the consequences of entry regulation? In particular, who to the public's regulate entry less is compelling evidence gets the rents? In the helping hand view stricter regula- against the helping hand view. This evidence, along tion is associated with higher quality of goods and fewer with the evidence on corruption and the unofficial econ- damaging externalities. In the capture theory it is asso- omy, points to the tollbooth theory: entry is regulated ciated with higher profitability for the incumbents. And because doing so benefits the regulators. in the tollbooth view it is most clearly associated with Findings have been presented at the World Bank higher corruption. (February 2000), the University of Maryland at College Second, what kinds of governments regulate entry Park (March 2000), and Harvard University (May 2000). more strictly? The helping hand model predicts that They will also be presented to policymakers from around governments whose interests are more closely aligned the world in a workshop. The data set generated through with those of the consumers, generally thought of as the research will be posted on the World Bank's Web site. more democratic governments, will take a more benign Responsibility: Financial Sector Strategy and Policy regulatory stance. If entry regulation serves consumers, Department-Simeon Djankov (sdjankov@worldbank. other things equal, more democratic governments would org). With Tatiana Nenova, Harvard University; Olga be expected to regulate entry more strictly. In contrast, loffe, University of Michigan; and Ekaterina Trizlova, the grabbing hand model predicts that the governments Tufts University. least subject to popular oversight will pursue the strictest (omplelion date: September 2000. regulations, to benefit either the incumbent firms or the regulators themselves. Report In the sample of countries the study did not find that l)jankov, Simeon, Rafael La Porta, F lorencio Lopez-de-Silanes, and stricter regulation of entry is associated with higher- Andrei Shleifer. 2000. "The Regulation of Fntry." Harvard quality products or better pollution records, nor with 11niversity, Department of Economics, Cambridge, Mass. 142 Private Sector Development and Public Sector Management Corporate Governance in East Asia frorn the research has also been used in various Bank reports, including East Asia: Road to Recovery (Washing- Before the East Asian crisis, the distinctive features of ton, D.C., 1998) and East Asia: Recovery and Beyond East Asian corporations were viewed as one of the rea- (Washington, D.C., 2000). sons for the success of the region's economies. The cri- Responsibilily: Financial Sector Strategy and Policy sis has substantially altered that view, and many scholars Department-Stijn Claessens (cclaessens@worldbank. now argue that the weak corporate governance and org) and Simeon Djankov. With Larry H. P. Lang, Chi- financing structures of East Asian corporations were nese University of Hong Kong. partly to blame for the crisis. (ompletion date: December 2000. Building on recent theoretical and empirical work on corporate governance and the importance of the legal Reports framework for financial sector development, this project Claessens, Stijn, Simeon Djankov, and Giovanni Ferri. 1999. "Cor- analyzes the role of ownership concentration in firm per- porate Distress in East Asia: Assessing the Impact of Interest formance and firm valuation. The main source of data is and Exchange Rate Shocks." Emerging Markets Quarterly the Worldscope database, which provides financial data 3(2). (balance sheet and profit and loss statements) as well as Claessens, Stijn, Simeon Djankov, and Larry H.P. Lang. 1998. the names and holdings of large owners. "East Asian Corporations: Growth, Financing, and Risks over Robust results show that deviations of voting from cash the Last Decade." Malaysian Journal of Eronomics 35(1-2): flow rights occur as a result of the use of pyramiding, cross- 137-56. holdings, and dual-class shares. Many East Asian coun- . 1999. "Corporate Ownership and Valuation: Evidence tries are characterized by weak corporate governance from East Asia." In Robert Litan, Michael Pomerleano, and Ali- frameworks, including poor minority rights protection. son Harwood, eds., Financial Markets and Development: Pre- As a result, control by a single shareholder has a signif- ventingCries in EmegingMarkets. Washington, D.C.: Brookings icant negative effect on corporate valuation, with higher Institution Press. cash flow rights by the controlling shareholder partially --. 2000. "The Benefits and Costs of Internal Markets: offsetting this effect. The risk of expropriation is the major Evidence from Asia's Financial Crisis." World Bank, Financial principal-agent problem for public corporations in East Sector Strategy and Policy Department, Washington, Asia. D.C. The results have been used at the World Bank Insti- --. 2000. "East Asian Corporations: Growth, Financing, and tute and presented at workshops at the World Bank, the Risks over the Last Decade." Emerging Markets Quarterly International Monetary Fund, the Federation of Thai (summer). Industries (Bangkok), the Korean Development Institute, . 2000. East Asian Corporations: Heroes or Villains? World Bank the Korea Institute of Finance, Vanderbilt University, the Discussion Paper 409. Washington, D.C. University of Illinois, the Universiry of Michigan, the 1999 - . Forthcoming. "The Separation of Ownership and Control National Bureau of Economic Research Summer Con- in East Asian Corporations." Journal of Financial Economics. ference on Corporate Finance, the 1999 Conference on Claessens, Stijn, Simeon I)jankov, Joseph Fan, and Larry Equity Market Development in Emerging and Transi- H.P Lang. 1999. "Corporate Diversification in East Asia: tion Economies, the 2000 National Taiwan Ulniversity The Role of lltimate Ownership Structure and Group Affili- Conference on Finance, the 2000 American Economic ation." IPolicy Research Working Paper 2089. World Bank, Association and European Finance Association meet- Financial Sector Strategy and Policy Department, Washington, ings, a Chilean corporate governance conference, D.C. the Organisation for Economic Co-operation and .1999. "Expropriation of Minority Shareholders: Evidence Development-World Bank corporate governance con- from East Asia." Policy Research Working Paper 2088. World ferences in Seoul and Sao Paulo, and Asian Development Bank, Financial Sector Strategy and Policy Department, Wash- Bank capacity building workshops. Material generated ington, D.C. Private Sector Development and Public Sector Management 143 The Economics of Ethnicity and Entrepreneurship Saharan Africa, as well as an assessment of the policy in Africa implications of those results. It will identify possible limitations of data and ways of overcoming those limi- Recent contributions to the literature on cross-country tations in subsequent surveys. It will also indicate what differences in growth suggest that ethnic diversity is might be gained from more in-depth studies of the role associated with lower growth and worse macroeconomic of ethnicity in relation to the existence and performance management. The reasons for this association remain of markets and formal institutions. And it will provide unclear, however. An understanding of the mechanisms information that may be used in constructing detailed by which the ethnic composition of societies may influ- work plans for case studies of particular ethnic groups. ence economic outcomes seems to require investigation Findings on the effect of ethnicity on employee sort- into the interaction of ethnicity and institutions at the ing and wage determination were presented at the World microeconomic level. Specifically, do entrepreneurial Bank and at a conference, Opportunities in Africa: Micro behavior and performance differ by ethnicity? If they do, Evidence from Firms and Households, sponsored by could the difference be explained by institutional or Oxford University's Centre for the Study of African market failures? Do ethnic networks signify the absence Economies, April 9-10, 2000. or incompleteness of formal institutions or markets, or Responsibility: Development Research Group, Regulation are they complements to formal institutions and markets? and Competition Policy-Mary Shirley (mshirley To answer these questions, this project analyzes manu- @worldbank.org), and Macroeconomics and Growth- facturing enterprise survey data from Ethiopia and Ghana. Taye Mengistae. With Abigail Barr, Oxford University; It will then use that analysis as an input to a proposal for and Abena Oduro, Center for Policy Analysis. a larger research project seeking to expand the research Completion date: December 2000. to the rest of Sub-Saharan Africa. Preliminary results indicate that: An Empirical Study of the Surgical Instrument * Entrepreneurs (owner-managers of businesses) are (luster of Sialkot, Pakistan distributed across business sectors very much along eth- nic lines. This project studies the reasons for the extensive involve- * Entrepreneurial success as measured by total factor ment of families in owning and managing firms in Pak- productivity varies substantially by the ethnicity of the istan's surgical instrument industry and examines the entrepreneur. implications of this pattern of ownership and management * Differences in productivity are not explained by for the growth of the industry. The involvement of fam- either differences in networking behavior or differences ilies reflects labor market distortions in the industry. in the institutional environment in which entrepreneurs The policy question, therefore, is whether it is possible operate. to develop measures that alleviate these distortions. * Entrepreneurs with reasonable access to formal eco- The research is based on primary data collected from nomic institutions face a negative return to contacts with 350 firms (90 percent of the industry) in January and Feb- people from other ethnic groups. ruary 2000. The data include detailed information on fam- * Employers employ a higher proportion from their ily demographics, production, finance, and marketing for ethnic group, but there is no evidence of wage discrim- each firm. The analytical approach entails the modeling ination in favor of those who are from the same ethnic of family and nonfamily labor as inputs in the production group as the business owner. process and the estimation of the firm production func- * Still, workers from northern ethnic groups earn less tion, which yields the relative productivity of the two than other workers, other things equal. inputs. The completed research will yield preliminary results The findings reveal the strong link between family size on the link between the institutional environment and and firm size. In particular, firm owners who start out with the effects of ethnic diversity on manufacturing in Sub- large families (as measured by the number of brothers) 144 Private Sector Development and Public Sector Management end up with larger firms. Industrial espionage is very com- between government and business. Each eventually fell mon in this industry; family ownership and manage- victim to the underlying suspicion and mistrust that ment are pervasive because of mistrust of outsiders. prompted the efforts to improve communication. And Because marketing information is crucial for success in each flourished or floundered on the basis of the rela- the industry, firm owners are hesitant to hire outsiders tionship between one prominent technocrat and the for management positions. They trust only close relatives, head of state. The process worked only as long as it such as brothers and sons, with management responsi- enjoyed the endorsement and sustained support of the bilities. As a result, family size becomes an important president. determinant of firm size. The experience in Ghana also suggests that attaining The next step is to formally model firm behavior and optimal composition in a consultative mechanism is dif- estimate econometrically a parameter for mistrust (or ficult. A narrow membership can ensure efficiency and the probability that a nonfamily manager is dishonest). rapid decisionmaking, but also reduce the organization's Doing so will allow various policy experiments to be legitimacy. A broad membership may enhance legiti- conducted. macy, but result in a muddled agenda and cumbersome This research will contribute to the Bank's efforts to decisionmaking. The experience also emphasized the collect primary firm-level data on developing countries. complicated relationship between consultative mecha- The comprehensive data set collected by this project is nisms and the donor community-if donors push too the first of its kind on any industry in Pakistan. hard, they may discredit the mechanisms, but without Responsibility: South Asia Region, Poverty Reduction and donor encouragement and support, these organizations Economic Management Sector Unit-John Wall might never have formed or acted. (jwall@worldbank.org). With Nauman Ilias, University of Mexican consultative bodies benefited from a his- Pennsylvania. torical legacy of well-organized labor and business com- Completion dote: December 2000. munities and from the government's commitment to the process, signaled by having top-level officials, includ- Government-Business Consultative Mechanisms and ing ministers and the president, participate and by dis- Economic Governance: A Three-Country Comparison couraging end runs around the dialogues by business or labor participants seeking special favors. The mandate This research project uses country case studies and com- was kept narrow, enabling participants to focus their parative analysis to contribute to the understanding of efforts. And the decision to initially seek short-term how different organizational practices and institutional agreements allowed quick delivery of results, keeping structures influence the effectiveness of business- skeptical business and labor leaders (and their con- government consultative mechanisms. It focuses on stituencies) engaged. Mexico's consultative processes three countries-Ghana, Malaysia, and Mexico-that also show the importance of monitoring compliance with have recently experimented with consultative mecha- agreements. nisms as a means to enhance their regulatory reform and The rich Malaysian experience with institutionalized economic restructuring policies. The three case studies public-private dialogues on economic policy illustrates have been completed, based on original field research, both promising practices and possible pitfalls. Consul- secondary materials, and in-depth, semistructured inter- tative dialogues enhanced the quality of economic pol- views with the major economic actors associated with the icy in a variety of issue areas as economic stakeholders consultative mechanisms in each country. began sharing information and coordinating actions. Both In the past decade Ghana has used three consultative business and government participants learned from the mechanisms to stimulate public-private dialogue on eco- ongoing dialogues, making it easier for them to move from nomic policy reforms. The study found that each con- narrow policy positions to longer-term, more publicly tributed to policy dialogue, yet failed to create an endur- oriented positions. These successes were linked to the ing arena for confidence building or information sharing participation of high-level government officials, the rep- Privole Sercor Development and Public Sector Management 145 utational credibility that developed among participants Biddle, Jesse, Vedat Milor, Juan Manuel Ortega Riquelme, and over time, and the working committees formed to focus Andrew Stone. 2000. "Consultative Mechanisms in Mexico." on narrow issue areas. PSD Occasional Paper 39. World Bank, Private Sector Devel- However, lack of monitoring and follow-up mecha- opmenr l)epartment, Washington, D).C. nisms for some consultative dialogues diminished their credibility, as participants were unable to determine An Analysis of Use Patterns whether and how consultative agreements were translated of Latin American Judiciaries into policy reforms. A second pitfall was "institutional capture"-the tendency for a small number of stake- Twenty years of experience with judicial reform have holders to benefit disproportionately. expanded donors' knowledge of technical inputs, but the To disseminate and validate the case study findings application of the inputs remains based on the axiomatic and check theoretical generalizations arising from the case argument that "a well-functioning judiciary is essential studies against the broader range of World Bank and to economic growth, political stability, and citizen secu- external experience with consultative mechanisms, a rity." This rmay be true, but a better understanding is symposium was held on January 30, 2000, with both needed of what is meant by well functioning, what the Bank and external experts participating. links are with these broader goals, and how these links The results of this research will help clarify for the Bank can be most productively reinforced. when and how to promote consultative mechanisms. The Most empirical investigation has been at the macro- study will identify promising national contexts for pro- economic level, attempting to link aggregate perfor- .noting these mechanisms and the organizational and mance measures (for example, delay) or system institutional forms that characterize effective mecha- characteristics (legal tradition, specific norms or practices) nisms. This experience will be summarized and pre- with aggregate impacts (most commonly, economic sented in a single volume containing the case studies. growth). But in treating "justice" (that is, the output of Responsibility: Private Sector Development Department, courts) as an undifferentiated commodity, such research Business Environment Unit-Andrew Stone (astone overlooks the potentially enormous variation within and @worldbank.org). With Jessie Biddle, Pennsylvania State among systems in court services and clients. University; Vedat Milor, Brown University; Michael This research project takes a different tack: collect- Lofchie and Carolina Wieland, University of California ing empirical data on current use patterns in a few Latin at Los Angeles; Joseph Ayee, University of Ghana; Jomo American judiciaries as a means of identifying who uses Kwame Sundaram, University of Malaysia; Matilda Lunas courts, for what purpose, and with what immediate and and Juan Manuel Ortega Riquelme, Autonomous Uni- broader consequences. The findings will inform a sec- versity of Mexico; Robert Bates, Harvard University; ond wave of reforms, which can go beyond the empha- Andrew MacIntyre, University of California at San Diego; sis on basic modernization to focus on the variable costs and Ben Ross Schneider, Northwestern University. and effects of judicial services and help countries decide Completion date: December 2000. how best to invest their resources. Drawing from a random sample of case files, the study Reports is creating and analyzing a database on the use of courts. Ayee, Joseph, Michael Lofchie, and Carolina Wieland. 1999. In addition, it is identifying factors affecting decisions to "Government-Business Relations in Ghana: Fxperience with Con- litigate, based on informant interviews, legal analysis, sultative Mechanisms." PSD Occasional Paper36. World Bank, Pri- review of relevant studies, and observation of court prac- vate Sector Development Department, Washington, D.C. tices. In fiscal 2000 data were collected in Argentina and Biddle, Jesse, and Vedat Milor. 1999. "Consultative Mechanisms Mexico, and analysis of the data was started. and Economic Governance in Malaysia." I'SD Occasional lPaper Initial findings are impressionistic. The research has 38. World Bank, Private Sector I)evelopment Department, discovered a high rate of "abandoned" cases, with signif- Washington, D).C. icant variations between countries and among types of pro- 146 Private Sector Development and Public Settor Management ceedings; low rates of execution of civil sentences; far taxes), initial evidence nonetheless shows that these more delays in Mexico; and apparent procedural biases subsidies introduce elements of nontransparency, dis- toward clients who can tolerate either lengthy delays or crimination across different activities, and pressures on high costs. Legal fees and factors discouraging judicial scarce resources-rendering them distortionary. activism appear decisive in explaining these patterns. In the early 1990s OECD countries spent an esti- The research has used local teams, an Argentine non- mated $490-615 billion a year subsidizing energy, agri- governmental organization (Foro de Estudios sobre la culture, and road transport-equivalent to about 2.5-3.0 Administraci6n de Justicia, or FORES), and two Mexican percent of their total GDP and 7.6-9.1 percent of total universities, and has encouraged exchanges between the government expenditures. During the same period devel- two countries. The methodology is new for Mexico and has oping countries spent $220-270 billion a year subsidiz- not been used in this form in Argentina. Databases will be ing water, energy, agriculture, and road transport- made available to other researchers in both countries. equivalent to some 4.3-5.2 percent of GDP and 19-24 Responsibility: Latin America and the Caribbean Region, percent of total government expenditures. Poverty Reduction and Economic Management Sector Countries give direct subsidies to the manufacturing Unit-Linn A. Hammergren (lhammergren@worldbank. sector. Subsidies to foreign investors are significant in org); and Poverty Reduction and Economic Manage- many countries, with preferential tax treatment for for- ment Network, Public Sector Management Division- eign firms sometimes costing the government in for- Richard E. Messick. With German Garavano, FORES; gone tax revenues. Competition for foreign investment Centro de Investigaciones en Docencia y Economia is sometimes the reason for these subsidies. (CIDE), Mexico; Universidad de las Americas, Mexico; Recent studies examining the effect of corporate sub- and Herbert Kritzer, University of Wisconsin at Madison. sidies suggest that they have a modest impact on firms' Completion date: January 2001. investment and growth in the first year, but little effect on growth in the medium run. They also seem to have The Quality of Growth: Capital Subsidies, Public a negative effect on the total factor productivity of indus- Expenditure, and Endogenous Policies tries that receive them. Partner institutes will be invited to conduct case stud- This study examines how capital subsidies and public ies as part of the research. Once the research is completed, expenditure affect the qualitative aspects of growth, the results will be incorporated into World Bank Insti- complementing the research project The Quality of tute courses, seminars, and conferences. Growth (see the abstract for that project in this volume). Responsibility: World Bank Institute, Office of the Vice The study has been collecting evidence on capital sub- President-Vinod Thomas (vthomas@worldbank.org), sidies and reviewing the literature on their impact. It will Economic Policy and Poverty Reduction Division- single out countries that have appeared to be particularly Yan Wang, and Environment and Natural Resources successful in growth over the past 30 years, but unsuc- Division-Nalin Kishor. With Ramon E. Lopez, Claudia cessful in improving key indicators of quality. Finally, the Ocana, and Andres Ulloa, University of Maryland; and study will provide a theoretical framework and evidence Ashok M. Dhareshwar. on how policies and public expenditure allocation have (ompletion date: February 2001. affected the qualitative aspects of growth and on the pos- sible tradeoffs between capital subsidies and the quality The Introduction of Pharmaceutical of growth. The framework and initial evidence will serve Product Patents in India as the basis for a proposal for a larger research project. The evidence indicates that government subsidies to Negotiation of the Agreement on Trade-Related Aspects industry, agriculture, and infrastructure worldwide are of Intellectual Property Rights (TRIPs) gave rise to an large. Although the data are fragmented and partial, and acrimonious debate between industrial and developing the estimates gross rather than net (not accounting for countries. Business interests in the industrial world Private Sector Development and Public Sector Management 147 claimed large losses from the imitation and use of demand function to estimate the monopoly price of drugs. their innovations in developing countries. They also The project will also attempt to assess the distributional asserted that establishing strong intellectual property impact of the predicted price change and the possible sup- rights would benefit developing countries by encourag- ply response of the Indian pharmaceutical industry. ing foreign investment, transfers of technology, and The research will use data from Operations Research greater domestic research and development. Develop- Group, a private industry organization in Bombay. These ing country governments adamantly opposed this view, data, a highly disaggregated set of prices and quantities worrying about the higher prices that stronger intellec- of products sold to pharmacies over the past 11 years, will tual property rights would entail and about the harm allow estimation of the demand functions and the sup- that these rights might cause to infant high-technology ply response. The distributional effects will be esti- industries. mated by comparing price changes with data from the As a result of requirements of membership in the Indian National Family Health Survey. World Trade Organization, many countries that have Responsibility: Development Research Group, Public kept drug prices low by not granting property rights to Economics-Jeffrey S. Hammer (jhammer@worldbank. pharmaceutical companies will have to begin doing so. org). With Jean Olson Lanjouw, Yale University; and Patent protection has many potential costs and benefits. Rakesh Basant, Indian Institute of Management. Most of the costs are static: a shift from domestic pro- Completion date: March 2001. duction to imports, higher-cost pharmaceuticals, and possibly a slower diffusion of new drugs to developing Agency Independence and Political Institutions countries as inventing firms gain monopoly control of sales. The potential benefits are dynamic and harder to A frequent policy recommendation offered to countries measure: more research and development directed toward suffering from poor service delivery to the poor, undis- therapies for diseases prevalent in developing countries, ciplined macroeconomic policy, or the reluctance of and more research and development in developing coun- investors to commit resources to infrastructure devel- tries, either by multinational subsidiaries or by domes- opment is to either delegate policymaking to indepen- tic firms, with associated positive spillovers. dent agencies or adopt a fixed and predictable rule in This project is concerned primarily with estimating policymaking. This research investigates the conditions the likely size of the consumer welfare losses that will under which these strategies can succeed. It takes advan- be associated with the introduction of pharmaceutical tage of cross-country data sets on the independence of product patents in India and the extent of profit redis- central banks and on exchange rate regimes, as well as tribution from Indian companies to foreign patent hold- the cross-country Database of Political Institutions devel- ers. The first task is to estimace drug demand functions oped by the Development Research Group. for therapeutic categories where patenting is significant. The study finds that delegation seems to work when These estimations will be based on a nested probit con- political checks and balances are in place and political sumer choice model, a multistage budgeting model, or actors have differences of opinion. Fixed rules-such as both. Insurance often complicates use of this approach fixed exchange rates-seem to work best when the pub- for industrial countries, since it means that consumers do lic is uncertain about the motives of and policies pursued nor face the full price of drugs. Similarly, the prescrip- by government officials. Where the appropriate political tive power of physicians in industrial countries makes the conditions are present, delegation seems to strengthen concept of consumer choice problematic. Both these government promises that it will not reverse policies in problems are much less important in India, where few the future. Fixed rules do not have this effect. When, people are covered by insurance and drugs are almost however, the credibility of government promises is threat- always available without a prescription. ened by a lack of transparency and the public's lack of The second task is to determine the range of plausible complete information, rules do have an effect and dele- prices under a patented regime. This can be done with a gation does not. 148 Private Sector Development and Public Sector Management Results of this research are being disseminated at environment in a country considering possible reforms conferences around the world. The findings have been with the environment in countries that have proved the important in operational discussions in various countries usefulness of particular practices. considering establishing independent agencies to man- The database has been distributed to more than 75 age government activities in areas ranging from highway scholars and will soon be in Harvard University's Datavine maintenance to anticorruption enforcement. Archive, whose development was partially funded by the Responsibility: Development Research Group, Regulation World Bank. and Competition Policy-Philip Keefer (pkeefer Responsibility: Development Research Group, Regulation CaAworldbank.org). With David Stasavage, London School and Competition Policy-Philip Keefer (pkeefer of Economics and Political Science. @worldbank.org) and Robert Cull, and Public Econom- Completion date: June 2001. ics-George Clarke; and Financial Sector Strategy and Policy Department-Thorsten Beck. With Patrick Walsh. Report (ompletion dote: June 2001. Keefer, Philip, and David Stasavage. 2000. "Bureaucratic Delegation and lolitical Institutions: When Are Independent Central Report B3anks Irrelevant?" Policy Research Working Paper 2356. World Beck, Thorsten, George Clarke, Alberto Groff, Philip Keefer, and Bonk, Development Research Group. Washington, D).C. Patrick Walsh. 2000. "New 'ools and New 'lests in Compara- tive lPolitical Economy: 'T'he Database of Political Institutions." Database on Institutions for Plolicy Research Working Plaper 2283. WA7orld Bank, Develop- Government Decisionmaking ment Research Group, Washington, D.C. In both operations and research there is increasing recog- East Asia Competitiveness Study nition that policy recommendations and priorities can change substantially once a country's institutional envi- This study of the microeconomic underpinnings of com- ronment is taken into account. The challenge has been petitiveness in East Asia following that region's financial to rigorously link particular recommendations to differ- crisis builds on a regional database containing the results ent institutional environments. That challenge is made of a firm-level survey conducted between October 1998 particularly difficult by the lack of detailed, systematic, and February 1999. The survey covered more than 4,000 objective data on the nature of decisionmaking institu- firms in Indonesia, the Republic of Korea, Malaysia, the tions in countries. Philippines, and Thailand. Comparable across countries, This research aims to narrow this gap. Using several the survey data provide insight into categories of firms different sources (political almanacs and Web sites), the on which little information had been available-most of project has collected data on more than 100 variables in the firms are unlisted private companies, and two-thirds more than 150 countries over the period 1975-97. Vari- are small or medium-size. ables include whether systems are parliamentary or pres- The survey had two areas of focus: short-term issues idential, how competitive their elections are, which related to the impact of the crisis and the constraints to parties are in the governing coalition and in the opposi- recovery, and the determinants of competitiveness and tion and how many seats each holds, whether the elec- productivity. It generated information on a broad set of toral system is based on proportional representation or firm practices relating to production, employment, train- first past the post, how many years the executive has been ing, corporate finance, corporate governance, and tech- in power, and whether the executive and the defense min- nology acquisition as well as on the business environment ister are from the military. All these variables are expected and feedback on government programs. The resulting to inform future research on institutions and develop- database-the first of its kind for the region-provides ment. They are also expected to aid operational work, an information base for regional dialogue on issues of making it easier, for example, to compare the institutional competitiveness, feedback from the private sector to Private Sector Development and Public Sector Management 149 the government, and research on a broad set of firm tor discussed the prospects for recovery and, in particu- behaviors. lar, the extent to which credit availability remains a prin- The survey results indicate that while more than 70 cipal constraint. In addition to the regional conference percent of firms in the five countries were adversely in Bangkok, dissemination seminars have been held at affected by the crisis, at the time of the survey credit con- the World Bank, at a meeting of the Association of South- straints were less important than the difficulty in selling east Asian Nations (ASEAN) Chambers of Commerce goods due to the fall in demand, even among exporting and Industry, and in Hong Kong (China), Jakarta, Kuala firms. With half the exports destined for other countries Lumpur, Manila, Seoul, Singapore, and Tokyo. in Asia and with widespread devaluations, increasing The database is available on the Web at export volumes still resulted in flat or declining export wblnOO18.worldbank.org/eap/eap.nsf (under Asian Cor- values for most exporting firms. While the results show porate Recovery). that overall credit availability is not the main concern, Responsibility: Development Research Group, Macro- issues of credit misallocation, transparency, and gover- economics and Growth-Mary Hallward-Driemeier nance remain. Continued corporate restructuring must (mhallward@worldbank.org), David Dollar, Giuseppe keep pace with financial restructuring if many of the larossi, Dennis Tao, HairongYu, and Albert Zeufack; and weaknesses in the corporate and financial sectors are to East Asia and Pacific Region, Poverty Reduction and Eco- be avoided in the future. nomic Management Sector Unit-Dominique Dwor- Survey results have been incorporated in the Philip- Frecaut. With Atchana Waiquamdee, Bank of Thailand; pine country economic memorandum, and additional Francis Colago, Asia Pacific Management; Ronald Dun- work is under way in support of lending and other oper- can, Australian National University; Ken Sokoloff, Uni- ational work in all five countries. In addition, more in- versity of California at Los Angeles; and Dee Sutthiphisal. depth work has been carried out on Thailand, with two The Japan and ASEM Trust Funds contributed funding completed rounds of surveys. Analysis of investment for the research. patterns and resource allocations leading up to the cri- (ompletion date: June 2001. sis reveals that imbalances in the manufacturing sector were apparent before the crisis began. A series of labor Reporls market studies are also under way and will be further Dollar, David, and Mary Hallward-Driemeier. 2000. "Crisis, Adjust- expanded with the new wave of data. ment, and Reform in Thai Industry." Wtorld Bank Research Country counterparts were instrumental in all stages Observer 15(1): 1-22. of the project-preparing the questionnaires, imple- Duncan, Ronald, and MengXing. 1999. "Corporate Employment menting the surveys, and preparing country reports. The and Public Policy." Paper presented at the conference Asian Cor- Bank provided technical assistance and capacity build- porate Recovery: Corporate Governance, Government Policy, ing, including three training sessions on the use of the Bangkok, March 31-April 2. database and methods of conducting productivity analy- Dwor-Frecaut, Dominique, Mary Hallward-Driemeier, and Fran- sis. There is interest in all five countries in continuing cis Colavo. 1999. "Corporate Credit Needs and Governance." the survey and regularly publishing survey results. The Paper presented at the conference Asian Corporate Recovery: multicountry survey is serving as a blueprint for the Corporate Governance, Government Policy, Bangkok, March larger Firm Analysis and Competitiveness Surveys 31-April 2. (FACS) initiative by the Development Research Group. Hallward-Driemeiet, Mary, Dominique Dwor-Frecaut, and Fran- The database has been used by researchers in the cis Colavo. 1999. "Asian Corporate Recovery: A Firm-Level WVorld Bank and across East Asia, with results presented Analysis." World Bank, Development Research Group, Wash- at a conference, Asian Corporate Recovery: Corporate ington, D.C. Governance, Government Policy, in Bangkok on March Kawai, Masahiro, Hongjoo Hahm, and Giuseppe larossi. 1999. 31-April 2, 1999. At the conference high-ranking gov- "Corporate Foreign Liabilities in East Asia: Too Much, Too Lit- ernment officials and representatives of the private sec- tie?" Paper presented at the conference Asian Corporate Recov- i5o Privote Sector Development and Public Sector tAJnagement ery: Corporate Governance, Government lPolicy, 13angkok, ment assistance programs improve productivity, labor March 31-April 2. practices, and investment decisions? How do government Waiquamdee, Atchana, Soravis Krairiksh, and Wasana Phongsa- regulations affect firm behavior? narakul. 1999. "Corporates' Views of the Constraints to Recov- * Business associations. Does proximity of firms promote ery." Paper presented at the conference Asian Corporate agglomeration economies? What factors affect a firm's Recovery: Corporate Governance, Government Policy, Bangkok, decision to join a business group? Does membership in March 31-April 2. a formal or informal network increase efficiency? World Bank. 1999. "Philippines: The Challenge of Economic * Corporate governance. Does management entrench- Recovery." Washington, D.C. ment affect corporate decisions? How do ownership links Zeufack, Albert. 1999. "limployer-Provided Training under Oligop- to financial institutions and foreign firms affect leverage olistic Labor Markets: Evidence from Thai Manufacturing Firms." decisions? How does operational or financial management World Bank, Development Research Group, Washington, D.C. by nonowners affect corporate decisions on production, leverage, and the like? Firm Analysis and Competitiveness Research Responsibility: Development Research Group, Macroeco- nomics and Growth-David Dollar (ddollar@worldbank. This project uses the information collected in the Firm org), Mary Hallward-Driemeier, Giuseppe larossi, Jakob Analysis and Competitiveness Surveys (FACS) to address Svensson, Taye Mengistae, and Albert Zeufack, Regu- policy and research questions relating to firm activities lation and Competition Policy-Mary Shirley, Luke and the determinants of competitiveness. Haggarty, Philip Keefer, Colin Xu, and Francesca Reca- Using a model survey developed with inputs from both natini, Trade-Anthony Venables, Office of the Direc- Bank staff and outside experts, researchers collected tor-Paul Collier, and Finance-Leora Klapper. With data in Indonesia, the Republic of Korea, Malaysia, the Marcel Fafchamps, Oxford University; Raymond Fisman, Philippines, and Thailand. Surveys are being adminis- Columbia School of Business; John Sutton, London tered in Bolivia and India, and an additional survey is School of Economics; Mark Gersovitz, Johns Hopkins about to be launched in Morocco. Topics addressed University; Fabio Schiantarelli, Boston College; and include the following: James Tybout, Georgetown University. * Corporatefinance. Are small and medium-size enterprises Completion date: June 2001. credit constrained? Does their inability to raise capital affect their production decisions? Are firms able to borrow inter- The Impact of Institutions nationally? Does their ability to do so affect outcomes? * Technology and investment. How does economic or Work under this project title has changed and will now political uncertainty affect investment? How do trading investigate many of the themes that are to be covered in relations affect technology diffusion? What determines WorldDevelopmentReport2001/2002, on institutions. In par- firms' decisions to adopt new technologies? ticular, it will try to answer the following questions: What * Contract enforcement. How does the efficacy of the is the relation between institutions and the efficiency of pub- legal system affect market structure? Does contract law lic investment? What is the relation between institutions and foster long-term leases and commitments? Do property fiscal policy? What is the relation among institutions, social rights protect business assets and encourage fixed invest- polarization, conflict, and economic development? ment? Do efficient conflict resolution mechanisms Preliminary results document the negative relation encourage the use of the court system? between the security of property rights and the extent * Labor and human resources. What influences firms' of social polarization, measured by income and land decisions to invest in training their workers? What impact inequality and ethno-linguistic fractionalization. They also do labor regulations have on firms' hiring, growth, and indicate that the negative effects of inequality on growth technology decisions? are at least partly due to the intermediate consequences * Government regulations. How, if at all, do govern- of inequality for secure rights. Private Sector Development and Public Sector Monagemenf 151 Future work, relying heavily on the Development eral information on the firm and on issues relating to labor, Research Group's new Database of Political Institutions, technology, regulation, infrastructure, financial markets, will examine the relation between institutions and pol- conflict resolution, and the use of business support icy outcomes (such as public investment) and social out- services. comes (such as conflict). That work is expected to shed Second, the program is carrying out a series of case light on optimal policy recommendations in different studies of firms selected from a stratified subsample of institutional and social contexts, as well as tradeoffs in the panel firms. These case studies focus on selected institution building in postconflict societies. aspects of the research agenda, such as finance, business Results of this research will be disseminated through strategy, and technological capability, and are conducted papers, conference presentations, and possible inclu- to complement quantitative information gathered in the sion in WorldDevelopment Report 2001/2002. The design survey. of infrastructure projects, advice in postconflict soci- Third, the program is conducting cross-country stud- eties, and macroeconomic advice should all be influ- ies and studies of issues related to firm dynamics over enced by this work. time. These issues include labor markets, business strat- Responsibility: Development Research Group, Regulation egy, financial markets, technological capabilities, the and Competition Policy-Philip Keefer (pkeefer nature and determinants of entrepreneurship, the impact @worldbank.org) and Stephen Knack. of infrastructure on firm operations and growth, regula- (ompletion dote: June 2001. tion and the extent to which firms perceive regulation as constraining their operations and growth, and how Report firms grow in these economies and why. The analyses of Kecfer, I'hilip, and Stephen Knack. 200(1. "Iolarization, Plolitics, these issues should contribute to evaluations of the and Plropcrty Rights: Links between Inequality and Growth." impact of structural adjustment programs in Africa. I)olicy Research Working lPaper 2418. World Bank, Develop- The program links its findings to the Bank's opera- ment Research Group, Washington, D.C. tional work in Africa through participation in the design of regional and country private sector development strate- Regional Program on Enterprise gies and programs. It disseminates its findings in the Bank Development in Africa through such activities as Bank seminars, distribution of research papers, and publication of the Findings newslet- One of the lessons emerging from structural adjustment ter. Outside the Bank, the program has hosted seminars efforts in Africa is that macroeconomic reform is a nec- and conferences in Cameroon, C6te d'lvoire, Ghana, essary but not a sufficient condition for private sector Kenya, Tanzania, Zambia, and Zimbabwe as well as in growth. There are enterprise-level constraints that inhibit Belgium, Canada, Denmark, Finland, France, Germany, the growth of existing firms and impede the entry of new the Netherlands, Norway, Sweden, Switzerland, the ones. This research program is designed to improve the United Kingdom, and the United States. In addition to understanding of the constraints on enterprise develop- the publications listed below, the program has produced ment in Africa and to develop recommendations to ease more than 80 country studies, analytical reports, case those constraints. studies, and discussion papers. The program is investigating these issues in three Responsibility: Africa Region Technical Families, Private ways. First, it is collecting survey data through interviews Sector Development and Economics Division-Tyler conducted periodically with a panel of 200 large and Biggs (tbiggs@worldbank.org) and Melanie Mbuyi. With small manufacturing firms in Cameroon, Cote d'Ivoire, John Nasir; Manju Kedia Shah; Lan Zhao; Alfred Robin- Ghana, Kenya, Mozambique, Tanzania, Zambia, and son; Gerald Tyler; and Ata Mazaheri and Dipak Mazum- Zimbabwe. The survey focuses on four manufacturing dar, University of Toronto. Assistance in the field surveys sectors: food processing, woodworking, metal working, and country reports has been provided by the Ecole des and textiles and garments. Survey questions seek gen- Hautes Etudes Commerciales, Canada; Centre Univer- 1 52 Privale Senloi Development and Public Seclor MAonagement sitaire de Douala, Cameroon; Centre d'Etudes et de Biggs, 'Iyler, Gail R. Moody. Jan-Hendrik van l.eeuwen, and Recherches sur le Developpement International, France; Ff. Diane White. 1994. Africa Can Compete! Opportunities and Chal- CIRES and ORSTROM, C6te d'Ivoire; Oxford Uni- lengesfor Garments and Home Products in the U/S.,Market. World versity; University of Ghana; University of Goteborg, Bank Discussion Plaper 242. Washington, I).C. Sweden; University of Nairobi; Catholic University, Leu- Lall, Sanjaya, Giorgio Barba Navaretti, Simon 'T'eitel, and Gane- ven, Belgium; University of Burundi; Helsinki School of shan Wignaraja. 1994. 7Thhnology and Enterprise Development: Economics; University of Dar es Salaam; Foundation (hana under Structural Adjustment. London: Macmillan; and for Research in Economics and Business Administra- New York: St. Martin's. tion, Norway; University of Zambia; Free University of Mazumdar, I)ipak, and Ata Mazaheri. 1999. "The Structure of Amsterdam; and the University of Zimbabwe. Funding Labor Markets in Africa." RPED Paper 106. World 13ank, for the research has been provided by the Belgian Admin- NWashington, D).C. istration for Development Cooperation; Canadian Inter- Ramachandran, Vijaya, and Manju Kedia Shah. 1997. "'I'he Effects national Development Agency; Danish International of Foreign Ownership in Africa: Evidence from Ghana, Kenya, Development Agency; Finnish International Develop- and Zimbabwe." RPEDI Paper 81. World Bank, Washington, ment Agency; Ministry of Cooperation and Ministry of D.C. Foreign Affairs, France; Federal Ministry of Economic --. 1998. "Entrepreneurial Characteristics and Private Sector Cooperation, Germany; Ministry of Foreign Affairs, Italy; Growth in Sub-Saharan Africa." RPEIl) P'aper 86. World B3ank, Ministry of Foreign Affairs, the Netherlands; Norwegian Washington, D.C. Agency for Development Cooperation; Swedish Inter- Raturi, Mayank, and Anand Swamy. 1997. "Explaining Ethnic national Development Cooperation Agency; Swiss l)ifferentials in Credit Market Outcomes in Zimbabwe." RIlED Agency for Development and Cooperation; and U.K. P'aper 78. World 13ank, Washington, I).C. Department for International Development. Completion date: June 2001. Service Delivery Reports Removal of market and external distortions has exposed 13iggs. 'Iyler. 1999. "Microeconometric Evaluation of the Mauri- poor public sector performance as one of the most impor- tius ''echnology Diffusion Scheme ('TD)S)." Rl'lEl) Paper 108. tant constraints to growth and poverty reduction in many World Bank, Washington, D).C. low-income countries. A large body of microeconomic lit- Biggs, 'I'yler, and Mayank Raturi. 1997. "IProductivity and Com- erature on households and firms suggests that delivery petitiveness of African Manufacturing." RP'ED laper 8(). WVorld of public services is important for reducing poverty and Bank, Washington, I).C. stimulating private sector growth. But another strand of Biggs. Tyler, and P)radeep Srivastava. 1996. StrncturalAspa.ts of Man- literature finds that the link between public spending and ufarturing.in Sub-Saharan Africa: Findingsfrom a Seten-Country grcwth and social outcomes is ambiguous at best. This Enterprise Survey. World Bank D)iscussion Paper 346. Wash- contradiction points to an identification problem: pub- ington, D.C. lic spending is not necessarily the same as public assets Biggs, Tyler, Vijaya Ramachandran, and Manju Kedia Shah. 1998. or services. "lDoes Greater Local Competition Improve Firm Performance This research explores the process by which public in Africa?" RPEI) P'aper 85. World Bank, WNashington, I).C. expenditure is transformed into public goods. The work Biggs, 'Iyler, Manju Shah, and Pradeep Srivastava. 1995. herhno- is based on public expenditure tracking surveys (PETS) logical Capabilities and Learning in African Enterprises. World of service facilities and, in some cases, surveys of firms 13ank 'l'echnical Paper 288. Washington, D).C. on infrastructure services. PETS typically collect infor- Biggs, 'Tyler, Margaret Miller, Caroline Otto, and Gerald 'Tyler. 1996. mation on facility characteristics, financial flows, out- Africa Can Compete! Opportunities and Challenges for Carments puts, accountability arrangements, and so forth. These and Home Producatsin theFuropean Market. World 13ank D)iscus- data can be used for multiple purposes. They can help sion Paper 3()(1. Washington, D.C. diagnose operational problems, for example, and serve Private Sector Development end Public Sector Management 153 as the basis for empirical research on capture and cost Responsibility: Development Research Group, Public efficiency. Economics-Ritva Reinikka (rreinikka@worldbank.org) Results to date show that information and trans- and Jakob Svensson. With Jan Dehn, Makerere Uni- parency can be a cost-efficient way of overcoming sys- versity, Kampala, Uganda; Bank of Finland; Helsinki temic problems in service delivery. In Uganda, where the School of Economics; and Bureau of Economic Analy- PETS was pioneered in 1996, the surveys revealed the sis, Moscow. capture of nonwage primary education spending by local Completion date: December 2001. bureaucrats. As a result, the central government launched an information campaign, both nationally and at the dis- Reports trict and school level. A repeat survey in 1999-2000 Ablo, Emmanuel, and Ritva Reinikka. 1998. "Do Budgets Really shows that schools now receive 90 percent of nonwage Matter? Evidence from Public Spending on Education and education spending, up from just 20 percent in 1995. This Health in U ganda." P'olicy Research Working Paper 1926. World remarkable improvement was achieved through the gov- Bank, Africa Region, Macroeconomics 2, Washington, D.C. ernment's efforts to disseminate information, both Reinikka, Ritva. Forthcoming. "Recovery in Service Delivery: through the media and by posting public spending infor- Evidence from Schools and Clinics." In Ritva Reinikka and mation at schools and in districts. P'aul Collier, eds., U'ganda' Recovery: The Role of Farms, Firms This research has provided technical support to Bank and Government. Regional and Sectoral Studies Series. Wash- country teams in Albania, Ghana, Honduras, Macedonia, ington, D).C.: World Bank. Mali, Rwanda, and Zambia, which are beginning to Reinikka, Ritva, and Jakob Svensson. 200(. "Explaining Leakage implement PETS. In addition, the project is setting up of Public Funds." World Bank, Development Research Group, a cross-country database for empirical analysis. Washington, D.C. The PETS will be carried out in close collaboration with - . 2000. "How Inadequate Provision of Public Infrastructure local research institutions in order to obtain reliable data and Services Affects Private Investment." P'olicy Research and build capacity in diagnostic survey work. Dissemi- Working Paper 2262. World Bank, Development Research nation includes publications and in-country seminars. Group, Washington, D.C. 154 Private Sector Development and Public Sector Management Bank Research Output Below are listed various types of research output arising that are highly technical and are aimed at a narrower from research and policy review activities at the World audience. Bank. To provide maximum coverage of such output, * Otherpublished series. Papers in such series as Oper- research is defined for the purposes of this list in a ations Evaluation Department and World Bank Institute broader rather than a narrower sense. Copies of Bank pub- series typically focus on a specialized topic and are lications (categories A and E) can be purchased or ordered designed to give prominence to Bank work on that topic from the Bank's bookstore (for online ordering, go to or to work by a particular Bank unit. www.worldbank.org/publications) or from distributors F. Policy Research Working Papers. These working (see list on last page of this volume). Copies of working papers are a vehicle for quick dissemination, sometimes papers and background papers (categories F-H) can be in an incompletely polished format, of findings of obtained from the authors or the associated Bank depart- work under way in the Bank. The primary audience ments. In addition, the full text of some working papers is Bank staff, though some copies are circulated to inter- series can be found on the Bank's Web site (www.world ested researchers outside the Bank. Papers in this bank.org). Reprints of articles from the Bank's research series are posted on the XVeb at www.worldbank.org/ journals (category C) may be requested from the authors; research. the full text of recent articles is also available on the Web G. Other Bank working papers. These papers are at www.worldbank.org/research/journals. Other pub- produced and distributed by units throughout the Bank. lished material can be purchased from the publishers (cat- They disseminate quickly findings of departmental egories B and D). The following types of fiscal 2000 research and are targeted primarily to specialists in the research output are listed: Bank. A. Research-oriented books written by Bank staff and H. Background papers to World Development Report published by the Bank or by other publishers. This list 2000/2001: Attacking Poverty. These papers are commis- also includes periodic data publications, such as Global sioned from researchers inside and outside the Bank. Development Finance, that feed subsequent research. Some also come out as Policy Research Working Papers B. Research by Bank staff published as part of collected or in other forms. volumes of research papers. C. Articles appearing in the Bank's two economics jour- A. Books by Bank Researchers nals, the World Bank Economic Review and World Bank Research Observer Abeles, Martin, and Myrna Alexander. 2000. Privatizaciones D. Articles related to Bank research and published in e impacto en los sectores populares. Buenos Aires: Editorial de non-Bank professional journals. Belgrano. E. World Bank Discussion Papers, Technical Papers, Baker, Judy L. 2000. Evaluating the Impart of Development Projeas and other Bank series publications. on Poverty: A Handbook for Practitioners. Directions in Devel- * World Bank Discussion Papers. This series provides opment Series. Washington, D.C.: World Bank. an outlet in the public domain for a broad range of Bank Bamberger, Michael, ed. 2000. Integrating Quantitative and Quali- output that presents detailed results of interest to devel- tative Research in Development Projects. Directions in Develop- opment practitioners-from work on narrow research ment Series. Washington, D.C.: World Bank. topics or country-specific studies. Betcherman, Gordon, and Rizwanul Islam, eds. 2000. EastAsian * World Bank Technical Papers. This series provides Labor Markets and the Eronomic C6riw: Imparts, Responses, and an outlet in the public domain for research and studies Lessons. Washington, D.C.: World Bank. 1 55 13igman, D)avid, and Hippolyte Fofack, eds. 2000. Geographical (Grootaert, Christiaan, Jeanine Braithwaite, and Branko Milanovic. Tirgeting for Poverty Alleviation: Methodology and Applications. 1999. Poverty and SocialAssistance in Eastern Europe. New York: Regional and Sectoral Studies Series. Washington, D.C.: World St. Martin's Press. Bank. Grosh, Margaret E., and laul Glewwe, eds. 2000. Designing House- Buckles. I)aniel, ed. 1999. Cultivating Peac-e: Confliat and Collabo- hold Survey Questionnaires for Developing Countries: I.essons from ration in VaturalResource lfanagement. Washington, D.C.: World 15 Years of the Living Standards Measurement Study. New York: Bank. Oxford University Press. Burki, Shah id. 2000. Changing Perceptions and Altered Reality: Gustavson, Kent, Richard M. Huber, and Jack Ruitenbeek, eds. Emerging Economies in the 1990s. Washington, D.C.: World 2000. IntegratedCoastalZone Alanagement of CoralReefi: Decision 13ank. Support Modeling. Washington, D.C.: World Bank. 13urki, Shahid, Guillermo E. Perry, Maria Emilia lFreire, and Steven Hoekman, Bernard, and Hanaa Kheir el Din, eds. 2000. Trade 13. Webb, eds. 20()0. Annual lVorld Bank Conference on Develop- Policy Developments in theAMiddle East and .Vorth Africa. Mediter- ment in Latin America andthe Caribbean-1999 Proceedings: Decen- ranean Development Forum Series. Washington, I).C.: Wlorld tralization and Accountability of the Public Sector Washington, Bank. D.C.: World Bank. Hoekman, Bernard, and Jamel Zarrouk, eds. 2000. Catching Ufp with Cernea, Michael M., and Christopher McDowell, eds. 2000. Risks the Competition: 7TadeOpportunitiesandChallengesforArab Coun- and Reconstruction: Experience.s of Resettlers and Refugees. Wash- tries. Ann Arbor: lJniversity of Michigan Press. ington, D.('.: World Bank. International EFinance Corporation. 2000. Emerging Stock Markets Collier, I'aul, Jan Willem Gunning, and associates, eds. 1999. 7rade Factbook 2000. Washington, D.C. Shocks in Developing Countries. New York: Oxford tUniversity Iskander, Magdi, and Nadereh Chamlou. 2000. Corporate Governanme: P'ress. A Frameworkforlmplementation. Washington, D.C.: World 13ank. ('orreia, Maria. 2000. I.as relaciones de ginero en /a Argentina: Klapper, Leora. 2000. 7he Determinants of Global Factoring: lVorld Un panorama sectorial Buenos Aires: World 13ank. FactoringiHandbook2000. Bromley, England: BCR Publishing. Dasgupta, IPartha, and Ismail Serageldin. 1999. Social Capital: Klitgaard, Robert, Ronald MacLean-Abaroa, and H. Lindsey Plar- A Multi/aceted Perspective. Washington, D.C.: World Bank. ris. 2000. Corrupt Cities: A Practical Guide to Cure and Prevention. Dinar, Ariel, ed. 2000. The Politiral Economy of WVater-PricingReforms. Washington, D.C.: World Bank. New York: Oxford UJniversity Press. Kochendorfer-Lucius, Gudrun, and Boris Pleskovic, eds. 2000. Dumol, Mark. 2000. Ihe Manila lVaterGoncession:An Insiderslook Inclu.sion, Justice, and Poverty Reduction. Berlin: German IFoun- at the IVorlds L.argest WVater Privatization. Directions in Devel- dation for International Development; and Washington, D.C.: opment Series. Washington, D.C.: World Bank. World Bank. Dwor-lrecaut, Dominique, Irancis X. Colaco, and Mary Lutz, Ernst, ed. 2000. Agriculture and the Environment: Perfpectives Hallward-I)riemeier, eds. 2000. Asian Corporate Recovery: Find- on Sustainable Rural Development. Symposium Series. Wash- ingsfrom Firm-f evelSurveys in FiveCountries. Washington, D.C.: ington, D.C.: World Bank. (Also published in IFrench.) World Bank. Manning, Nick, Naazneen Barma, Jean Blondel, Elsa Pilichowski, Estache, Antonio, and Gin6s de Rus. 2000. Privatization and Reg- and Vincent Wright. 1999. StrategicDedisionmakingin Cabinet Gov- ulation of Transport Infrastructure: Guidelines for Politymakers and ernment: Institutional Underpinnings and Obstacles. Regional a nd Regulators. Washington, D.C.: World Bank. Sectoral Studies Series. Washington, D.C.: World Bank. I'awzy, Samiha, and Ahmed Galal, eds. 1999. PartnersforDevelop- Meier, Gerald, and Joseph Stiglitz, eds. 2000. Frontiers of Development ment: Nlew Roles for Government and Private Sector in the Middle Economics. The Future in Perspective. New York: Oxford Lnniver- East andVNorth Af rica. Washington, D).C.: World Bank. sity Press; and Washington, D.C.: World Bank. Gill, Indermit S., Fred Fluirman, and Amit Dar, eds. 2000. Voca- Moser, Caroline, and Cathy Mcilwaine. 2000. U.rban Poor Percep- tional Education and Training Reform: Matching Skills to Markets tions of Violence and Exclusion in Colombia. Washington, D.C.: and Budgetv. New York: Oxford UJniversity Press. World Bank. Granzow, Sandra. 200(0. Our Dream.:A WtorldFree of Poverty. New Narayan, Deepa, and Patti Petesch, eds. 2000. Voices of the Poor Vol. York: Oxford lJniversity lPress. 3, From Many Lands. New York: Oxford [Jniversity Press. 156 Bank Reseurt'n Output Narayan, I)eepa, Robert Chambers, Meera Shah, and Platti Pletesch. of Indonesia r Integrated Conservation and Development Projects. 2(000. Voice. of /he Poor Vol. 2, Crying OutfortChange. New York: 1Directions in Development Series. Washington, D.C.: World Oxford UJniversity lPress. l3ank. Narayan, Deepa, Raj Ilatel, Kai Schafft, Anne Rademacher, and World Bank. 1999. Glohal Economic Prospects and the l)eveloping Sarah Koch-Schulte. 2000. Voices of the Poor Vol. 1, fan Anyone Countries 2000. Washington, D.C. Hear UIst' New York: Oxford University Plress. - . 1999. Poverty Reduction and the World Bank: Progress in Fis- Norsworthy, Alexander L., ed. 2(100. Rural Development, Natural cal 1998. Washington, D.C. Resources, and the Environment: I.essons of Experience in Eastern --. 1999. WVorld Development Report 1999/2000: Entering the Europe and Central Asia. Washington, I).C.: World Bank. 21st Century. New York: Oxford University P'ress. (Also published Nyberg, Albert, and Scott Rozelle. 1999.AezeleratingchinasRural in Arabic, Chinese, French, German, Japanese, IPortuguese, Transformation. Washington, D.C.: World Bank. Russian, and Spanish.) Ofosu-Amaah, W. Paatii. 2000. Reforming Buusiness-Related laws to --. 2000. African Development Indicators 2000. Washington, Promote Private Sector Development: The WVorld Bank Experience in D.C. Africa. Washington, D.C.: World Bank. - . 2000. Can Africa Claim the 21st Century? With the collabo- Pleters, D)avid H., Kami Kandola, A. Edward Elmendorf; and Gna- ration of the African Development Bank, African Economic naraj Chellaraj. 1999. Health Expenditures, Servites, and Out- Research Consortium, Global Coalition for Africa, and Ulnited comes in Africa: Basic Data and Cross-National Comparisons, Nations Economic Commission for Africa. Washington, D.C. 1990-1996. Washington, D.C.: World 13ank. (Also published in French.) Preker, Alexander S., and April Harding, eds. 20(N). HospitalReform: - . 2000. Gities in 1ransition: A Strategic View of Ufrban andl.oal Innovations in Health Care. Washington, D).C.: World Bank. Government Issues. Washington, D.C. Radovich, Juan Carlos. 1999. Programa de capacitaci6n para las - . 2000. East Asia: Recovery and Beyond. Washington, D.C. poblaciones indfgenas de Argentina. Buenos Aires: World Bank . 2000. Energy and Development Report 2000: Servicesfor the and Centro Nacional de Organizaciones de la Comunidad IVorldsPoor Energy SectorManagementAssistance Programme. (CENOC). Washington, D.C. Raven, John. 2000. 7rade and Transport Fafifitation:An Audit Method- --. 2000. Fuelfor Thought: An Environmental Strategy for the ology. Washington, D.C.: World Bank. Energy Sector Washington, D.C. Solimano, Andres, Felipe Saez, Caroline Moser, and Cecilia Lopez, --. 2(N)0. GloballDevelopmentlFinance2000. Washington, D.C. eds. 1999. Ensayos sobre paz y desarroilo: El case olombiano y la -- 2000. Greening Indautry: New Rolesfor Communities, Markets, experiencia internacional. Bogota: World Bank. and Governments. World Bank Policy Research Report. New York: 'I'inker, Anne, Kathleen Finn, and Joanne Epp. 20(0). Improving Oxford University Press. lVomen r Health: I.rsuesand Interventions. Washington, I).C.: World --. 2000. GroundwaterRegulation and Management. South Asia Bank. Rural I)evelopment Series. Washington, D.C. United Nations Development Plrogramme, UJnited Nations Envi- - . 2000. Higher Education in Developing Countries: Peril and ronment lProgramme, World Bank, and World Resources Insti- Promise. Washington, D.C. tute. 2000. lVorldResources 2000-2001: People and Ecosystems-The . 2000. Initiating and Sustaining Water Sector Reforms: Fraying WVeb/ of life. New York and Washington, D).C. A Synthesis. South Asia Rural Development Series. Washington, Vermeulen, Jaap, and Tony Whitten. 1999. Biodivervity and Cultural D.C. Property in theAlanagement of l.ime.tone Resources: Le.rsonsfrom East . 20(0). Intensifying Action against A IDS in Africa: Responding to Asia. D)irections in Development Series. Washington, I).C.: aDevelopmentCritic. Washington, D.C. (Alsopublishedin French.) World 13ank. -_ . 2000. Interfectoral Water Allocation, Planning, and Manage- Webb, Steven 13., and Marcelo Giugale. 2000. Achievements and ment. South Asia Rural Development Series. Washington, D.C. Challenges of Fiiscal Decentralization: L.essons from Mexico. Wash- . 2000. 7he Irrigation Sector South Asia Rural Development ington, D).C.: World Bank. Series. Washington, D.C. Wells, Michael, Scott Guggenheim, Asmeen Khan, Wahjudi War- . 2000. Parchasing Power of Currencies. International Com- dojo, and P'aul Jepson. 1999. Investing in Biodiversit: A Review parisons of Volumes and Price levels. Washington, D.C. Bank Research Output 157 - 200. Ihe Road to Sustainability and Prosperity in Southeastern cal: Compendio de Documentos 2000. Santiago: Economic Corn- Europe: A Reglional Strategy Paper. Washington, I).C. mission for Latin America and the Caribbean. - 2000. Rural WVaterSupply and Sanitation. South Asia Rural l,angenbrunner, John, and Miriam Wiley. 2000. "Paying the Hos- Development Series. Washington, I).C. pital." In Martin McKee and Judith He-aly, eds., 7heAppropri- . 2000. U/rlban lIaterSupply and Sanitation. South Asia Rural ate Role of the Hospital. London: European Observatory on Development Series. Washington, D.C. Health Care Systems. - 20()0. lVinners and l.osers of E UIntegration: Polity Issuesfor Milanovic, Branko. 2000. "Determinants of Cross-Country Income Central and E< astern Europe. Washington, D.C. Inequality: An Augmented Kuznets." In Vojmir lFranicevic - 20(10. lVorld Development Inditators 2000. Washington, and Milica tivalic, eds., Equality, Participation, liansition. Lon- D).C. don: Macmillan. 2000. "The Social Costs of the Transition to Capitalism: B. Book Chopters by Bonk Researchers loland 1990-94." In Demetrius latridis, ed., Social.Justice and the Welfare State in Central and Eastern Europe: Ihe Impact of B3runo, Michael, Martin Ravallion, and Lyn Squire. 2()0(). "Equity Privatization. Westport, Conn.: Praeger. and Growth in Developing Countries: Old and New Perspec- Olarreaga, Marcelo. 1999. "Preferential and Nonpreferential 'I'rade tives on the Plolicy Issues." In Andres Solimano, FEduardo Ani- 1F lows in World 'Trade." In Miguel Rodriguez Mendoza, IPatrick nat, and Nancy B3irdsall, eds., Distri butive Justice and Economic Low, and 13arbara Kotschwar, eds., Irade Rules intheMaking. Chal- Development. Ann Arbor: Ulniversity of Michigan l'ress. lenges in RegionalandAMultilateral Negotiations. Washington, D).C.: Caprio, (Gerard, Jr. 2(0(0(0. "Moral Hazard and Reform of the Gov- Organization of American States and Brookings Institution P'ress. ernment Safety Net: A Comment." In William C. Hunter and Venables, Anthony. 1999. "Geography and Specialisation: Indus- George Kaufman, eds., Iessons from Rerent Global Financial trial B3elts on a Circular Plain." In Richard Baldwin, Daniel- Crises. Boston: Kluwer Academic. Cohen, Andre Sapir, and Anthony Venables, eds., Market Claessens, Stijn, Simeon Djankov, and Larry H.P. Lang. 1999. Integration, Regionalism, and the Global Economy. New York: "Corporate Ownership and Valuation: Evidence from East Cambridge Uiniversity Press. Asia." In Robert Litan, Michael Pomerleano, and Alison Har- Wagstaff, Adam, and Eddy van Doorslaer. 1999. "Inequalities in wood, eds., Finan(ialMarketsandl)evelopment. PreventingCrise.s Health: Methods and Results for Jamaica." In E. Greene, J. in EmergingMarket,f. Washington, D.C.: Brookings Institution Zevallos, and R. Suarez, eds., Health Systems Inequalities and l'ress. Poverty in latin America and the Caribbean. Washington, 1).C.: Pan- Clarke, George R.G., and Robert Cull. 2(0(0(0. "Provincial Bank American Health Organization and World Bank. Privatization in Argentina: 'I'he Why, the How, and the So - . 2000. "Equity in Health Care Finance and Delivery." In What." In Harvey Rosenblum, ed., Bank Privatization: Confer- A.J. Culyer and J.P. Newhouse, eds., Handbook in Health Eco- ente Proceedingr of a Policy Research Work.shop. Dallas: Federal nomics. Amsterdam: North Holland. Reserve Bank of Dallas. Wheeler, I)avid, and Susmita D)asgupta. 2()0(). "Small Plants, Collier, Ilaul. 200(0. "Industrial Development and lPolicy in Africa: Industrial lPollution, and Poverty in Brazil." In Ruth Hillary, ed., Issues of l)eindustrialization and Development Strategy." In Small and Medium-Sized Enterprises and the Environment: Busi- Hossein Jalilian, Michael Tribe, and John Weiss, eds., Indu.stial ne.ss Imperatives. London: Greenleaf. Development and Poli(y in Afrira: I[sues of Decentralization and Whiteford, Harvey A. 2000. "Mental Health and Mental Illness: DevelopmentStrategy. Northampton, Mass.: Edward Flgar. An International Perspective." In M. Sawyer and 1). Casey, eds., Ensor, l'im, and John Langenbrunner. 20010. 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"Patterns of Inpatient Surgeries for the of Key Policy Concerns and Potential Initiatives. World Bank 'ech- 'I'op FourCancers in the tJnited States: National Hospital Dis- nical Plaper 440. Washington, D.C. charge Survey, 1988-95." CancerCauses andControl 11:497-512. 13ubnova, Nina B. 2000. Governance Impact on Private Investment: Wodon, Quentin. 1999. "Providing Shelters or Low-Income Hous- Evidence from the International Patterns of Infrastructure Bond ing? An Optimal Control Model." Journal of HousingEconom- Risk Pricing. World Bank 'I'echnical Paper 488. Washington, ics 8: 90-115. D.C. 1999. "Regional Poverty Lines, Poverty Profiles, and 'Iar- Bucknall, Julia. 1999. Poland. Gomplying with EUEnvironmentalLeg- geting." Applied Etonomic.v Letters 6: 809-12. islation. World Bank Technical Paper 454. Washington, D.C. - 2000. "Micro Determinants of Consumption, P'overty, Canning, Mary, Peter Moock, and Timothy Heleniak. 1999. Reform- Growth, and Inequality in Bangladesh." 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World l3ank, Develop- of the Senior Vice President and Chief Economist; and Devel- ment Research Group, Washington, D.C. opment Research Group, Washington, D.C. Alba, l'edro, l,eonardo Hernandez, and Daniela Klingebiel. 1999. Beck,'rhorsten. 2000. 'Impediments to the Development and Effi- "Financial Liberalization and the Capital Account: I'hailand, ciency of Financial Intermediation in 13razil." Policy Research Bank Research Output 171 Working Paper 2382. World Bank, Development Research tions." P3olicy Research Working Paper 2265. World Bank, Group, Washington, D.C. Financial Sector Strategy and Policy Department, Washington, Beck. 'horsten. and Ross Levine. 20(0). "New Firm Formation and D.C. Industry Growth: I)oes Having a Market- or Bank-13ased Sys- Bongini, Iaola, Giovanni Ferri, and 'ae Soo Kang. 2000. "Finan- tem NMatter?" Policy Research Working l'aper 2383. 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"To What Extent lence in Latin America and the Caribbean: Costs, Causes, and Can [)ecentralized Forms of Government Enhance the Devel- Intervention." Latin America and the Caribbean Region SLIs- opment of l'ro-poor Plolicies and Improve Ploverty-Alleviation tamable Development Working Paper. Outcomes?" Rogers, Dennis. 1999. "Yoith (angs and Violence in Latin Amer- I)ahl, Robert A. "A Note on Plolitics, Institutions, D)emocracy and ica and the Caribbean: A Literature Survey." Latin America and Equality." the Caribbean Region Sustainahle Development Working D)asgupta, lartha. "Valuation and Evaiuation: Measuring the Qual- I'aper. ity of Life and Evaluating P3olicy." Davis, Shelton, and Anthony Oliver-Smith. "Post-Hurricane Mitch Private Sector Development DepoNment Rehabilitation and Reconstruction Mission." Aw, 13ee, and Geeta 13atra. 2000. "Job 'l'urnover and 'ITotal Factor de Janvry, Alain, Gregory Graff, Elisabeth Sadoulet, and David Zil- P'roductivity: Micro Evidence from 'Iaiwan (China)." I'SI) berman. "'Technological Change in Agriculture and Ploverty Occasional Paper 43. Reducition." Ayee, Joseph, Michael L.ofchie, and Carolina Wieland. 1999. D)ercon, Stefan. "Income Risk, Coping Strategies, and Safety "Government-Business Relations in Ghana: Experience with Con- Nets." sultative Mechanisms." PSI) Occasional Paper 36. Elwan, Ann. "Poverty and l)isability." 13iddle, Jesse, and Vedat Milor. 1999. "Consultative Mechanisms and Fields, Gary S. "Distribution and I)evelopment: A Summary of the Economic Governance in Malaysia." PSI) Occasional Paper 38. Evidence for the Developing World." Biddle, Jesse, Vedat Milor, Juan Manuel Ortega Riquelme, and Gereffi, Gary, and Martha Argelia Martinez. "Bllue Jeans and Andrew Stone. 2000. "Consultative Mechanisms in Mexico." Local Linkages: 'T'he Blue Jeans Boom in 'Iorreon, PSI) Occasional Paper 39. Mexico." Harriss, John. "How Much Difference Does lPolitics Make? H. Background Papers to World Development Regime l>ifferences across Indian States and Rural Poverty Report 2000/2001: Attacking Poverty Reduction." Herring, Ronald J. "IPolitical Conditions for Agrarian Reform and Acemoglu, D)aron, and James A. Robinson. "On the Political Econ- Poverty Alleviation." omy of Institutions and Development." Hossain, Naomi, Mick Moore, Noushin Kalati, James Manor, and Adato, Michelle, 'I'imothy B3esley, Lawrence Haddad, and John Elisa Reis. "Elites, I'overty and Development." Hoddinott. "Participation and Poverty Reduction: Issues, 'Ihe- Houtzager, Peter P., and Jonathan Pattenden. "Finding the Shape ory and New Evidence from South Africa." of the Mountain: When 'the Poor' Set the Agenda." Anderson, Mary B. "'I'he Impacts of Natural Disasters on the INAI)ES Formation 'I'chad. "Svnthese de la consultation de la Poor: A Background Note." Banque mondiale sur la pauvrete au 'chad." Anderson, Michael R. "Access toJuistice and legal Process: Mak- Jayaraman, Rajshri. "Kerala and littarPradesh: A Case Stud`." ing Legal Institutions Responsive to Poor People in 1,I)Cs." Kturtz, Marcus. "The Political Economy of Pro-poor Plolicies in Chile Appleton, Simon, and Lina Song. "Income and Human Devel- and Mexico." opment at the Household Level: Evidence from Six Countries." Leamer, Edward E., and lPeter K. Schott. "Natural Resources as Austin, Gareth. "Background Note on Civil Strife and Poverty in a Source of Latin American Income Inequality." Sub-Saharan Africa." Lindauer, David. "Labor Market Reform and the Poor." Banton, Michael. "Discrimination and Poverty." Lund, Frances, and Smita Srinivas. "Learning from Experience: 13ardhan. Pranab. "Political Economy, Grovernance, and Poverty A Framework for Social Protection for Workers in the Informal Reduction." Economv." Centre L.-J. Lebret. "Attacking lPoverty." Lustig, Nora. "Crises and the Poor: Socially Responsible Chang, lilwha. "(Gender and Violence." Macroecono(mics." Connolly, Michelle. "'I'he Impact of Removing Licenses and Manning, )aniel S. "T'he Role of Legal Services Organizations in Restrictions to Import 'l'echnology on 'technological Change." Attacking Poverty." 184 Bank Research Output M/feerman, Jacob. "Slow Roads to Equality: A Study of lour Rodriguez, Francisco. "Inequality, Economic Growth and Economic Hard-Core Minorities-Issues from the Literature Review." Perfiormance." Moore, Mick, and James uitzel. "Politics and l'overty." Sebstad, Jennefer, and Monique Cohen. "Microfinance, Risk Man- Moore, Mick, Jennifer Leavy, P'eter P. Houtzager, and agement and l'overty." Howard White. "Polity Qualities: How Governance Affects Sinha. Saurabh, and Mlichael Lipton. "Damaging Fluctuations, Risk lPoverty." and poverty: A Review." Mlorley, Samuel A. "The Impact of Reforms on Equity in Latin 'I'urok, 13en. 'South Africa: From Exclusion to Integration." America." Varshney, Ashutosh. "Democracy and Poverty." Niles, Kimberly J. "Economic Adjustment and 'larget.d Social Whitehead, Laurence. and George Gray-M1olina. "'I'he Long- Spending: 'I'he Role of Plolitical Institutions (Indonesia, Mex- 'l'erm l'olitics of Pro-poor Policies." ico, and Ghana)." Winters, L. Alan. "Trade, 'T'rade Policy and Poverty: What Are the Pawasuthipaisit, Anan, Sombat Sakuntasathien, and Robert M. Links?" 'I'ownsend. "Report to the Ford Foundation: Impact of the Wodon, Quentin. "Extreme Poverty and Human Rights: Essays 'I'hai Crisis." on Joseph Wresinski." Pouliquen, Louis. "Infrastructure and lPoverty." Yaqub, Shahin. "How Equitable Is Public Spending on Health and Prasad, Kameshwar, lPaolo l3elli, and Monica D)as Gupta. "I.inks Elducation?" between Poverty, Exclusion, and Health." Quah, Danny. "6 x 10': Some Dynamics of Global Inequality and Growth." 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