37339
THE WORLD BANK
E* RESEARCH
NEW S
Volume 3 Number 3
FALL/WINTER 1982
CONTENTS
Price Intervention Analysis in Agriculture  ...............3
Vinod Thomas and Deepak Bhattasali
Completed Research ................................     16
Narangwal Population and Nutrition Project ........... 16
New Research         ...................................  19
Pricing and Taxing Transport Fuels in Developing
C ountries   .   .  .   ....   ...................   .   19
Effects of Irrigation: Matar Taluka, India  ......  .. 20
Liberalization with Stabilization in the Southern Cone  ... 21
Productivity Change in Infant Industry ..... ......... . 22
A Computable General Equilibrium Model for the
Ivory  Coast  ..  .. ..                           ..  22
Book on Mlodern Tax Theory for Developing Countries . . 23
New and Forthcoming Publications        ............. 24






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Copyright " 1983
The International Bank for Reconstruction
and Development / The World Bank
1818 H Street, N.W.
Washington, D.Ch 20433, U.S.A.
ISSN 0253-3928



I t'i WNiI R 11182
PRICE        INTERVENTION                                  positive and negative, of alternative pricing options,
and that rational price regimes are essential for the
ANALYSIS            IN                                     success of developmental strategies. Research at the
AGRICULTURE                                                World Bank has contributed to this increasing
emphasis on the proper role of prices, particularly
l'itiodr iThuma. and                                      by providing useful results in the following areas:
D)eepak Bhallazll                                          First, a better understanding of the nature and scope
of policy interventions has emerged. as will he
discussed later, which is supported by the comipila-
Developing countries have used a variety of tools to      tion of a data base to analyze policies for many
affect the prices of agricultural products and inputs.     countries. Second, methods have been developed to
Price interventions have been applied at the stages        measure the effects of price distortions, which have
of production, marketing, consumption, and trade.          then been applied to a number of countries, thus
The results have been mixed: sometimes the desired         providing quantitative estimates of the economic
goals have been met, but often there have been             costs of these distortions in agriculture.4 Third,
unanticipated side effects. Because of the impor-          price issues are begiening to play a   crucial role in
tance of the agricultural commodities concerned and        policy dialogues between the Bank and member
their implications for a country's growth, employ-         countries. While traditionally certain price reforms
ment, foreign exchange earnings, and public fi-            have been sought in the context of agricultural
nance, price interventions have cut across crucial         projects, attention is increasingly being focused on
aspects of development policy.2                            sector-level policy improvements, and manv re-
forms are now being effected through the vehicles of
A pervasive problem concerning price policies is the       import and export program credits and structural
difficulty of adequately anticipating their effects.       adjustment loans, aided by country case studies.
Time after time, price programs have gone awry not         Structural adjustment loans with agricultural pric-
necessarily from  lack of good objectives, but more        ing and marketing contents have been made to the
because their effects have been inadequately under-        Ivorv Coast, Jamaica, Kenya, Republic of Korea,
stood. Usually  policies have a variety of conse-
quences, some of which are unforeseen by policy
makers, owing to the responses of producers and              1. I",onornists In C:olombiat Coujrtrs progratms of the l.atin
makes, oingto te rspones  f prducrs adn\eri(a and ihe Carribbean Regional Otfice and in kialavsia
consumers to price changes. Often, even apparently         Cotuniry Programs of the Easi Asia and Pactli( Regional Office.
neutral devices may    have the unintended and            respe(tivels This res iesv has benelited from discussionis with Belai
indirect effects  of favoring  or disfavoring the          Abbai, HIans Binswanger, Asishav Bravermnan Sharon Blinco.
production or consumption of certain commodities.          (;raham Dontaldsonn. John t)ulov, Anandarup Rav. Inderjit Singh,
A tendency to minimize these price responses on the        Lyn Sqtuire and Isabel isakok. Hlelpful commenis on the paper
part of policy makers often leads to difficulties in       Basil raalsk, iind RolBerl Piiert  Bto.
operating the programs; for instance, the actual             2 For a discussion of the role of agriculture in economic
fiscal effects of policies frequently turn out to be       delelopmeni, see lU;rdl Dece/r,po)ttnt RIcp)orl 1982 (New, Y'ork.
sigific   v                          I tn  pOxford tInnircrsitv P'ress, 1982), which reviews initer alia the
signifiantly larger than original projections. The         physical sources of arLrultural girowth, and the relationship
existence of these and other complexities calls for a      b)etween agritultiural growth, food securitv, and pouerts
systematic analysis of the context of price interven-        3. Theodore WV Schultz (ed ), D)tul r/t,u,t  j ,[,rvluu/lltural
tions, their nature and scope, and the issues that         Itttcn ' (Bloomington. Indiana tiniversity Press, 1978) provides
arise in their application. This review elaborates         a (otipilation of re(ent esidente on the effects ofdistortions.Seealso
upon each of these aspects. (The discussion is             Grahatm Donal(dson, In(entives and the Farmer,' in Fununtth
u eh t e p . hi)'/ut1It andt, 1/I. rI't 'u cSicc/t (International Nfonetarv Fund
limited to the WVorld Bank's research in this area,        (INIF) and The Wiorld Bank. September 1981 ).
although occasional references are made to other             4 See Pasquale L.. S(andizzot anId (olin Bruce, "Nlethodologies
literature.)                                              for M\easutrinug Agricultural Price Intervention EfTects, NVorld
Bank Stalt NVorktng Paper No. 394, June 198(1. and case studies
The Context of Price Analysis                              published in 1 980-81 swithin the World Bank Staffi \' . ..- Paper
series, listed in the reports at the end of the article. F,r a t ross-
country viev. see Mtalctolm D. Bale atnd Ernst Lutz, -Price
There exists a growving recognition that insufficient      [istortions in Agriculture and Their Effects: .\n International
attention has been paid in the past to the effects,        (tompiaristn,, World Bank Reprint Series Number 173.



4     -' ht
Malawi, Nlauritius, Morocco, Senegal, Thailand,          nonprice policies has so affected market signals and
and Turkey. Export credits in the cases of Sudan         the allocation of resources that it is difficult to
and Tanzania and import credits for Bangladesh           disentangle the two sets of factors. A    proper
have  involved  pricing  reforms in  agriculture.        understanding of the nature and scope of individual
Attention is also beginning to be focused on a better    interventions is an essential starting point for policy
integration  of sector policies into the macro-          analysis.
economy.~
The Nature and Scope of Interventions
In a general sense, much of the applied research on
pricing has illustrated the importance of "getting       Price interventions most often involve the taxation
the prices right." This has usually meant, at the        or subsidization  of one or more agricultural
basic level of analysis, that the relative border prices  products or inputs enforced within the domestic
of traded outputs and inputs should be approxi-          market or at the stages of exporting or importing.
mately the same as the relative market prices,           These are often substituted or supplemented by
adjusted for transport and marketing costs. A            quotas and other restrictions. In many countries, the
number of case studies have highlighted various          production of key farm products is taxed by direct
forms of price disincentives arising in the domestic     price controls. The purchase of export crops at
and external markets and their negative conse-           prices below  those that prevail in the domestic
quences for agricultural productivity and welfare.       market by monopolistic marketing boards in some
In many instances, the salutary impact of price          African countries and the forced procurement of
reforms has also been shown, particularly in the         grains by government agencies in some Asian
context of applied operational work." Furthermore,       countries are examples. Farm inputs are taxed by
although   much of the research emphasizes,              import quotas and     prohibitions or by tariffs
implicitly or explicitly, the need for some degree of    intended to protect high-cost domestic industries
price liberalization, a limited role for rational        (for example, tariffs on fertilizer imports in Brazil
pricing  in developmental efforts-as   a proper          and in other countries in Latin America). In
complement to other agricultural policies-is             contrast, some countries subsidize the production of
widely acknowledged. The limits to pricing policy        certain commodities by output price supports, or
alone as a means of boosting production have been       input subsidies, or both. Price supports are more
noted, particularly, in the case of countries like       prevalent in middle-income countries (such as
India and Bangladesh which have large proportions        Colombia, Costa Rica, Korea, Malaysia, Mexico,
of subsistence farmers in the agricultural work          Portugal, Turkev, and Yugoslavia) than in low-
force. The World    Bank's Jl'orld Development           income countries, although some countries in the
Re0ort 1982, having pointed out the role of relative    latter group   (for example, Bangladesh, Chad,
prices and the need for adequate price incentives,       Malawi, Upper Volta, and Zaire) also provide price
observes: "Pricing  alone is neither a complete          supports for selected food crops.
explanation of agricultural performance nor the          Interventions at the marketing and consumption
sole key to progress" (page 47). Other crucial                                                        i
measures include efforts to exploit comparative          stages are common, particularly for staple con-
advantage, promote technological progress, and           sumption items such as food grains. Because of their
mobilize rural resources and public sector invest-       political and economlc importance, these commodi-
ment and support. As nearly all country economic         ties are often handled by monopolistic parastatal
reports indicate, the removal of physical, social, and
institutional barriers to supply constitutes a key        5. C(untrv case studies on agricultural pricing have also been
prepared by the Bank's respective country departments, in some
element of successful agricultural strategy.            instances jointly with the governments concerned, on Bangladesh,
Guinea, Portugal, Saudi Arabia, Tanzania, Thailand, Tunisia,
To achieve a proper balance in policy emphasis           Turkey, and the People's Democratic Republic of Yemen; several
between price and nonprice factors is not easy for at    others are in the pipeline.
least two reasons. First, the appropriate combina-         6. Egypt, Ivory Coast, Kenya, Pakistan, Peru, and Uruguay are
tion varies according to the individual circumstances   recent examples wshere a liberalization of producer prices to
tionvares ccodin tothe ndiidul crcustacescotrrespond better with world prices led to increases in production.
and the level of economic development of each             7. See, for instance. Fred Levy and others, "Brazil: A Review of
country. Second, the historical legacy of price and     .Agricultural Policies,' A World Bank Country Study, 1982.
r -%



RIM V Rx( i4 IsI  7 i
agencies, although economic cost reductions f'rom     various pressures and resulting in a multiplicity of
greater private marketing and storage activities are  policy instruments that sometimes end up serving
now beginning to be recognized. Urban consumers       conflicting goals. A widely held rationale for price
are subsidized in many countries by retail price      policy is its expected effect on income distribution.
controls or by import subsidies if the commodity is   High farm price supports, for example, have often
imported. Such subsidized sales of food grains,       been viewed as an instrument for raising tfarm
either domestically produced or imported, are found   income and rural welfare, while urban consumer
in Bangladesh, Indonesia, Korea, and a number of      subsidies are supposed to improve the welfare of'thc
other countries. These policies influence the rural-  urban poor. Farm price supports, and sometimes
urban terms of trade. The net outcome, however,       input subsidies, are also designed to provide incen-
differs considerably from  country to country,        tives to farmers to increase production, particularly
depending on the emphasis placed on producer          in importing countries striving for self-sulliciency.
incentives (vis-a-vis output prices and input prices)  Some countries like Korea have viewed price poli-
and consumer welfare.                                 cies as instruments of stabilization, aiming to
moderate seasonal price patterns, or vear-to-vear
Tariffs and subsidies on imports and exports,         price fluctuations, or both. Many countries interfere
foreign exchange controls, and quantitative trade     with trade in an attempt to insulate the domestic
restrictions constitute other major forms of interven-  economy from instability generated in international
tion. Export taxes on principal commodities-for       markets. The export tax on rice in Thailand is
instance, coffee in Colombia, rice in Thailand, jute  partly based on this objective, in addition to that of
in Bangladesh, and cocoa in Togo-are levied partly    revenue generation. Import tariff's on agricultural
to generate revenues. Taxes are sometimes used to     inputs are also intended to provide government
stabilize domestic prices, as for example in the case  revenue, but in addition they seek to protect domes-
of beef exports from Colombia, NMexico, Uruguay,      tic industry from  external competition. Finally,
and a number of African countries, and in the case of  political goals-although they are seldom as explic-
imports of certain cereals and livestock products in  itly stated as socioeconomic objectives-are usually
Korea.                                                of great significance in price management. As
A review of the Bank's borrowers reveals consider-    agricultural prices directly affect the welfare of
Able reviewfoferences Banks pol wem s revas counse-   important producer and consumer groups, they are
abedierences mpolicy emphasis across coun-       a highly volatile political issue, often providing the
tries.' Many  African  and some South Asian           spark for riots and political unrest (as in the cases of
countries keep producer prices low in comparison to   the Arab Republic of Egypt and Poland), and even
world prices through government price fixing and      causing governments to fall on occasion.
forced procurement, while most economies in East
Asia and the Pacific, the Middle East and North       The analysis of policies indicates that results have
Africa, and Latin America provide relatively higher   only rarely coincided with stated goals. Concerning
producer prices through price supports or through     efficiency and growth, a recent Bank survey of fifty
nonintervention; for example, Korea and Malaysia      countries shows that although policies were not
support some domestic food-grain prices above         intended to neglect agriculture, the net effect of
world levels. Consumer subsidies are more wide-       domestic pricing and commercial policies in a
spread across regions, and depending on the system    majoritv of country cases was to provide disincen-
of grain purchases, the impact on the budgetary       tives to the sector," Studies of seven countries shouwed
deficit varies. Input subsidies are more common in
Africa and South Asia than in other regions, while
the taxation of inputs to protect infant industries is  8. See J. (Grares and Y. Kimaro, "Functional Rekiew of ithe
found more often in Latin America. Foreign trade      Treatment of Agricultural Pricing in Bank Group Economi( and
interventions are also more prevalent in Latin        Sector Reports-Progress Report," Economi(s and Policy Dix)ision
America, as well as in East Asia and the Pacific,     Working Paper No. I (The World Bank- Agriculture and Rural
than in other regions.                                Development Departnient, 1976).
9  See  :-   , 1, Pri(es, Subsidies and Taxes: A Sunmiarv of
Issues," Agriculture and Rural Development Department, Policy
Surveys of price intervention suggest that policy     Note, The World Bank, Februarv 26. 1979, and also Bale and Lutz,
objectives vary, often changing over time under       "Price Distortions in Agriculture."
0  11W' t IfRI I)I



6                                                                                          Ia SE  I V, IN j RttXI'
that the nominal and effective rates of protection         crops on other groups- in particular, between food
for agricultural products were much lower than             crops and export crops-can be important." Simi-
those for industry. For major crops, farmgate prices       larly, the impact on various agricultural producer
averaged 50 percent to 80 percent of export prices.        groups (landless laborers and deficit farmers with
Taking into account subsidies on inputs, total price       off-farm  employment, subsistence farmers, and
distortions added up to a 30 percent to 40 percent         commercialized farmers), on the one hand, and on
tax on agriculture. Additionally, the limits of price      consumer groups (urban and rural), on the other,
policy as a means to redistribute income have also         needs to he incorporated. Finally, it is necessary to
been underlined. Discussions of price supports and         establish  an  economist's overall macroeconomic
marketable surpluses for Korea suggest that the            objectives, particularly the relative importance of
effect of such policies on income distribution is, at      industrial versus agricultural growth, before spe-
best, ambiguous. Similarly, as indicated by data for       cilic price reforms can be considered. The key
Kenya, the benefits of fertilizer subsidies may            elements of the macroeconomic price structure
accrue relatively more to large farmers than small         (exchange rate, fiscal deficit, inflation) must be
farmers, contrary to stated goals. The experiences of      studied in conjunction with the broad objectives for
Egypt, India, Kenya, Peru, and        many   other         the economy (e.g., rapid industrialization) and the
countries show that price controls intended to favor       policy goals in agriculture (e.g., export crop expan-
poor consumers mav, af'ter all, not meet this              sion). It is necessary to ask, given a country's
objective, owing to the complex consequences of            socioeconomic political objectives, what is the struc-
these policies. Finally, the fiscal impact of policies     ture of intervention that minimizes the costs to the
has also been found to be usually much greater than        economy (on efliciency and equity grounds) and
anticipated, eventually limiting their viability. In       what will assist the government in achieving its
Bangladesh, for instance, the fertilizer subsidy alone     overall economic objectives? By and large, such
has recently constituted roughly 4 percent of the          considerations have until recently been given inade-
Government's development spending.                         quate attention in both the Bank's research and its
Some Issues in Price Intervention Analysis                 operational 'vork."
A review of experiences with agricultural pricing
suggests that there are at least four major areas that
generate critical issues. They are: efliciency and          1t. Sce Shlomo Rcutlinger, "World Bank Research on the
economic growth, trade and specialization, distribu-       llunger l)imensions of the Food Problem," Re.search ,Verus, vol.3,
tion, and public finances. Intervention in the food        nO.1 I Winter 1981 82. See also Pasquale L. Scandizzo and Isabel
market constitutes a special area for analysis.            Tsakok, 'Food Pricing Policies in Developing Countries," Econom-
However, research on food policy is not treated here      ,c and Polic) t)i%ision Working Paper No. 46 (The World Bank:
in detail because a recent survev covered the area         Agriculture aind Rural De%elopment Department, July 1982). A
comiprehensive rcesie%v (If this area appears in C. Peter Timmer,
well.'                                                     Walter P. Ftlcon, and Scott R. Pearson, 'o(d Pl)oicy Analy,sis
(Baltimore and L.ondon: The Johns Hopkins University Press,
It should be noted at the otutset that there are           1983. forth(oming).
systematic diflerences between types of major crops          1. Recent (Irk on Bangladesh points out the possible effects of
agricultural work-force categories, and producer/          rhmed  Fouppldgrn r pva Distheat ioin ather cropsu See Raisuddn
consumer subcategories that should he accounted            cies Within .\ D)ual Pricing NMechanism: A Case Study of
for in analysis in each of the above areas. In the case    Bangladesh, International Food Policy Research Institute (IFPRI)
of crops, at least three categories should be distin-      Research Report No. 8.N .ty 1979. and "Agricultural Price Policies
guished: food grains such as rice, vheat, sorghum,         under C(omplex Socio-Economic and Natural Constraints: The
ieand barle        nongrain food cash crops such as (,,Ise (If Bangladesh," International Food Policy Research Institute
maize, an     aly   oganfo        ahcossc         s(IFPRI) Rc'seatrh Report No. 27, October 1981.
vegetables, root crops, and sugar; and export cash           12. Recent f clorts tO fill these gaps include: Choong Y. Ahn,
crops such as rubber, cotton, coffee, and     jute.        Inderlit Singh, tnd Lvn Squire, 'A Model of an Agricultural
Clearly, the responsiveness of these crop categories      Ilousehol(l in . NMultt-Crop Economy: The CaseofKorea," World
to prices as well as to complementary policies and         B.nk Reprint Series: Ntimber 222, and Ifoward N. Barnum and
theirrelaion  o  goas ar quie               Lvn Squire.  1h1 .Xl h  an jqi,u /ltnia! HIase'hald: Theory andi
their relation to o(untry goals are quite different.       E:,,h,,,,, (Baltimore and London: The Johns Hopkins University
Furthermore, the effects of policies for one group of      Press, 198().
il- IN%1ORI) hLD \ ;NK



I         It   R  !I  Vit2                                                           - --- 1R      IiI \F"S   I
Efficiency and Economic Growth                              exports and imports, predetermines the policy con-
clusion that emerges from the analysis without
The allocative and production efficiency impera-            adequately adjusting for special situations among
tives for agriculture are provided by the unquestion-       developing countries, they are a "least of atll evils"
able importance of this sector and by the urgent need       choice for measuring distortions."' In most cases,
for solutions to the problems of food, poverty, and         world tnarket prices are the result of stronger
the balance of payments in developing countries. A          elements of competition than are domestic prices,
central issue of efficiency relates to the finding that     and they have the advantage of both being easily
existing price interventions almost invariably lead         visible and suitable for cross-country comparisons.
to 'distortions" that cause welfare losses. Two steps       Provided that the appropriate world prices can be
are involved in evaluating economic efficiency: first,      identified and a trend price or moving average price
tneasuring the "distortions" from   some reference          (wvhich averages or abstracts from    fluctuations)
point; and second, measuring the cost of distortions        defined, incentive/disincentive indicators rnav be
in terms of economic welfare. A number of early             devised in the form of nominal and eflective protec(-
efforts were made to investigate price distortions          tive rates, effective subsidy coefficients, and pro-
and their costs; these laid the foundations for further     ducer subsidy equivalents. It should be noted that
developments in the methods used at the Bank.'" But         the "true" reference prices to he used in each
it wvas not until recently that these approaches            country's estimates may be higher than the c.i.f. or
became more widely accepted and available.                  lower than the f.o.b. prices of traded inputs and
outputs, so that appropriate adjustments to interna-
T'heapproah applied inmuch of the work to date in           tional prices need to be made for each country's
the Bank for measuring price distortions and their          special situation.
economic costs is squarely in the mainstream     of
resear(ch in this area. A number of limitations may         Unfortunately, in practice this method is not partic-
be note(d in using such an approach, as will be             ularlIy amenable to dynamic analysis, although, in
discussed later. Notwithstanding such shortcom-             principle, elements such as "learning by doing" c(an
ings. several useful and practical results have been        be incorporated. The duration and intensity of
derive(d. Estimates of nominal and efTective protec-        interventions can vary quite substantially, affecting
tion for agricultural c'ommodities and their domestic
resource costs have been calculated for a number of
countries, giving some quantitative measures of the             ---
implication of pri('e policies.'" Similarly, quantita-        t3 Bela B.al.assa, "Reforming the System of Inci'ntives in
tive estimates of the welfare costs and benefits of         t)seloping Countries," World Bank- S' ''I V. ....... Piper No 203.
price polCiSO          certaiAn developmental goals         .\pril 1975. and "Prospects for D)eveloping Countries 1978 9185"
sto  et                                       (The Wtorld B.ank F(onomic Analvsis nd Projectionis )Dpr,rrtment,
base been provided, assisting in a comparison of            1977).
altrnaltive policy optiolns.'                                 14 td-/d [)Jt /rot7b7pn/ Rlt'fr7- 1982 (see pages 48 arnd 49)
t)rovides a summary of the svstematii differences in agrircrlturat
kk'hile the outcome of the research has proved              incentives .across Courntries, with nominalt protectiont (ocflicients
useful, some issues raised by these methods need to         rainging fromO.3 togenrrallt less thani I in deetlopinecountries,and
be discussed with a viewv to improving their applica-       incre.isitng to over I and going upto as much as 3 in the industrialized
countries Generatly speaking, the undervat.Idtiort of agricutture in
hilitv. Four such issues are: the choice of a reference     relattvell lows-inconime countriescomes out quite Ictcrly in iteC Btink's
point fr'om which to measure distortions in prices;          ork.
the static nature of' the measurements that are               I ;. For intstrn(ce. see rcomparisons rf pri(c sutpports versus Input
enmployed. the definition of economic welfare; and,         suhsidies on the one hand, and partial sersus crrmple'te season.nr
fintt, the use of such efficienc                           stitiitilzaiin in Geeorge S. Trolley, \'inod T'homrnas, and Chuing \ting
h  ue0sc ny  indicators in  'Wong, .Ar[ctu/trra/ll Prt,. /), I't,(Ii rl 1lt, AwntloIn,ptng (C"'tin/in
providing policy advice.                                    (Baltimore trnd ltondonn The Johns Hrrpkins L'niersity Press,
1 982)
World   market prices are usually     chosen  as a            t6 .As seen in the tcl-71tid I),', ir;ttl 0/ Rinp  ti 1982, there isa
reference point against which diistortions are mea-         systemati( rclatrionstipt betwveen .igricultural prort(tion levets mnd
-ured.                                                       ro'hile in one sense the choice of world  (ountry st.rge or ecorrnrti( devetlopment. Nleisurecrennts oft pri(e
distrrtio ns needt tr he irsitae sensitive to this issue. just as indurstrirl
agricultural prices, which are supposed to measure          proe(ctiom is ofrten rccommended as .rn instrument for ((ronoii
the oppportu nity costs of a country's agricultural         develtrpmnent, sO, tro, is agriruliural protectiorn import.ant.
---- --- ----                              B --K



8  RESE R(CH NENW'S                                                                       FALL/'eINTFR 1982
the size of distortions in prices and their effects on     brush indicators. Furthermore, "the consumer and
resource allocations. Additionally, it is important to    producer surpluses approach" measures the gains
recognize that while, in the short run, additions to      or losses that result from deviations from equilib-
agricultural output can usually be obtained only by       rium, implying by definition that any deviation
increasing real costs, over longer periods, changes in    from   equilibrium  will cause welfare losses as
the patterns of resource use from increased invest-       measured by the "welfare triangles." It should be
ment, learning experience, and technological devel-        noted, however, that this approach can still provide
opments can actually lower prices. Investment in          estimates of a "least-cost solution" when several
research and technology may be too low, however, to       policy alternatives are under consideration and, in
generate such resource-saving production patterns,        general, is amenable to adaptations in the interpre-
even after favorable price policy interventions.'7        tations of "welfare losses" to account for country-
Also, the speed of producer and consumer responses         specific situations.
to changing agricultural prices varies across crops
and countries and needs to be taken into account. In       Because the use of international prices as reference
the case of Argentina, for example, crop production       points tilts pricing policy recommendations in a
rose 19 percent in one crop year, 1976-77, primar-         particular direction, the movement from measuring
ily in response to better incentives, while in the Ivory  distortions and welfare gains and losses to recom-
Coast increases of 26 percent and 37 percent were         mending specific price policies, in actual country
recorded in rice production in 1974 and 1975, after       work, requires a leap of imagination and resource-
the price reforms of 1973. The introduction of risk       fulness. While efficiency indicators are quite useful
parameters could be important as farmers rarely           in demonstrating to policy makers the structure of
behave in risk-neutral ways, especially if they are in    incentives/disincentives and   in  providing some
rainfed agriculture and faced with fluctuating            numbers with which to review and evaluate their
prices and new technologies. The consequences of          intervention policies, additional work needs to be
neglecting risk-averse behavior have been explored        done to participate effectively in the policy debates
for Mexican agriculture; the results suggest biases,      that occur on the agriculture sectors of the develop-
usually by an overstatement of output levels for          ing countries. As a first exercise, it is often possible
crops in which the variance in crop revenue is high       to do some further quantification of the employment
or varies positively with that of other crops."           and income implications of price interventions.' In
Finally, static indicators of efficiency and incenti-     general, however, these have been of an ad hoc
ves/disincentives are often inadequate in discrimi-       nature, and are not as yet well integrated with the
nating between elements that could be crucial in          efliciency indicators.
motivating policy response. For example, incentive        Trade and Specialization
measures should be able to discriminate between                          P
supplv responses that manifest themselves through
sA number of issues emerge in the policy debates on
additional land use, fuller utilization of given land
and multiple cropping, the use of new technologies,       agriculture in developing countries with respect to
or even changing crop patterns to higher-valued
crops. The crop typology presented earlier repre-           17. See Lucio Reca, "Argentina: Country Case Study of
sents another dimension along which efficiency            Agricultural Prices and Subsidies,' World Bank Staff Working
indicators might be adjusted.                             Paper No. 386, April 1980, and William Cuddihy, "Agricultural
Price Management in Egypt," World Bank Staff WVorking Paper
The welfare gains and losses from price intervention      No. 388, April 1980.
are usually measured through the use of the partial-        18. See P. B. R. Hazell and others, "The Importance of Risk in
equilibrium  constructs of consumer and producer          Agricultural Planning Models," World Bank Staff Working Paper
surpuse; tese intur, deendon stiate oftheNo. 307, November 1978. Also see the comprehensive survev of risk
issues by J. Roumasset, J. Nt. Boussard, and 1. J. Singh (eds.), Risk,
price elasticities of demand and supply. It is found      I nc'erlaintv1 and Agricilturol Dcz'cIm),ncn1, (Mtanila. Philippines:
that estimates of agricultural supply elasticity often    A.D.C./Searca Press, 1979).
tend to be inadequate, especially for yield responses       19. See Gilbert Brown and Carl Gotsch, "Prices, 'I'axes and
and, therefore, partial-equilibrium  measures such        Subsidies in Pakistan Agriculture: 1960-1976," World Bank Staff
as "welfare gains" to producers and consumers that        Working Paper No 38. Aprital Input and Output Prirind,.
are based on them can only be interpreted as broad-       World Bank Staff Working Paper No. 385, April 1980.
EE-TIHE WORI.D BANK



i XXIN It R 19X2                                                                   Pt"4  j D ." \    '
crop choice and specialization. To a certain extent,    assessments of comparative costs in the domestic
price policy may be a cornerstone of a country's       agriculture sector and for intrasectoral and intersec-
pattern of trade in agricultural products, thereby     toral comparisons. They do not, however, answer a
affecting go\crnment revenues, domestic inflation,     question relating to comparative advantage: what is
and other critical macroeconomic variables. The        the trade-off between specialization in a few crops
experience of Kenya after 1975, when spectacular        according to comparative advantage anti the risk of
increases in agricultural exports were recorded with   income fluctuations. For the developing countries,
a concomitant spurt in overall economic growth,         where agriculture is dominant, this is an issue of
directs attention to the role, via trade, of price policy  fundamental importance.
on the economic well-being of the developing
countriess that produce primary goods."' The issues    The determination of an appropriate exchange rate
that are discussed here are: measuring comparative     is a crucial issue, not only for general economic
adkantage, exchangeovervaluation andexportcrop        policy but also because of the specific impact on
choice, food self-sufficiency, and, finally, commod-   agricultural prices and incentives. Overvalued ex-
ity price stabilization.                               change rates function as an implicit tax on agricul-
tural exports and as an incentive to import rather
In general, the thrust of the Bank's policy advice has  than to produce domestically. An associated prob-
been that the structure of a country's agriculture     lem is: At what rate should the price of foreign
should be determined by international comparative      exchange be managed, and how does this affect the
advantage; there is a tension, then, between the       crop mix" Often, this is related to arbitrating
question of wvhether prices should be determined by     between the need for export promotion and import
domestic considerations (distribution, self-sufficien-  substitution in industry and agriculture. In lieu of
cv, revenue, price stabilization) or international     an export tax, overvaluation can work to limit a
forces. As mentioned earlier, recent estimates of the  country's crop exports when the international de-
deviation of domestic agricultural prices from world   mand for these exports is relatively inelastic. Alter-
prices for a sample of seven countries showed that     nativelv, when combined with import duties on
the domestic prices of most commodities were lower     food, overvaluation may serve to provide greater
than their world prices, suggesting disincentives to   incentives to domestic food production rather than to
domestic agricultural production and exports. Con-     the production of cash crops for export. Using
trast this result with the protection afforded domes-  small-country assumptions, however, the central
tic 2ndiusvtr/tl/ production in the same group of      issue is that exchange rate overvaluation is a tax on
countries-Argentina, Egypt, Kenya, Pakistan,           exporters, which does not result in any generation of
Portugal, Thailand, and Yugoslavia-where the           additional revenues for government. In fact, the
domestic prices of industrial goods range between      "exchange crisis" in many developing countries
'9  percent and 150 percent above international        may itself be caused by a lack of price incentives for
prices. A first step, therefore, is to be able to measure  agriculture. Undoubtedly, in countries like Ghana,
the comparative cost advantage of producing agri-      Uganda, and Zaire, the problem calls for immediate
cultural commodities. Building on the efficiency       attention, but in a more general sense it affects the
indicators mentioned in the previous section, the      agricultural exports of most developing countries.
commonlv used measures in the Bank's research are
the domestic resource cost and net economic benefit    In most of the Bank's country economic and sector
estimates. 'Fhe first of these estimates, the domestic  work, the question of self-sufficiency in food is
resourc'e cost (DRC'), measures the costs in domestic  addressed through simple ratio analysis: the extra-
currencv units of earning (through exports) or
saving (through import substitution) a unit of           2
foreign exchange. This is a special case of the net    Subsidies in Kenvas Agricultural Sector" (The World Bank:
economic benefit measure, which is part of the         A\griculture and Rural Development Dleparitmeet, Economics and
Bank's standard methodology of project evaluation.     Policy Division, 1977).
As commonlv used, the DRC is a static measure,           21. See Lyn Squire and Herman C. van der Tak, Ec,niz,mic
though it need not be so in principle.2' While data    .lrtal/Vt, ,, r/1cLt (Baltimore and l.ondon: The Johns liopkins
University Press, 1975, 4th printing, 1981). Also see Aniandarup
problems mRake it difficult to estimate these indica-  Ra. bt', it           A/'nahiio (The World Bartk. 1983,
tors accurately, they are adequate for qualitative     forthcoming).
Il tii\ttftil 01 BV'. \   .'.>



] 0  RESEARC II NENkS                                                                    FALL/WINTER 1982
polation of trends in food demand, supply, and            attention, albeit in a very aggregative fashion, has
imports, adjusted for aggregate income elasticities       focused on aspects of agriculture sector/industry
and  forecasts of aggregate growth rates. Price           sector and rural/urban distributional issues, rela-
analysis has not played much of a role in these           tively less work has been done on the regional
estimates because very few of these exercises employ      aspects of pricing policies and on the impact of
explicit models incorporating the response of pro-        interventions on the distribution of personal income.
duction, consumption, and import demand to price
changes."l There is need, however, for a selective        It is well-known that few policy makers think of the
analysis of the objectives of policies for food self-     terms of trade between agriculture and industry as
sufliciency, the costs to the economy of attempting to    an instrument of macroeconomic policy. The terms
raise the domestic prices of a few critical food crops    of trade are usually skewed against agriculture, thus
above international prices, and the difference be-        being in line with past development theories, which
tween foreign exchange saving and food security           see agriculture as a vast source of surpluses-labor,
motivations.                                              savings, foreign exchange, marketed output, and
governmental revenue. Lately, in a post-1973 envi-
A  great number of attempts are made in the               ronment that is characterized by slow industrial
developing countries to insulate the domestic econ-       growth, a reorientation of strategies is occurring,
omy from the effects of fluctuations in international     especially as it is becoming apparent that the slower
prices. The motivations for such policies are diverse,    rate of labor absorption in industry will have to be
but research seems to indicate that income instabil-      offset by rigorous job creation in rural areas.
ity is of greatest concern to developing countries that   Agriculture continues to offer numerous profitable
export primary goods. There continues to be a             opportunities for generating foreign exchange, with
misunderstanding that price stabilization automati-       trade in industrial goods not being the great engine
cally leads to more export earnings and government        of growth it was vaunted to be in early development
revenue stabilization, without sufficient exploration     theory. There is increasing evidence that savings
of the conditions under which this might be true.23       propensities and absorptive capacities in agriculture
Another important issue relates to whether subsis-        are quite high, comparing favorably with those in
tence farmers are deterred from   producing cash          industry; the problem    of the seeming lack of
crops because of the instability of income and            profitable projects may be caused by policy-induced
consumption that would result from price fluctua-         low prices; a number of projects that have recently
tions. It may often be the case that small farmers        been rejected may become viable if governmental
prefer stable prices to fluctuating prices, even if the   controls on the agricultural terms of trade are
latter imply a higher average price over the long         relaxed. The policy dilemma that occurs in some
run. In such cases, the appropriate form of interven-     developing countries is one where domestic agricul-
tion could be through crop insurance and support          tural prices are too high in relation to international
schemes, but it may be better in the longer run to        prices, but are too low with respect to domestic
extend credit facilities for the financing of invento-    nonagricultural prices. In such cases, it is necessary
ries and to improve the basic infrastructure that will
permit a greater role of the private sector. Much
work remains to be done in exploring the appropri-          22. An exception is a model for South Asia which is based on the
ate forms of price stabilization.                         estimation of an extended linear expenditure system, see NM.
Osterrieth, E. Verreydt, and J. Waelbroeck, "The Impact of
Distribution                                              Agricultural Price Policies on Demand and Supply, Incomes, and
Imports: An Experimental NModel for South Asia," World Bank
The relationship between agricultural price policies      Stalf Working Paper No. 277, April 1978.
i  s c x                     23. See E. NI. Brook, E. R. Grilli, and J. Waelbroeck,
and distribution iS complex, but It iS a crucial area m   "Commodity Price Stabilization and the Developing Countries: The
the analysis of price intervention. This is also an       Problem of Choice," World Bank Staff Working Paper No. 262
area where both the Bank's research effort and its        July 1977. Also, Jos de Vries, "Compensatory Financing: A
economic and sector work have been less successful        Quantitative Analysis," World Bank Staff Working Paper No. 228,
in analyzing or recommending policy actions. The          December 1975. For a comprehensive analysis of the stabilization
in aalying  r rcommndig poicyactins.Theand risk issues, see David NI. G. Newbery and Joseph E. Stiglitz,
complexity of the issues involved may be one reason       T/he Thee,r, ',f Commnodul P'rice, Slabtlzlalztn (Oxford: Clarendon
for the lack of comprehensive analysis. While some        Press, 1981).
THIl WORI.I) BANK



carefully to evaluate the objectives of governmental  consumers and often causes distress sales of land and
policy before designing strategies to affect either of  other assets by the rural poor. A substantial body of
the two sides of the terms of trade.                  evidence suggests that often input and output
subsidies which are intended to lower effective
A corollary of the skewed terms of trade between       prices for specific poverty groups do not reach these
agriculture and industry is that rural areas suffer   groups, and the main beneficiaries are usually
from distinct discrimination with consequent ad-       urban middle- and high-income groups. This is
verse effects on rural outmigration. Undervalued      often, then, a serious constraint on recommending
agricultural prices may be a prime contributor to      packages of price increases that are coupled with tax
creating a suboptimal rural work force. The precise   and subsidy policies to achieve income distribution
nature of links between the rural and urban sectors   objectives. There is scope for much more analysis of
needs to be determined before exploring the effects   the income distribution issues involved in price
(intended/unintended, short-term/long-term) of        intervention, particularly relating to the effects on
agricultural prices and their trajectories. These     the structure of employment and factor use, on
include the migration   response to changes in        different types of farmers, and on poverty and
welfare, the price elasticities of rural savings and  malnutrition.
marketable output surpluses, the nature of demand
for rural products in urban areas, the rural market   Public Finances
for industrial goods, and, for policy purposes, the
welfare weights associated with individuals in the    Relatively greater attention has been paid in the
two sectors.2                                         Bank's country economic and sector work to the
consequences of agricultural price intervention on
Although a number of developing countries suffer      government revenues and expenditures than to
from serious problems caused by a maldistribution     other issues in this area, with the possible exception
of resources and incentives along geographical lines,  of structural adjustment loans. This is particularly
the link with differential price policies has been    true for those countries in which parastatal organi-
inadequately explored. These issues are particu-      zations play  a dominant role in agricultural
larly visible in countries like Brazil, India, and    marketing. The measurement of the actual budget-
Peru, but are equally important in countries where    ary effects of exist ing price policies is straightfor-
differences among regions in cropping patterns,       ward. Propectwns, however, are rendered difficult,
cropping intensities, land intensities and land types  particularly by the need to account for a variety of
have generated   differential treatment of their      indirect effects on the production and consumption
outputs and inputs. Over time, regional pressure      sides, which often can be significant. For instance,
groups emerge (for example, between plantation        an increase in farm  price supports can increase
and smallholder areas), which attempt to distort the  budgetary costs to the government, both on account
patterns of incentives towards themselves.P Some-     of the additional marketed surplus induced by the
times governments have restricted the movement of     policy and because of the increased use of inputs
food grains from surplus to deficit areas, thereby    leading to a rise in the amount of input subsidies (if
distorting prices between the two regions. Pan-       such subsidies were also in existence). Equally
territorial pricing is often intended to affect regional  complex are the relationships between the govern-
distribution of income, but produces major distor-    ment's financial cost and the true cost to society
tions; these distortions are particularly worrisome   represented by efficiency losses. The government's
because the incentives are high precisely in those    cost of an output subsidy, for instance, usually
areas where food production may be inefficient.
As mentioned earlier, the structure of the agricul-
ture sector makes the personal distribution of          24. See A. Braserman, R. K. Sah, and J.E. Stiglitz, "The Town-
income in these sectors greatly susceptible to the    Versus-Country Problem: Optimal Pricing in an Agrariani Econ-
level of and changes in agricultural prices. This is  omnn," Country Policy Department Discussion Paper (The World
particularly evident in the transmission of food price  Bank, August 1rc2.          Prices and Subsidies," for
imuleswhrearie n  riescuss  smeims25. See Reca. "Argentina: AXgricultural Pie n usde, o
Impulses where a rise in prices causes a sometimes    examples of the impact of pressure groups on price policy. Also.
calamitous drop in the real incomes of the poor       Scandizzo and Tsakok, Fo,P IPricing PA l ze6. on 'patronage."
0I 1 C                                                                       '.



1 2 RESf:AR(II NFEWS                                                                 VA.I/WINTER 19X2
exceeds the latter by the amounts of transfers from   keeping the prices of food and raw materials low.
the government to consumers and producers.20          On the other hand, much experience cautions
against the provision of subsidies over any signifi-
There are at least two dilemmas that confront         cant length of time. The use of the inputs in
policies with respect to prices and budgets, and each  question-for instance, fertilizer-is well accepted
is concerned with equity and efficiency. The first is  in most cases and offers high economic returns even
the choice between a strategy that holds output       without subsidies; furthermore, subsidies may be
prices down while subsidizing inputs to provide the   responsible for wastage of the inputs concerned
means for continued production and a strategy that    (water, for example). Subsidized agricultural credit
allows output prices to rise as an incentive to greater  may stimulate investment, but often at the cost of
production and substitutes consumer subsidies for     fragmenting financial markets, discouraging labor
input subsidies. The budgetary implications of each   use, and creating adverse distributional effects. In
approach have to be measured and then adjusted by     addition, it has been widely observed that once
welfare weights to decide on a pricing strategy. The  introduced, both output and input subsidies are
second dilemma relates to the choice of taxes on      difficult to lower or eliminate when they are no
agriculture, given that direct taxes do not penalize  longer needed. Finally, the budgetary and macro-
incremental production as much as do indirect         economic consequences of large subsidies are often
taxes. The fact is that very few countries use direct  unfavorable, especially when they are transformed
taxes on agriculture (for example, the land tax)      through political pressures or administrative conve-
sometimes hecause of administrative problems, but     nience into quasi-fixed charges against the revenues
more often than not because of the opposition of      of the government.2"
large landowners with great political influence in
most developing countries.                            The taxation of agricultural exports is an issue that
commands attention in countries such as Togo
Generally, the taxation of agriculture is a strong    where export taxes are the major source of
disincentive to production, but it is an important    governmental revenue. The desire to protect con-
source of government revenue. Therefore, any          sumers of foodstuffs at home and the need for
recommendations made to reduce      agricultural      government revenues are the two major objectives
taxation should identify at the same time alternate   determining the levels of such taxes. The regressiv-
sources of revenue. Some important considerations     ity of many export tax regimes necessitates a
here are the buoyancy of revenues, the diversifica-   reformulation of objectives and instruments. Often
tion of the revenue base, and the differential impact  a more equitable regime can be devised with neutral
of alternative taxes. With respect to the last of these,  budget consequences, as in-cases where export crop
some attempts have been made towards welfare-         lands are taxed, with differential rates applied to
based price policy recommendations in which the       smallholdings and to plantations.
point of entry is on the fiscal side. The formal model
developed for this analysis incorporates the levels of  Towards an Agenda for Future Work
welfare of different groups in urban and rural areas
and looks at the effect of price interventions on the  There is, as yet, no "good book" of agricultural price
welfare of these groups. Price impulses are trans-    interventions to provide the policy maker with the
mitted through the interlinking of markets, and the   guidance necessary to analyze the structure of such
size of the public deficit is the effective constraint on
maximizing national welfare.2 Although there are
some computational problems involved in applying        26. These elTects are analyzed and quantified, wherever possible,
this approach generally, it represents a major step   for the cases of Bangladesh, Korea, Thailand, and Venezuiela, in
towards analyzing pricing issues and responding to     Tolley, Thomas, and Wong, Agriciiltlural Price Po/iciei.
some major policy issues that arise in country          27. See A. Braverman, C. V. Ahn, J. Ilammer, and R_ K. Sah,
economic work.                                         "Agricultural Pricing under Government Budgetary Constraint:
The Case of 'Korea,' " Country Policy Department Paper (The
Input subsidies have been defended on grounds that    World Bank, 1982, forthcoming).
Input28. See Sweder van Wijnbergen, "Short-Run NMacro-Economic
they assist in speeding up the adoption of new,       Adjustment Policies in South Korea: A Quantitative Analysis,"
input-intensive technologies, while at the same time  World Bank Staff Working Paper No. 510, November 1981.
ItlB *VORI.I) BANK



t XI I \XINII R 19X2                                                              #ESI XWit II \\0%',
interventions or to implement a set of rules in their  single-objective, single-period indicators in current
proper sequence and with fewest adverse side           use. Finally, there is at best only a "textbook"
effects. If such a hook were to exist, however, it     understanding of the links between pricing policies
would probably need to answer some of the same         and major macroeconomic developments. Partly,
questions as those that arise in the Bank's economic   this reflects the limited view imposed by modes of
and sector work. The questions that are repeatedly     analysis that are suited to analyzing issues in
asked are: Are agricultural prices distorted and by    developed-country agriculture, where agriculture
how  much? How     do these distortions affect a       typically constitutes a small part of total output and
country's comparative advantage? Who benefits          employment, unlike in developing countries where
and who loses in the short and long run from price     it is typically a more important sector. While the
interventions' What are the macro side effects,        emphasis of micro issues is undoubtedly important,
intended and unintended" What are the govern-          greater efforts need to be made to develop a macro
ment's objectives and are they well formulated and     perspective. For example, the link between agricul-
focused? How do existing price interventions help      tural prices and rural savings, the effects of pricing
meet these goals? How    should price policy be        changes on aggregate consumption, investment,
changed to serve better these objectives) Are there    and, ultimately, the balance of payments requires
instruments, administrative capacities, and the        further investigation. At the same time, while price
political will to effect these changes successfully and  changes in both agriculture and industry are
in cost-efficient ways? In this concluding section, a  important, food price increases are transmitted
summary is presented, as well as personal views, of    fairly  quickly to wage negotiations, and   the
possible directions that future Bank research in this  resulting wage pressures may have adverse effects
area might take.                                       on a country's exports.
There is clearly a research gap that needs to be       A second lesson from the Bank's work is that time is
filled. At least four major areas can be identified for  an  important dimension  in  policy  reform  of
Bank research. First, it is clear that static welfare  agricultural prices. The responsiveness of both
losses, while important, are relatively small in       producers and consumers increases as time passes.
comparison to the various income transfers that take   This should determine the phasing of reforms for at
place from price intervention in agriculture. The      least two reasons. First, given the difficult fiscal and
measurement of these transfers, their impact on        balance of payments situations of most developing
distribution and efficiency, and the politico-eco-     countries today, there may be an instinctive desire
nomic setting in which they operate are important      for short-term solutions. The interaction between
areas of inquiry. Second, while there is general       subsidies, tax collections, and import/export effects
agreement about the price responsiveness of produc-    over the medium and long term are, however, the
tion, little is known  about the characteristics       dominating influences in a country's agriculture
(especially of the decision-making processes) of the   sector, as producers and consumers seem to respond
responders. Specific knowledge of the behavior of      in more predictable ways when the permanency of
deficit farmers is required, for example, to be able to  reforms is established. Second, the distributional
understand not only the production response to         effects of price reforms are such that the poor
price changes, but also the accompanying phenom-       usually need to be protected during the transition to
ena of land abandonment and distress sales, rural      new price regimes. The object of such protection is
outmigration, and the increasing proletarianization    to safeguard income and nutrition levels, leaving the
of these farmers under certain pricing regimes. 1
Third, analytical tools that take account of multiple
objectives are of relatively recent origin. These have
mainly been generated ithrentliterature on               29. In the design of the Bank's large-scale Nifuda Irrigation
milbengnrtdin the recent ltrueon                 Protect in Malakysia, for example, the oil-farm employmentiof deficit
optimum  taxation or in the related field of cost-     farmers was inadequately ac(ounted for, partly because of a lack of
benefit analysis. " The Bank is experimenting with     specitir models and information on sueh farmners. For an example of
such approaches: for example, the so-called "social"  the kinds of studies that may be required, see Inderiit Singh, "Small
c(ost-benefit analysis approach, when fully devel-     Farmers and the la..ndless" (draft book), available through the
or    e i a            p      s                  World Bank's Eastern Africa Regional Office.
oped for use imin agricultural policy studies, will      30. See A. B. Atkinson and J. E. Stiglitz, 1uLeclur in P1ltTict
represent an improvement over the essentially          E,,n,   (Nexv Y'ork: NMcraw-Hill, 1980).
0  ii -xNM I)D liXNs,.



1 4  RLSILA( HI N-I.'S                                                                    FAI.I/N WINTER 1982
task of raising standards of living and providing          Balassa, Bela. "Reforming the System of Incentives in
viable long-term employment to other policies.                Developing Countries." World Bank Staff Working
Paper No. 203. April 1975.
The Bank's research and its sector work have
generally  avoided questioning   the objectives of         Bale, NIalcolm D., and Lutz, Ernst. "Price Distortions and
governmental price    policies in the developing              their Effects: An International Comparison." World
countries; this is, however, becoming increasingly            Bank Reprint Series: Number 173.
important in the context of structural adjustment          Bertrand, Trent "Thailand: Case Study of Agricultural
loans. It seems that much can still be done in country        Input and Output Pricing." World Bank Staff Working
work that is not related to structural adjustment             Paper No. 385. April 1980.
without altering in any fundamental way the nature
of the dialogue between the Bank and a member              Braverman, A.; Sah, R. K.; and Stiglitz, J. E. "The Town-
country. It is possible to assist in focusing policies        Versus-Country Problem: Optimal Pricing in an Agrar-
and formulating objectives in ways that will allow            ian Economy." Country Policy Department Discussion
for empirical verification and feedback. For exam-            Paper. The World Bank, August 1982.
ple, in examining the rather diffuse objectives in the
area of food self-sufficiency, it is useful to ask: self-  Brook, E. NI.; Grilli, E. R.; Waelbroeck, J. "Commodity
are o fodsef-sffcin    ou tpt i n sflt all:sefoo      Price Stabilization and the Developing Countries: The
sufficiency in all agricultural output? in all food           Problem of Choice." World Bank Staff Working Paper
output' in all food-producing inputs (for example,            No. 262. July 1977.
food grain for livestock)? in a few strategic grains?
or just in a single staple?                                Brown, Gilbert, and Gotsch, Carl. "Prices, Taxes, and
Subsidies in Pakistan Agriculture: 1960-1976." World
The symbiotic relationship between research and               Bank Staff Working Paper No. 387. April 1980.
operational work that is to be found at the Bank has
generated a number of useful analytical tools and          Cuddihy, William. "Agricultural Price Management in
insights over the years. The increase in research             Egypt." World Bank Staff Working Paper No. 388.
initiatives in the field of agricultural pricing issues       April 1980.
portends well for the future. A point that needs
stressing, however, is that probably more so in this       De Vries, J. "Compensatory Financing: A Quantitative
than  iother as      of eonomi    work, thes           Analysis." World Bank Staff Working Paper No. 228.
area than     other areas o   economic work, the                       1975.
creation of capacities within national institutions to
carry out the kinds of analyses mentioned here will        Duloy, John H., and Norton, Roger D. "CHAC, A
greatly enhance the effectiveness of policy work.             Programming NModel of Nlexican Agriculture." In L.
One reason is that the Bank is often hamstrung in             Goreaux and A. NManne (eds.), Alulti-Level Planning:
some fields of analysis where local institutions             (Case Studies In MXlexzco. Amsterdam: North Holland
might not have the capability: for example, it is often       Publishing Company, 1973.
necessary to advise governments about how to
mobilize political support for pricing    reforms.        Graves, J., and Kimaro, Y. "Functional Review of the
Another reason for transferring analytical models             Treatment of Agricultural Pricing in Bank Group
and skills to the developing countries is that the            Economic and Sector Reports-Progress Report."
nature of agricultural price interventions makes it           Economics and PlicyuDiltvire and Rural Development
imperative that there be continuous monitoring and            Department, 1976.
analysis. The ability of local institutions to do this
needs to be built up over time."
Reports                                                     31. In this regard, the Bank's preparation of the CHAC model
and its eventual application by the Mexican agricultural authorities
Ahn,Chong Y; Sngh,lndrji; an   Sqire,Lyn "Ais a noteworthy example. See John H. Duloy and Roger D. Norton,
Ahn, C'hoong  . Singh, Inderjit; and Squire, Lyn. "A      "CHAC, A Programming Niodel of Nexican Agriculture" in L.
Model of an Agricultural Household in a Multi-Crop     Goreaux and A. Nfanne (eds.),Moultz-Level Planning: Case Studies
Economy: The Case of Korea." World Bank Reprint       in Mlexico (Amsterdam: North Holland Publishing Company,
Series: Number 222.                                    1973).
THiEF WORLD BANK



5XI i. [R 9i8                         -Pt -.. .I
lI azellI, Pleter B. R.. and others. "'I'he Importance of Risk in  Squire, Lvn, and van der Tak, Herman (., Ecoon)MtC
Agricultural l'lanning Nlodels." World Bank Staff           .-lla/hols ,'f I'u'oith. Baltimore and London: The Johns
Working Paper No. 307. November 1978.                      IHopkins University Press, 1975, 4th printing, 1981.
Nh  oughlin Associates. P .. L.td. 'A Study of Prices and  T 'immer, C. Peter; Falcon, Walter P.; and Pearson, Scott.
Subsidi"s in Krenry's Agricultural Sector." The World                 v inoiy- t - Baltimore and london: [he
Bank. Agriculture and Rural Development Depart-             Johns hlopkins Universitv Press, 1983. forthcoming.
menet, n(ont i(s and Policy Division, 1977.
Ncwherv, David Nl. G., and Stiglitz, Joseph E. 17ce Thcorl  'Tollev, C;eorge S.: 'I'homas, \'inod; and NVong, Chung NI.
,,/ (.'n t1o,ay I'rIc', .Si'ahl/tzocti n . Oxford: Clarendon  .1,orictlf Iii l I'ml Rt en'oh s aii( Develn/ 'pcngt (.; n rmrz'c
Press, 1981.                                                Baltimore and London: The Johns Hopkins University
Press, 1982.
Osterreith, NI.; \'errevdt, E.; and Waelbroeck, J. "The
Impact of( Agricultural Price Policies on Demand and
Supply, In(omes, and Imports: An Experimental Nfodel     van Wijnhergen, Swveder. "Short-Run Mac(ro-Economic
f'or Sou;h .\si;." WVorld Bank Stall Working Paper No.      Adjustment Policies in South Korea: A Quantitative
27' April 19X8.                                             Analssis." World Bank Stalf Working Paper No. 510.
November 1981.
Re(',, ILuCio "Argentina: Countrv Case Study of Agricul-
tural Pri(es and Subsidies." WVorld Bank Staff WVorking  't'he World Bank. "Agricultural Prices, Subsidies, and
Plaper No. 38(0. April 1980.                                Taxes: A Summary of Issues-Policy Note." Agricul-
S(atndizzo, Rasquale _., and Bruce, Cohn. "NMethodologies       ture and Rural Developnieit Department, FehrUary 26,
for NMleasuring Agri(ultural Price Intervention Effects."    1979.
WVorld Bank Stafl Working Paper No. 394. June 198(1.
--. "Prospects for Developing Countries 1978-
Scandizzo, Pcsquale L., and Tsakok, Isabel. "Food Pricing       1985." Economic Analysisand Projections Depart-
Policies in D)c'seloping Countries." Economics and          ment, 1977.
Polity Divisi(n Wcorking Paper No. 46. The World
Bank: Agriculture and Rural Development Depart-               .18rlld D)e '-''olm/inc  Rlhp)f,r 1982. New \ ork:
menit, July 1982.                                           Oxforrl Umnitersitv Press, 1982.



1 6 RISI:AR(IH NFEIS                                                           FAIl.T/WINTER 1982
COMPLETED              RESEARCH                    education alone; and none. There was one experi-
mental overlap between groups: the village receiv-
All internal reports cited in this section may be  ing nutritional supplementation and health care for
obtainedi fi-omn Philip Mitchell, World Bank Re-   preschool children was in the population component
search D)ocumrentation Center, Room I 8-203. To    as the group receiving family planning and child
ensure prornpt handling of requests, include pay-  care services.
ment for itevms marked with *~.
The main objective of the nutritional component
Narangwal Population and Nutrition                 was to explore the relative contributions of poor
Project                                            nutrition and other socioeconomic factors to child
mortality, morbidity, and growth and development.
Ref .Ao. 671-38                                    The hypothesis was that poor nutrition would
adversely affect morbidity and that morbidity would
Since 1976, a multidisciplinary team of researchers  act synergistically to raise child mortality. Measures
from  the World Bank and the Department of         of maternal influences, such as birth weight and
International Health of The Johns Hopkins Uni-     maternal height and socioeconomic status of the
versity have collaborated on the analysis of extensive  family (caste, landholdings, parents' occupations,
data on fertility, family planning practices, and  education), were available. It was postulated that
nutrition and health behavior in the Narangwal     socioeconomic status affects child growth, develop-
villages in Ludhiana district of Punjab, India. The  ment, and morbidity mainly through three interme-
data, collected between 1966 and 1974, were part of  diate variables: availability and quality of maternal
a controlled experiment in groups of Punjabi       care, quantity and quality of diet, and housing and
villages that were provided with various combina-  environmental conditions.
tions of health, family planning, and nutrition    On the population side of the project, the main
services over time.                                obj            study the outcome of integrating
The experiment had been designed and executed by   family planning services with health services. Due
the staff of Johns Hopkins; the World Bank became  to the range of intervention strategies in the
involved in the Narangwal study at the data analysis  Narangwal project design and the broad coverage of
stage. Bank economist Rashid R. Faruqee joined     socioeconomic variables, the purpose of the analysis
with a university team of public health specialists,  was to gain understanding of important policy
led by Dr. Carl E. Taylor, to analyze the efficacy  issues, such as:
and cost of choices of service packages aimed at   * The effect of health services on family planning
addressing a community's fertility and health         practices and on the health status of households
objectives.                                           with different socioeconomic characteristics.
The data analysis had two focal points-a nutrition  * The possible trade-offs at alternative levels of
dimension and a population dimension-each re-         health and family planning services between
sponding to a similar dichotomy in the original       different program components.
study. For the nutritional part of the experiment,  * The influence of household, socioeconomic, and
four groups of Narangwal villages were provided       community characteristics on the demand for
with different levels of nutritional services. One    and use of family planning and health services.
group received nutritional supplements and health  * The effect of the perception of child mortality on
care; another was given nutritional supplements       family planning acceptance and child-rearing
alone; the third group received health care alone;    practices.
and the control group received none. In the           acTies.
population part of the experiment, five groups of  * The most successful patterns and sequences of
villages likewise received different service packages,  contraceptive protection.
namely, a combination of family planning, women's
services, and child care services; only family     The results of the nutrition part of the project
planning and women's services; only family plan-   showed that nutrition care alone or in combination
ning with child care services; family planning     with health care significantly improved both weight
O    |lIE *ORI.I) BANK



F- 1  INIFK 19X2 RNF- Xii 11 Ni 1E                                                         >
and height of study children beyond the age of 17   the average cost per service contact was
months. At the age of three years, children from    $0.20-about the average cost per patient visit in
nutrition care villages were 1.3 centimeters taller  government primary health centers in the Punjab at
and weighed on average 560 grams more than         the time.
children in the control group villages. Children in
the health care villages were in between the control  The central focus of the population research compo-
group and nutrition care villages. Among the many   nent was to identify the possible effects of different
socioeconomic and demographic variables tested,     levels of health, nutrition, and family planning
sex and caste had an especially pronounced inde-    services on family planning practices and fertility,
pendent and additive effect, especially on male     as well as to understand their interaction with the
children of higher caste who experienced a two-     socioeconomic characteristics of the clients' house-
centimeter improvement in height and gained up to   holds.
three-quarters of a kilogram in weight.             The first step was to measure the changes in family
Results from regression analyses on a subsample of  planning acceptance resulting from the delivery of
180 children on whom exact dietary measurements    one of four different service packages. It was found
were obtained showed a strong relationship between  that in each of the four sample groups about 10
dietary intake and achieved anthropometric status.  percent to 1 5 percent of the couples had used some
Conversely, the amount of food consumed was         form of contraception prior to the study. Upon
associated with achieved growth and socioeconomic  initiation of the service delivery programs, all four
status. Psychomotor development was found to be     groups experienced a rapid increase in contiacep-
directly aflected by past nutritional status and, to a  tive use, but by the end of the program there were
lesser extent, by present nutritional status and past  differences among the groups regarding continuing
morbidi t.                                          contraceptive use. The highest user rate was
achieved in the group with combined family plan-
Interestingly, while health care caused a significant  ning and women's services, closely followed by the
reduction in the average duration of infectious     group having those services plus child care services.
diseases among children, it was nutrition care that  The family planning plus education group was in
significantly reduced perinatal mortality among    fourth place for ever-users and third place for
women. WVhile the control group of women experi-    continuing users, despite the fact that costs per
enced 57 deaths per 1,000 live and stillbirths, for  acceptor were eight rupees, compared with from
health care villages the figure was 45 deaths per   two rupees to five rupees per acceptor in the other
1,000 births, and in nutritional care villages, the  groups. In addition, the family planning education
figure was reduced to 31 deaths per 1,000 births.   group required thrice the service conta(t time.
For children, by contrast, services to control
infectious diseases outweighed nutritional care in  Based on the finding that previous use of any form of
reducing neonatal, postneonatal, and one- to two-   contraception predisposes participants to accept
year-old mortality by as much as 33 percent to 50   newer forms of contraception and to continue using
percent.                                            contraceptives, it appears that if the aim of a
program is to raise the level of contraceptive practice
Detailed measurement of the delivered services      in a community, greater impact can be achieved by
demonstrated clear differences between experimen-   focusing on couples who were once contraceptors.
tal groups in terms of staff time, service contacts, and  For instance, in Narangwal, only one-third of the
costs. The costs per unit of service were very similar  previous nonusers became contraceptors during the
in all groups; however, nutritionally served village  program, while almost one-half of those couples
groups were most costly per capita due to the higher  who had used traditional/indigenous methods and
average number of feedings provided for each child  almost three-quarters of prior users of modern
under three years of age. The largest amounts of    methods did so.
service time and contacts were in the combined
nutritional,/health care villages where the average  Socioeconomic and attitudinal variables that could
cost a year per child under three was $21 (in 1970  mediate change were included in the analvsis to
prices). The average cost per feeding was $0.40 and  obtain insights into the possible trade-offs at alter-
I'll! "O(RI.A) }xi>h tK



i  Ri StF 9  \Ii NIAAS                          ____        ___                FA.,/WINTVR 1982
native levels of health, nutrition, and family plan-  from the results of 1973, the last year of the study.
ning services. Nlultivariate relations were measured  The observed marital fertility rate (live births per
by linear regression models. Predisposing variables  1,000 women) was 198: it would have been 224 if
in explaining variations in acceptance of family    couples had not used contraception from program
planning were found to be: education of husband,   sources the previous year. Further analysis is
age of wife, family size, child mortality experience,  needed in this area with refined variables, especially
interspouse communication, prior contraceptive ex-  in defining fertility.
perience, and attitude toward family planning.
Services related to treatment of women's illnesses,  In the analysis of contraception it is also necessary to
children's services in general, and motivational   identify the patterns and sequences of contraceptive
programs for men were found to be significantly     use that are most successful in sustaining high levels
related to acceptance. The treatment of children's  of protection. In the field, the level of protection was
illnesses did not have significance in explaining the  not strictly related to the clinical effectiveness of
length of contraceptive use, but all other services  different methods, but to regularity and care in use.
provided did appear to have impact. The analysis    Among temporary methods, the failure rate, indi-
indicated that the provision of services had signifi-  cated by pregnancy, was highest for the pill (29.2
cant impact on the acceptance of farnilv planning,  pregnancies per 100 women years of use), followed
but less so on the duration of contraceptive use.   by the condom (26.8 pregnancies), and was lowest
for the injection depo-provera (3.1) and the intra-
It was observed before the project began that there  uterine device (IUD) (5.2). In continuity of use, the
had been significant differences in family planning  IlJD  fared best with 60 percent still using the
practice between socioeconomic groups. With the     method after two years, followed by the injection
,start of the project, a new relationship emerged:  with a 40 percent continuing user rate. Condoms,
greater use of services was more strongly associated  the most preferred method, had a 30 percent
with greater acceptance of family planning prac-    continuation rate, and only seven percent of the pill
tices. In this regard, it was important to ascertain  users did so for two years or more.
whether the use of health services was already
associated with socioeconomic advantage. In the     Prior to the Narangwal experiment, it was not
treatment of ill children, no significant dilflerences  possible to examine the merit of the integration of
were found among groups. With respect to the        family, health, and nutrition services in terms of
treatment of ill women, however, those households   their combined impact. Data from the Narangwal
that owned land or had modern household amenities  study, which is now well-known and well-docu-
were higher users, and women under 35 vears of age  mented, have made this possible.
were more often treated than women over 35 years.   The results have significance for the Bank's
In terms of the effect of the perception of the     operations in health and population and for country
likelihood of child mortality, the study established a  planners and other researchers. Within the Bank,
clear association between decreased fear of child   most population projects are health-based-pri-
mortality and increased use of contraceptives.      marly in maternal and child health, yet none of the
Bank's own population projects has been in
In evaluating the ultimate impact of the Narangwal  operation long enough to help analyze the benefits
experiment, the goal is to establish how much       of such integration, nor are these projects cast in an
observed change in fertility occurred as a result of  experimental design to make meaningful compari-
contraceptive practices brought about by the project.  sons possible. For reasons of administrative effi-
The analysis of the relationships between fertility of  ciency, also, most policy makers have accepted the
couples during the project period, on the one hand,  integration of health and family planning services
and contraceptive practice and other intervening    because health personnel can be used for family
variables, on the other hand, is not a straightforward  planning activities. The Narangwal data make it
exercise. As a first step, however, a dichotomous   possible to study the critical issue: whether family
variable indicating occurrence or nonoccurrence of'  planning services should be integrated with health
birth in a given calendar year wvas considered. The  services to get better results for desired fertility and
impact of contraception on fertility can thus be seen  health objectives in future projects.



F I1.1,I kI[R 19P2              __  _S_kR_ _1                                                  Wi  I \iA
Phase II of the analysis of the Narangwal data is      of many countries, transport fuel pricing is impor-
continuing through the Bank's research project Ref.    tant not only for policies affecting energy and
No. 672-03, which is expected to be completed in      transport, but also for macroeconomic policy,
December 1982.                                         particularly for the design of structural adjustment.
Reports                                                The evidence shows that the policy of pricing
transport fuels in many developing countries has
Chernichovsky, D. "The Economic Theory of the House-   changed erratically over the past decade, which
hold and Impact of Mleasurement of Nutrition and   suggests that advice is needed on restructuring the
Health Related Programs." World Bank Staff Working  transport tax  system. Good   policy  advice is,
Paper No. 302. October 1978.* ($5.00)              therefore, important but it is far from clear that it is
Faruqee, R. "Integrating Family Planning with Health   currently available.
Ser%ices." World Bank Staff Working Paper No. 575.
April 1982.* ($5.00)                               The Bank must often operate in a relatively
piecemeal fashion when offering policy advice in
"'Analvzing the Impact of Health Services: Project  connection with specific sector programs or project
Experiences from India, Ghana, and Thailand." World  loans. Thus, the object of the research is to develop a
Bank Staff Working Paper No. 546 (forthcoming).    methodology for setting tax rates (and, hence,
prices) in the transport sector (on transport fuels or
Faruqee, R., and Johnson, E. "Health, Nutrition, and   vehicles), given that the remaining tax and tariff
Family Planning: A Survey of Experiments and Special  structures in the country cannot be radically altered.
Projects in India." World Bank Staff Working Paper  Setting the right tax on transport fuels is compli-
No. 507. February' 1982.* ($5.00)                  cated by several considerations:
Taylor, C. E., and others. .alnutrition, Infection, Crowth  *  Striking the right balance between improved
and I),'vclop7ncra: TIhe .'arangnal Experience. Balti-  resource allocation and various distributional
more and London: TheJohns Hopkins University Press    goals.
(forthcoming). See also The World Bank: Population  a Striking the right balance between revenue
and Human Resources Division mimeo, May 1978.         considerations, especially the extent of cost
Taylor, E. C.; Faruqee, R; Sarma, R. S. S.; Parhes, R.; and  recovery, and ensuring the efficient use of
Reinke, W. "Benefits of Integrating Family Planning   transport resources.
with Health Services: The Narangwal Experiments."  *   Fuels are typically both final consumption goods
Population and Human Resources Division Discussion    and intermediate goods, and considerable inter-
Paper No. 81-62. The World Bank, December 1981.       fuel substitution possibilities exist.
* As a consequence of these various considerations,
the structure of the rest of the tax system is
important for the design of fuel taxes.
N  Finally, and of central importance, transport
NEW        RESEARCH                                       fuels are a logical base on which to levy marginal
track costs.
Pricing and Taxing Transport Fuels in
Developing Countries                                   The researchers intend to develop a theoretical
framework and methodology that should allow
Ref Ao'. 672-83                                        some preliminary estimates of the major orders of
magnitude with available data, followed by tests in a
The World Bank needs to give sound advice on the       "laboratory" country, yet to be chosen. Starting
pricing and taxation of transport fuels, both to      from tests in a data-rich couintry, the study will
ensure the best use of resources in the transport      identify the kinds of data essential for application in
sector and because transport fuel consumption          a wide range of countries.
typically amounts to more than half of total oil
consumption in developing countries. Given the         The methodology will provide guidelines for taxing
large share of oil imports in the balance of payments  and pricing the four main petroleum-based trans-
0HE-TlE R WRIRI l) BNK  'j



20 RI:SiFAH II N_                   __S_                                      FALL/'WINrER 1982
port fuels-gasoline, diesel, kerosene, and liquid  thus providing an unusual and rich data base. No
propane gas (LPG)-and the close substitute,        major effort has previously been made to use these
ethanol. It will also provide guidance on the right  data in assessing the effects of irrigation.
level of transport tax relative to public expenditure
on transport and the best form of such taxes. It will  Matar Taluka has attracted the interest of develop-
help to identify and calculate the distributional  ment economists for several reasons: dairy coopera-
impact of changes in transport taxes-an important  tives are unusually important in the region, canal
policy matter for governments and the Bank.        irrigation exists in several areas, and widespread
changes in agricultural technology and commerce
The distributional impact of transport tax changes  associated with the "Green Revolution" are plainly
will be explored using an econometrically estimated  evident.
demand system and an input-output table, which
together provide estimates of the parameters needed  Matar Taluka was surveyed in 1929 to find out the
for the choice of tax structure. The study will    actual tax burden of producers; the regional survey
consider and demonstrate the consequence for tax   included data on assets, debts, consumption, and
design of ignoring distributional considerations, or  employment. A resurvey was undertaken in 1965 to
attaching varying degrees of importance to them.   provide a broad picture of changes in the region over
The remainder of the tax system and substitution   a 36-year period, and a second resurvey sponsored
possibilities within the transport sector will be  by the Indian Council for Social Science Research in
analyzed in order to ascertain the impact of       1974 was designed to reach the same households a
transport taxes on resource allocation.            decade later. Together these surveys provide a
unique record of rural development at the house-
Researchers are: David Newbery in the Develop-     hold level over an extended period of time.
ment Research Department; Esra Bennathan and
Clell G. Harral in the Transportation and Water    This research aims at quantifying the direct and
Department; and Gordon A. Hughes and William       indirect effects from irrigation. It should provide the
D. 0. Paterson, consultants.                       framework and empirical basis with which to assess
the importance of water resource development for
the population directly or indirectly affected.
Effects of Irrigation: Matar Taluka, India
The research will study three sets of effects of
Ref N"o. 672-84                                   irrigation on rural households: production and
income, consumption, and savings and investment.
Irrigation, the single most important source of    The direct effects of irrigation on agricultural
agricultural growth and development worldwide, is  production and farm income, for example, are
the largest subsector within the World Bank's      expected to occur via changes in cropping patterns,
lending for agricultural projects. Despite substan-  yields, and the use of inputs, while the indirect
tial lending, approaching $10 billion cumulatively  effects occur via an increased demand for labor and a
since 1974, little empirical evidence of the income  general equilibrium effect on wage rates
distribution effects of such Bank investments exists.
Which groups in society are reached by the Bank's  The Gujarat Institute of Area Planning conducted
irrigation programs is still an open question. In  the other surveys. The institute is a state economic
order to answer this question, there is a need to  research organization, with which the Bank will
quantify the effects on farm households as well as on  establish a collaborative framework for the research
agricultural labor and on other sectors within an  study. The results will be shared with the Narmada
economy.                                           Planning Group, specially created for the prepara-
tion of one of the largest Bank-financed irrigation
The main thrust of this study is to quantify the   projects
impact of irrigation investments in the development
of the Matar Taluka area in the state of Gujarat,  The researchers are: Alfredo Sfeir-Younis, Agricul-
India. Matar Taluka is an administrative unit     ture and Rural D)evelopment Department; Per
comprising 82 villages, many of which have been the  Ljung, South Asia Projects Department; and Anil
subject of several household surveys since the 1930s,  Deolalikar, consultant.
MiW 1 kI< I) BAhNK



xI   I  \ 1-HR  1'9X2                                                           I.. IlSt 8I-t  * ,  I
Liberalization with Stabilization in the             interactions are still poorly understood can be seen
Southern Cone                                        from  the variety of explanations oflered. Some
observers attribute the changes in these variables to
R&ff..' o. 672-85                                    events unrelated to the reforms (bank failures and
the appreciation of the dollar); others to the
After several decades of a development strategy      inconsistent application of policies, resulting in high
based on import substitution and extensive direct    inflation and continuing uncertainty (the mainte-
control of all markets, Chile, Uruguay, and          nance of a fiscal deficit in Akrgentina); others to a
Argentina introduced profound reform packages in     misguided stabilization program (the assumptions
the mid 1 970s-packages that included liberaliza-    underlying the monetary approach to the balance of
tion and stabilization policies. Spanning labor,     payments); and still others to stabilization policies
commodity, and financial markets, these reforms      that were too successful (in the sense of reduced
are still in progress in Uruguay, being overhauled in  inflation).
Argentina, and are fairly advanced in Chile. The
magnitude, seqluence, and outcome of the reforms in  Partial accounts of experiences under the reforms
the Southern Cone countries of Latin America offer   are becoming available.' None, however, has been
a rare opportunity to study the transition toward a  undertaken in a coordinated framework: thev lack
more liberal economic -environment, which the        either a comprehensive comparative description of
research project proposes to study. The objective is  the reform packages or a comparative evaluation of
to understand how these countries are adjusting to   the outcomes. Such a lack is true with respect to
the new environment and, thereby, to identify policy  variables such as the real exchange rate and the real
packages that minimize the costs associated with     interest rate. Given the importance of these vari-
triansition to a more liberal regime.                ables for decisions by firms, the researcn will
supplement existing accounts of the reforms to fill
The research strategy is to identify and measure the  the gaps.
costs and benefits of the reforms at the microeco-
nomic level, the first task being to describe the    The interaction between liberalization and stabili-
adjustment by firms to the new     environment       zation measures is best understood at the macro
provided by the reforms. These descriptions will     level. Consequently, the micro research undertaken
take into account three elements that affected the   must be complemented by macro analysis, without
performance of firms: liberalization, market com-    which it could not be established whether adjust-
petitiveness, and stabilization. Next, models will be  ment-successful or unsuccessful-was due to the
used to determine the sensitivity of the adjustment  application of stabilization policies or of liberaliza-
by firms to diflerent reform packages, which will be  tion policies. Furthermore, the macro analvsis will
determined from macro analyses. Special attention    enrich the micro research by suggesting policy
wvill be given to separating avoidable from unavoid-  packages whose application would result in a
able costs, with the objective of identifying policy  greater net benefit during the transition.
packages that minimize the measured adjustment
costs. How these adjustments at the microeconomic    Involving close collaboration with research insti-
level add up to economywide costs and benefits will  tutes in Argentina and Chile-Fundaci6n Mediter-
be inferred by measuring sources of growth and       ranea and Instituto de Economia, Universidad
structural change at the sectoral level.             Cat6lica, respectively-the research will be co-
directed by Jaime de NIelo of the Bank's Develop-
.\ complication for the research arises from the     ment Research Department and Vittorio Corbo of
simultaneous application of macro stabilization      the Universidad Cat6lica de Chile. Consultants are:
policies to reduce inflation and of micro-oriented   Amalio H. Petrei, James R. Tybout, and others yet
liberalization policies (across all markets) to in-  to be identified.
crease the efliciencv and extent of resource use. The
evolution of such variables as interest and exchange
rates, which were crucial inputs for decisions by
firms, was the result of interactions between         I. See World Bank Countrv Studies on Chile (Janutiry 1980))and
liberalization and stabilization policies. That these  Uruguay (January 1979).
--.-_'I -I I. \V OIRI 11 It xk                        .-



.. ts FALL/WINTR_1982
Productivity Change in Infant Industry               ity change at the enterprise level and of the way in
which trade and industrial policies affect the pattern
Ref. No. 672-86                                      and rate of productivity change. The research is
coordinated with a research project with similar
In its most simple form    the infant industry       objectives in Japan. funded by the Science Research
argument for public intervention rests on two        Foundation of the Japanese Ministry of Education,
empirical propositions: First, although the initial  and with a proposed project to be undertaken by the
production costs of newly established industrial     Technical Change Center in the United Kingdom.
activities may exceed internationally competitive
levels, they will decline over time to such an extent  Researchers are: M\ieko Nishimizu and John M.
that the present social value of the eventual cost   Page, Jr., Development Research Department;
savings will exceed the early excess costs. And      Ronald NMartin N. Bell with the Science Policy
second, because of market failures due to external   Research Unit (Sussex University, United King-
factors, or differing social and private rates of    dom) as collaborator; Heba Handoussa, consultant
discount or evaluations of risk, private and social  (Egypt); and Yuji Kubo (Tsukuba University,
evaluations of the benefits to infant industry       Japan) as the director of the coordinated Japanese
development may differ.                              project.
Surprisingly little evidence concerning either em-
pirical proposition of the infant industry argument  A Computable General Equilibrium
exists in the long history of economic theory and    Model for the Ivory Coast
policy. For this reason, difficulty persists in
answering such basic questions regarding infant      R/c Vo. 672 87
industry promotion policies as: What is the appro-
priate level of promotion for infant industries?    The purpose of this applied research application
Which sectors should be promoted? What are the       project is to develop a computable general equilib-
appropriate instruments for infant industry promo-   rium (CGE) model of the economy of the Ivory
tion and what should be their duration? The          Coast as one of' two submodels that would be used to
proposed research represents an effort to begin      help formulate the key policy trade-offs raised by
accumulating a body of evidence on the nature and    the country's process of structural adjustment and
sources of production cost changes over time in      transition to an oil economy. The specification of a
infant industry.                                    long-term  relative price endogenous model will
parallel the development of a macroeconometric
The research project has three objectives: (I) to    model for medium-term   projections under the
measure changes in production costs in terms of     hypothesis of constant structure of intersectoral
changes in total factor productivity in new indus-   relationships and exogenous relative prices.
trial enterprises; (2) to identify important sources of
changes in total factor productivity, and in particu-  CGE models have been applied to various newly
lar those sources that are unique to infant firms or  industrialized developing countries to analyze the
industries; and (3) to determine the extent to which  impact of alternative trade adjustment policies (in
the sources of total factor productivity change are  particular with respect to exchange rates, tariffs,
linked to market failures.                          quantitative import restrictions, and export subsi-
dlies) on growth, economic structure, and the
The proposed research will apply the quantitative   distribution of income. Such models have been used
methodology of productivity analysis, supplemented  as part of World Bank Missions to Turkey and
by case studies and engineering analyses, to a      Yugoslavia.2 However, the development of the CGE
sample of firms distinguished by technological      model for the Ivory Coast will represent one of the
characteristics, policy regimes, and production
environments. The research will focus on two
countries, Egypt and Thailand. The comparative         . See, for example, V'inod Dubey, Shakil Faruqi, and others,
results from the Egyptian and Thai studies should   liurkLy: I/icie and P7mopc,i fiJr Gry/zlh, A World Bank Country
improve understanding of the sources of productiv-   Studs (Nlafch 1980).
r-  -O    II /



FXI I A'*INIR  2                                                               R19l Al  i U' '   N. \
first applications to a developing economy strongly  reviewed for applicability in the project.' This
based in agriculture and also characterized by       application project will also complement research
significant industrial sectors and interindustry     currently under way in the Bank's newly formed
relationships.                                       Development Strategy Division on problems associ-
ated with developing an integrated pair of macro-
The framework of a joint program of work between     economic and multisector models in other countries
the government of the Ivory Coast and the World     including Thailand (Ref. No. 672-47), Yugoslavia
Bank was established in response to the need to      (Ref. No. 672-26), and Egypt (proposed).
improve the country's existing macro projection
tools arising from three major considerations. First,  The development of the CGE model for the Ivory
the tight foreign exchange situation experienced by  Coast will be undertaken with the joint responsibil-
the Ivory Coast since the fall in prices of its primary  ity of the government's Directorate of Planning at
export products has revealed the importance of the   the Ministry of Planning and Industry and the
link between public investment decisions and the     World Bank's Development Strategy Division in the
external debt, thereby reducing the value and        Development Research Department and its West-
relevance of the government's own plan-budget        ern Africa Programs Division 2A in the Western
model-a static input-output model used for short-    Africa Country Programs Department II, with co-
term macro projections.                              directors at the Bank being Sherman Robinson and
Michel Noel.
The static model's usefulness for medium- to long-
range projections remains limited by its low degree  Book on Modern Tax Theory for
of endogeneity, its static specification, and the    Developing Countries
absence of a detailed financial block. At the same
time, the Bank's revised minimum standard model      Ref ANo. 672-92
(RNISM) also proved inadequate to the task of
providing an adequate framework to analyze the       The World Bank is increasingly called upon to offer
impact of structural changes on the medium- to       policy advice to developing countries. At one
long-term evolution of the economy.                  extreme, it may recommend substantial tax, tariff,
and public enterprise price reforms in the context of
Second, the Ivory Coast is now entering a period of  structural adjustment lending, while on the other it
rapid structural change, mainly as a result of the   is engaged in a more or less continuous policy
adjustment policies pursued by the government,       dialogue with countries at the sectoral and project
especially in the industry and agriculture sectors.  level, where the social profitability of specific
Third, the emergence of the oil sector, and the      projects may be quite sensitive to sectoral tax, tariff,
possibility of net oil surpluses in the second half of  or pricing reforms. This is particularly true of
the 1980s, will add a further dimension to the       agricultural projects and is increasingly the case in
structural adjustment process.                       the energy sector, where a large number of energy
The objectives of the j.oi          to broaden       pricing studies have been commissioned, either by
TeoJecle of the    nt program are                tho broade  ora.teet
the scope of the macro policy dialogue between the   the Bank or at its behest.
government and the Bank; to prepare the              The rapid development of the theory of public
groundwork for macro policy issues raised by the     finance in the last decade has had a dramatic effect
emergence of the Ivorian oil sector; to reinforce    on the way policy interventions are analyzed. The
administrative units responsible for macro projec-   subject is maturing rapidly, empirical applications
tions within the government; and to develop the
collaborative abilities of Ivorian researchers.
Two previous multisector price endogenous models      3. See Louis NI. Goreux, Inlerrhpe'nd'nce in J'lanrcnig:
built for the Ivory Coast-Goreux's multilevel        Alu/td'level/ I'rrantiring Stwhe7, ,/ /M,eIiswr (C',al, (Baltimore and
programming   model developed   in the Bank's        London: The Johns Hopkins University Press, 1977) and Charles
P. Staelin, "A General-Equilibrium Mtodel of Tarifts in a Non-
Development Research Center and Staelin's            Competitive Economy," J]onrnal / Internalimnal E.-cs, , sol. 6
smaller, linearized CGE model-will be carefully     (1976), pp. 39 63.
Ilf':1 kMORI 1) it\ih L J



2   I RFSI.SR(H 1 NFW.S                                                       FALL/WINTER 1982
are becoming more common, and the techniques are  NEEW    AND      FORTHCOMING
beginning to be applied to developing economies.
However, while an increasing number of econo-     PUBLICATIONS
mists have heard of the new approach, very few
know whether it is applicable, whether it comes to
different conclusions from the traditional approach,  The full range of publications of the World Bank is
or wvhether to take it seriously. The object of this  described in 7he ltorld Bank Calalog of Publica-
project is to produce a book that describes the theory  -iors, issued annually and available free of charge.
and its relevance to developing countries, demon-
ana ts eleanc tooevloplg cuntles aeon- All publicationis listed below, including those
strates how it can be used, and raises questions  Allpublication the    belo     incldn  thser
suiggested by the theorv if it is to be made more  published for the World Bank by commercial
useful for policy analysis.                       publishers, may be obtained from:
Publications Distribution Unit
The groundwork for this book was laid at a            Worl Bank
Workshop on Public Economics in Developing        1818 H Street, N.W
Countries, organized by the Development Research  Washington, D.C  0433 U.S.A.
Department in June 1982. A range of leading                 *           e
writers on Public Economics, many of whom
presented papers at two workshops, will prepare
chapters for the book, which is aimed at the general
working economist.
The proposed contents will cover: (1) a textbook  NEW       BOOKS
exposition of the new theory, relating it to the closely
allied subject of social cost-benefit analysis; (2)
illustrations of the normal application of the theory  IDA in Retrospect: The First Two Decades
to economywide tax reform; (3) a definition of the
range of the theory's applicability and identification  of the International Development
of the key assumptions that are most important in  Association
shaping policy advice; (4) an application of the
theorv to sectoral tax reform; and (5) adiscussionof  Oxford University Press, 1982. 142 pages.
taxes affecting factor markets and development    LC 82-14224
policy issues.                                    ISBN 0-19-520407-7      $17.95 hardcover
David Newbery of the Development Research         ISBN 0-10-520408-5      S 6.00 paperback
Department's Public Economics Division in the
World Bank and Professor N. Stern of Warwick      The International Development Association (IDA),
UTniversity (United Kingdom) are coeditors.       an integral part of The World Bank, has been for
more than twenty years an important channel for
aid to low-income developing countries. Its work
complements that of its sister institution, the
International Bank for Reconstruction and Devel-
opment. But unlike the Bank, which relies princi-
pally on private capital markets, IDA is funded
entirely by grants from member governments. The
Association has become an outstanding example of
multilateral cooperation to promote long-term
development.
As IDA has grown, it has naturally come under
closer scrutiny by all parties. Donors have become
increasingly concerned about the size of the
aii I il X.ORLD-) BA NK



F AI  !  \XI P  l I R   1 ON.                                                R dI  i  X U  - x' V
Association, the allocation of contributions among  Inequality and Poverty in Malaysia:
donors, and the allocation of credits to developing  Measurement and Decomposition
countries. Questions have been raised about the
quality of IDA's projects, the terms of its loans, and  Sudhir Anand
the ability of these projects to reach the poorest
people in developing countries. Recipients of IDA   Oxford University Press, 1983. 372 pages.
loans have also voiced dissatisfaction at times.
LC 81 14178
11M)4 17 ReIArpete deals frankly with such questions  ISBN 0-19-520153-1   $27.5() hardcover
and traces IDA's evolution and achievements over
the past two decades. This book turns a bright      The book's anal'sis of rimar  data on income
spotlight on the institution's strengths and short-  dTh  book             sey itamon the
| s r1 l ,distribution in Nialaysia sets It among the few
comings and offers many lessons for multilateral    studies of its kind in developing countries. Viewed
cooperation and worldwide commitment to develop-    as an anatomy of income in this developing East
ment.                                               Asian country, it documents the state and nature of
income inequality and of poverty, and develops a
methodology for this purpose. Apart from detailed
Monitoring and Evaluation of Agriculture            measurement, a decomposition of socioeconomic
and Rural Development Projects                      variables suggests the sources of inequality and
poverty. In the course of the empirical work,
Dennis J. Caslev and Denis A. Lury                 solutions to several statistical problems were devel-
TFhe Johns Hopkins University Press, 1982. 145      oped. The author attempts to go beyond the
pgeJs.     Hmechanics of measurement and the exploitation of
pages.                                             the NIalaysian Post-Enumeration Study of 1970,
LC 82-7126                                          upon which the data were based, to illuminate
ISBN 0-8018-2910-0       $8.50 paperback            broader policy questions of poverty and economic
imbalance. The final product may be viewed as an
Rural development proe            lex, seek to      application of a framework for analvzing income
Rua-eeomn     rjects are complx               ditrbuio inadveoigconro
benefit large numbers of people in usually remote   distribution i a developig country.
rural areas, and involve a variety of investments.  India's Exports
The need for monitoring and evaluating them
during implementation has been accepted in princi-  NIartin Wolf
ple, but effective systems have not heretofore been
formulated.                                         Oxford University Press, 1982. 203 pages.
This hook fills the vacuum and provides a "how-to"  LC 82-6309
tool for the design and implementation of monitor-  ISBN 0-19-520211-2      $22.50 hardcover
ing and evaluation systems. It differentiates the
concepts of monitoring and evaluation and sets out  A principal conclusion of the book's analysis of
the issues that need to be considered in designing  India's overall export performance in the 1960s and
systems to monitor and evaluate specific projects,  1970s is that, although performance improved,
emphasizing the timeliness of the monitoring        export growth continued to lag behind India's needs
functions for effective management. The book        and potential, as well as behind the achievements of
further elaborates on such technical issues as      several of the country's competitors. The author
selection of indicators, selection of sample        suggests that the main reason for India's modest
methodology, data analysis, and presentation. It is  performance is that an inward-looking trade and
directed primarily to those working with specific   industrialization strategy provided inadequate in-
projects and will be useful to project appraisal   centives to the country's export sector. Generally,
teams, to designers of monitoring and evaluation   trade barriers did not constrain India's growth,
systems, and to project staff who must do the actual  though barriers to exports of clothing and textiles
monitoring and evaluation.                          did pose a significant problem to the economy.
-_



Fortunatelv, India has the ability to achieve faster  Vol. 2. Studies in State Finances. Christine
export growth. mainl) because of its diversified  Wallich. 1982. v + 174 pages. ISBN 0-8213-
economv and its current low share of the world    0015 6. $5.00.
market for miany products. The book explores
strategic options for taking advantage of all avail-  VI 3
able opportunities.                                      The Measurement of Tax Effort of
State Governments, 1973-1976. Raja J.
Chelliah and Narain Sinha. 1982. v + 76 pages.
ISBN 0-8213-0016 4. $3.00.
WORLD BANK STAFF WORKING
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kJ. I: iII VVO%RI 1) 114NK



No. 199. Choice of Technique in Sahelian Rice      No. 208. Indigenous Anthropologists and Devel-
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1981), pp. 51-71.                                  and Jeremy Warford. From c'(,z/z' Engrland,J/ournral
of .11ledicinc, vol. 305 (November 1981), pp. II 17-
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1981), pp. 14(-52. Copyrighted hy IPC Science and  International Comparison. George Psacharo-
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(1981), pp. 321-41.
No. 202. Questions on International Trade in       No. 211. The Spatial Structure of Latin Ameri-
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(Martin ch olf From p lp.   llorl(1 Economy, vol. 4  From Jonrnal ) f I Trhan Economics, vol. 9, no. 2
(March 1981), pp 79-l()l.                          (NMarch 1981), pp 257-73. Copyrighted by Aca-
demic Press.
No. 203. Brazilian Socioeconomic Development:
Issues for the Eighties. Peter T. Knight. From     No. 212. Income Distribution Effects of Techni-
1Io)rlb! Deelopmtcni. vol. 9, no. 11/12 (1981), pp.  cal Change: Some Analytical Issues. Hans
11)63-89                                           Binswanger. From  Soulh Ea.sil A   Eonomic
Rezicu \, vol. 1, no. 3 (December 1980), pp.
No. 204. Restructuring the World Economy:          179- 218
Round II. Ilollis B. Chenery. From Forczgn Ajfairs  No. 213. Absorptive Capacity, the Demand for
(Summer 1981), pp 11(02-20.                        Revenue, and the Supply of Petroleum. Salah El
No. 205. Technological Change, Distributive        Serafy. From Journal of En cgy and I)e g  pinent,
Bias, and Labor Transfer in a Two Sector           vol. 7, no. I (Autumn 1981), pp. 73-88.
Economy. tTma Lele and John W. Niellor. From       No. 214. Trade Policy and Resource Allocation
Oxford Economic Papers, vol. 33, no. 3 (November  in the Presence of Product Differentiation.
1981), pp. 420--41.                                Jaime de Nlelo and Sherman Robinson. From The
No. 206. Adoption of Interrelated Agricultural    RIz'ficz.- of EcononnicZ and Sta/alic/, , vol. 63, no 2
Innovations: Complementarity and the Impacts       (NIay 1981). pp. 169-77.
of Risk, Scale, and Credit. Gershon Feder. From    No. 215. Modernization and Development Po-
mericanlo rina! o*f AJriculltulrall Econnrnc.s vol.  tential of Traditional Grass Roots Peasant
64, no. 1 (February 1982). pp. 94-101.             Organizations. Nichael Cernea. From Directi(non
o/ (.lhange: Mlodcrniza/iOn TI/iory, Rc.search, andl
No. 207. Farm Size and the Diffusion of Green     iRcalituo,s, edited b)y Mustafa 0. Attir, Burkart
Revolution Technology and On Information and       l-Iolzner. and Zdenek Suda (Boulder, Colorado:
Innovation Diffusion: A Bayesian Approach.         WVestviewv Press, 1981), chapter 5.
Gershon Feder and Gerald T. O'Mara. From
Ecoornoiic Deieb1p7nen and ('Cultural i  ., - vol  No. 216. Credit and Sharecropping in Agrarian
30, no. 1 (October 1981), pp 59-76; and Amrican    Societies. A\vishax Braverman and T.N. Srini-
journal of ATricultlural Ecnoniic,s, vol. 64, no. I  vasan. From J1nrrnal o/- I)ez'lolpmient Economics,
(February 1982). pp. 145-47.                       vol. 9 (December 1981), pp 289-312
1   -'XI'.  I 4 ' '



No. 217. The Meaning of TechnologicalMastery      WORLD BANK COUNTRY STUDIES
in Relation to Transfer of Technology. Carl J.
Dah1man and Larry E. Westphal. From Annals of
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.Sl/ud11c vol. 458 (November 1981), pp. 12-26.    for the Bank's o02n use with distribution restricted
to rmember governments and international organi-
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Economic Significance of Complementarities at     Where the issues studied have attracted a wide
Early Age. Marcelo Selowsky. From Journal of     intere.st, where it appears that the Bank's study
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No. 219. The Relevance of the Dual Economy        such reports are made available to a wider audi-
Model: A Case Study of Thailand. Trent Ber-       ence. Potential readers are advised that these are
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(June 1982), pp. 679-91.                          appendix). Stock No. RC-8103. $10.00 paperback.
No. 221. Policy Responses to External Shocks in   The Gambia: Basic Needs in The Gambia. Heinz
Selected Latin-American Countries. Bela                         . .
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No. 222. A Model of an Agricultural Household
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Choong Y. Ahn, Inderjit Singh, and Lyn Squire.    Mark Baird, mission leader, and others. 1982. v +
From 'I'he Reviewv of Economics and Statistics, vol.  163 pages (including statistical appendix and map).
63, no. 4 (November 1981), pp. 520-25.            ISBN 0-8213-0027-X. $15.00 paperback.



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