ABSTRACTS 31696 Policy Resear ch To obtain copies of individual working papers, please call, W orking Paper Series email, or write to the contact person listed in the last Numbers 3399-3468 paragraph of each abstract. The working papers may also be downloaded from the DEC Research Website: http://econ.worldbank. org The World Bank Research Support Team Development Economics October-December 2004 Index WPS # Author Working Paper Title Page Agriculture 3408 Martin Ravallion and Shaohua Chen China's (Uneven) Progress Against Poverty 4 3411 Kym Anderson and Lee Ann Jackson Implications of Genetically Modified Food Technology Policies for Sub-Saharan Africa 4 3415 Kym Anderson The Challenge of Reducing Subsidies and Trade Barriers 6 3417 Susmita Dasgupta, Craig Meisner, Is Environmentally-Friendly Agriculture Less Profitable and David Wheeler for Farmers? Evidence on Integrated Pest Management in Bangladesh 7 3429 Kenneth M. Chomitz, Timothy S. Thomas, Creating Markets for Habitat Conservation and Ant6nio Salazar Branddo when Habitats are Heterogeneous 10 Infrastructure 3400 C6sa:r Calder6n and Luis Serv6n The Effects of Infrastructure Development on Growth and Income Distribution 1 3401 C6sar Calder6n and Luis Serv6n Trends in Infrastructure in Latin America, 1980-2001 1 3420 Antonio Estache and Martin Rossi Have Consumers Benefited from the Reforms in the Electricity Distribution Sector in Latin America? 8 3421 Antonio Estache, Jean-Jacques Laffont, Universal Service Obligations in Developing Countries and Xinzhu Zhang 8 3422 Vivien Foster Toward a Social Policy for Argentina's Infrastructure Sectors: Evaluating the Past and Exploring the Future 8 3442 Antonio Estache Emerging Infrastructure Policy Issues in Developing Countries: a Survey of the Recent Economic Literature 14 3445 George R. G. Clarke, Katrina Kosec, Has Private Participation in Water and Sewerage Improved and Scott Wallsten Coverage? Empirical Evidence from Latin America 15 3465 June Koo and Somik V. Lall Economic Geography: Real or Hype? 22 3468 Cecilia Bricefio-Garmendia, Antonio Infrastructure Services in Developing Countries: Estache, and Nemat Shafik Access, Quality, Costs, and Policy Reform 23 Domestic finance 3406 Randall Morck and Bernard Yeung Special Issues Relating to Corporate Governance and Family Control 3 3407 Enrico Perotti State Ownership: A Residual Role? 3 3409 Erik Berglof and Stijn Claessens Enforcement and Corporate Governance 4 3413 James Alm, Patricia Annez, Stamp Duties in Indian States: A Case for Reform 5 and Arbind Modi 3416 Niha[ Bayraktar and Yan Wang Foreign Bank Entry, Performance of Domestic Banks, and Sequence of Financial Liberalization 6 iv Index WPS # Author Working Paper Title Page 3466 Michael Johnston and Sahr J. Kpundeh Building a Clean Machine: Anti-Corruption Coalitions and Sustainable Reform 22 Urban development 3399 Judy Baker and Nina Schuler Analyzing Urban Poverty: A Summary of Methods and Approaches 1 3402 Jian Xie, Jitendra J. Shah, Phasing Out Polluting Motorcycles in Bangkok: Elisabetta Capannelli, and Hua Wang Policy Design by Using Contingent Valuation Surveys 2 3413 James Alm, Patricia Annez, Stamp Duties in Indian States: A Case for Reform and Arbind Modi 5 3427 Robert M. Buckley and Jerry Kalarickal Shelter Strategies for the Urban Poor: Idiosyncratic and Successful, but Hardly Mysterious 10 3433 Mudit Kapoor and David le Blanc Measuring the Risk on Housing Investment in the Informal Sector: Theory and Evidence from Pune, India 12 Transition 3449 Beata S. Javorcik, Kamal Saggi, Does It Matter Where You Come From? Vertical Spillovers and Mariana Spatareanu from Foreign Direct Investment and the Nationality of Investors 17 3451 Bartlomiej Kaminski and Francis Ng Romania's Integration into European Markets: Implications for Sustainability of the Current Export Boom 17 3457 Alfred Watkins and Natalia Agapitova Creating a 21st Century National Innovation System for a 21st Century Latvian Economy 19 Poverty 3399 Judy Baker and Nina Schuler Analyzing Urban Poverty: A Summary of Methods and Approaches 1 3400 C6sar Calder6n and Luis Serv6n The Effects of Infrastructure Development on Growth and Income Distribution 1 3408 Martin Ravallion and Shaohua Chen China's (Uneven) Progress Against Poverty 4 3415 Kym Anderson The Challenge of Reducing Subsidies and Trade Barriers 6 3418 Richard H. Adams, Jr. Remittances and Poverty in Guatemala 7 3419 Chris Elbers, Tomoki Fujii, Peter Lanjouw, Poverty Alleviation through Geographic Targeting: Berk Ozler, and Wesley Yin How Much Does Disaggregation Help? 7 3421 Antonio Estache, Jean-Jacques Laffont, Universal Service Obligations in Developing Countries and Xinzhu Zhang 8 3422 Vivien Foster Toward a Social Policy for Argentina's Infrastructure Sectors: Evaluating the Past and Exploring the Future 8 Index v WPS # Author Working Paper Title Page 3428 Susmita Dasgupta, Mainul Huq, Who Suffers from Indoor Air Pollution? M. Khaliquzzaman, Kiran Pandey, Evidence from Bangladesh and David Wheeler 10 3432 Gabriel Demombynes and Johannes G. Growth, Inequality, and Simulated Poverty Paths Hoogeveen for Tanzania, 1992-2002 11 3435 Derek H. C. Chen Population Age Structure and the Budget Deficit 12 3438 Andrew Morrison, Mary Ellsberg, Addressing Gender-Based Violence in the Latin American and Sarah Bott and Caribbean Region: A Critical Review of Interventions 13 3442 Antonio Estache Emerging Infrastructure Policy Issues in Developing Countries: a Survey of the Recent Economic Literature 14 3444 Thomas W. Hertel and Jeffrey J. Reimer Predicting the Poverty Impacts of Trade Reform 15 3445 George R. G. Clarke, Katrina Kosec, Has Private Participation in Water and Sewerage Improved and Scott Wallsten Coverage? Empirical Evidence from Latin America 15 3455 Thomas Hertel and Fan Zhai Labor Market Distortions, Rural-Urban Inequality, and the Opening of China's Economy 18 3461 Martin Ravallion Looking beyond Averages in the Trade and Poverty Debate 20 3462 Andrew Dabalen, Stefano Paternostro, The Returns to Participation in the Nonfarm Sector and Gaelle Pierre in Rural Rwanda 21 3467 Pierella Paci, Marcin J. Sasin, and Economic Growth, Income Distribution, and Poverty Jos Verbeek in Poland during Transition 22 3468 Cecilia Bricefio-Garmendia, Antonio Infrastructure Services in Developing Countries: Estache, and Nemat Shafik Access, Quality, Costs, and Policy Reform 23 Rural development 3408 Martin Ravallion and Shaohua Chen China's (Uneven) Progress Against Poverty 4 3415 Kyma Anderson The Challenge of Reducing Subsidies and Trade Barriers 6 3417 Susmita Dasgupta, Craig Meisner, Is Environmentally-Friendly Agriculture Less Profitable and David Wheeler for Farmers? Evidence on Integrated Pest Management in Bangladesh 7 3462 Andrew Dabalen, Stefano Paternostro, The Returns to Participation in the Nonfarm Sector and Ga6lle Pierre in Rural Rwanda 21 International economics 3403 AliZafar What Happens When a Country Does Not Adjust to Terms of Trade Shocks? The Case of Oil-Rich Gabon 2 3411 Kym Anderson and Lee Ann Jackson Implications of Genetically Modified Food Technology Policies for Sub-Saharan Africa 4 3412 Robert Feenstra and Hiau Looi Kee Export Variety and Country Productivity 5 vi Index WPS # Author Working Paper Title Page 3415 Kym Anderson The Challenge of Reducing Subsidies and Trade Barriers 6 3416 Nihal Bayraktar and Yan Wang Foreign Bank Entry, Performance of Domestic Banks, and Sequence of Financial Liberalization 6 3426 Pablo Fajnzylber and Ana M. Fernandes International Economic Activities and the Demand for Skilled Labor: Evidence from Brazil and China 9 3434 Maurice Schiff and Yanling Wang North-South Technology Diffusion, Regional Integration, and the Dynamics of the "Natural Trading Partners" Hypothesis 12 3440 Eduardo Levy-Yeyati, Maria Soledad Market Discipline under Systemic Risk: Martinez Peria, and Sergio L. Schmukler Evidence from Bank Runs in Emerging Economies 14 3441 Bernard Hoekman and Beata Policies Facilitating Firm Adjustment to Globalization Smarzynska Javorcik 14 3448 Roumeen Islam What Are the Right Institutions in a Globalizing World? And ... Can We Keep Them if We've Found Them? 16 3449 Beata S. Javorcik, Kamal Saggi, Does It Matter Where You Come From? Vertical Spillovers from and Mariana Spatareanu Foreign Direct Investment and the Nationality of Investors 17 3450 Bailey Klinger and Daniel Lederman Discovery and Development: An Empirical Exploration of "New" Products 17 3451 Bartlomiej Kaminski and Francis Ng Romania's Integration into European Markets: Implications for Sustainability of the Current Export Boom 17 3452 Hiau Looi Kee, Alessandro Nicita, Import Demand Elasticities and Trade Distortions and Marcelo Olarreaga 18 3455 Thomas Hertel and Fan Zhai Labor Market Distortions, Rural-Urban Inequality, and the Opening of China's Economy 18 3456 Peter Montiel and Luis Serv6n Macroeconomic Stability in Developing Countries: How Much is Enough? 19 3458 Maggie Xiaoyang Chen and Aaditya Mattoo Regionalism in Standards: Good or Bad for Trade? 19 3461 Martin Ravallion Looking beyond Averages in the Trade and Poverty Debate 20 Social Development 3438 Andrew Morrison, Mary Ellsberg, Addressing Gender-Based Violence in the Latin American and Sarah Bott and Caribbean Region: A Critical Review of Interventions 13 Labor and employment 3418 Richard H. Adams, Jr. Remittances and Poverty in Guatemala 7 3426 Pablo Fajnzylber and Ana M. Fernandes International Economic Activities and the Demand for Skilled Labor: Evidence from Brazil and China 9 Index vii WPS # Author Working Paper Title Page 3455 Thomas Hertel and Fan Zhai Labor Market Distortions, Rural-Urban Inequality, and the Opening of China's Economy 18 3459 Harry Anthony Patrinos and Economic Volatility and Returns to Education Chris Sakellariou in Venezuela: 1992-2002 20 3460 Harry Anthony Patrinos and Schooling and Labor Market Impacts of a Natural Chris Sakellariou Policy Experiment 20 3462 Andrew Dabalen, Stefano Paternostro, The Returns to Participation in the Nonfarm Sector and Gatlle Pierre in Rural Rwanda 21 3463 Gaille Pierre and Stefano Scarpetta Employment Regulations through the Eyes of Employers: Do They Matter and How Do Firms Respond to Them? 21 3464 Eric Bartelsman, John Haltiwanger, Microeconomic Evidence of Creative Destruction and Stefano Scarpetta in Industrial and Developing Countries 21 3467 Pierella Paci, Marcin J. Sasin, and Economic Growth, Income Distribution, and Poverty Jos Verbeek in Poland during Transition 22 Macroeconomics and growth 3400 C6sar Calder6n and Luis Serv6n The Effects of Infrastructure Development on Growth and Income Distribution 1 3401 C6sar Calder6n and Luis Serv6n Trends in Infrastructure in Latin America, 1980-2001 1 3403 Ali Zafar What Happens When a Country Does Not Adjust to Terms of Trade Shocks? The Case of Oil-Rich Gabon 2 3408 Martin Ravallion and Shaohua Chen China's (Uneven) Progress Against Poverty 4 3410 Pablo Lopez Murphy and Pension Funds and National Saving Alberto R. Musalem 4 3412 Robert Feenstra and Hiau Looi Kee Export Variety and Country Productivity 5 3431 Norman Loayza and Romain Ranci6re Financial Development, Financial Fragility, and Growth 11 3432 Gabriel Demombynes and Johannes G. Growth, Inequality, and Simulated Poverty Paths Hoogeveen for Tanzania, 1992-2002 11 3435 Derek H. C. Chen Population Age Structure and the Budget Deficit 12 3450 Bailey Klinger and Daniel Lederman Discovery and Development: An Empirical Exploration of "New" Products 17 3454 Franck Lecocq and Zmarak Shalizi Will the Kyoto Protocol Affect Growth in Russia? 18 3456 Peter Montiel and Luis Serv6n Macroeconomic Stability in Developing Countries: How Much is Enough? 19 3467 Pierella Paci, Marcin J. Sasin, and Economic Growth, Income Distribution, and Poverty Jos Verbeek in Poland during Transition 22 viii Index WPS # Author Working Paper Title Page Education 3425 Erik Canton and Andreas Blom Can Student Loans Improve Accessibility to Higher Education and Student Performance? An Impact Study of the Case of SOFES, Mexico 9 3436 Kristian Thorn, Lauritz Holm-Nielsen, Approaches to Results-Based Funding in Tertiary Education: and Jette Samuel Jeppesen Identifying Finance Reform Options for Chile 13 3438 Andrew Morrison, Mary Ellsberg, Addressing Gender-Based Violence in the Latin American and Sarah Bott and Caribbean Region: A Critical Review of Interventions 13 3446 Damien de Walque The Long-Term Legacy of the Khmer Rouge Period in Cambodia 16 3453 Emanuela di Gropello Education Decentralization and Accountability Relationships in Latin America 18 3459 Harry Anthony Patrinos and Economic Volatility and Returns to Education Chris Sakellariou in Venezuela: 1992-2002 20 3460 Harry Anthony Patrinos and Schooling and Labor Market Impacts of a Natural Chris Sakellariou Policy Experiment 20 Health and population 3428 Susmita Dasgupta, Mainul Huq, Who Suffers from Indoor Air Pollution? M. Khaliquzzaman, Kiran Pandey, Evidence from Bangladesh and David Wheeler 10 3435 Derek H. C. Chen Population Age Structure and the Budget Deficit 12 3438 Andrew Morrison, Mary Ellsberg, Addressing Gender-Based Violence in the Latin American and Sarah Bott and Caribbean Region: A Critical Review of Interventions 13 3446 Damien de Walque The Long-Term Legacy of the Khmer Rouge Period in Cambodia 16 3447 Monica Das Gupta and Manju Rani India's Public Health System: How Well Does It Function at the National Level? 16 Public sector management 3400 Csar Calder6n and Luis Serv6n The Effects of Infrastructure Development on Growth and Income Distribution 1 3401 C6sar Calder6n and Luis Serv6n Trends in Infrastructure in Latin America, 1980-2001 1 3407 Enrico Perotti State Ownership: A Residual Role? 3 3414 Alessandra Campanaro and Dimitri Vittas Greco-Roman Lessons for Public Debt Management and Debt Market Development 5 3420 Antonio Estache and Martin Rossi Have Consumers Benefited from the Reforms in the Electricity Distribution Sector in Latin America? 8 ix Index WPS # Author Working Paper Title Page 3421 Antonio Estache, Jean-Jacques Laffont, Universal Service Obligations in Developing Countries and Xinzhu Zhang 8 3423 Robert Taliercio, Jr. Designing Performance: The Semi-Autonomous Revenue Authority Model in Africa and Latin America 8 3425 Erik Canton and Andreas Blom Can Student Loans Improve Accessibility to Higher Education and Student Performance? An Impact Study of the Case of SOFES, Mexico 9 3436 Kristian Thorn, Lauritz Holm-Nielsen, Approaches to Results-Based Funding in Tertiary Education: and Jette Samuel Jeppesen Identifying Finance Reform Options for Chile 13 3439 Philip Keefer Elections, Special Interests, and the Fiscal Costs of Financial Crisis 14 3442 Antonio Estache Emerging Infrastructure Policy Issues in Developing Countries: a Survey of the Recent Economic Literature 14 3447 Monica Das Gupta and Manju Rani India's Public Health System: How Well Does It Function at the National Level? 16 3466 Michael Johnston and Sahr J. Kpundeh Building a Clean Machine: Anti-Corruption Coalitions and Sustainable Reform 22 Policy Research Working Paper Series 1 3399. Analyzing lUrban Poverty: 3400. The Effects of Infrastructure may be contacted at lserven@worldbank. A Summary of Methods and Development on Growth org. (43 pages) Approaches and Income Distribution Judy Baker and Nina Schuler C6sar Calder6n and Luis Serv6n 3401. Trends in Infrastructure (September 2004) (September 2004) in Latin America, 1980-2001 In recent years an extensive body of Calder6n and Serv6n provide an empiri- C6sar Calder6n and Luis Serv6n literature has emerged on the definition, cal evaluation of the impact of infrastruc- (September 2004) measurement, and analysis of poverty. ture development on economic growth and Much of this literature focuses on analyz- income distribution using a large panel There is widespread concern across Latin ing poverty at the national level, or spa- data set encompassing over 100 countries America that the provision of infrastruc- tial disaggregation by general categories and spanning the years 1960-2000. The ture services has suffered as a conse- of urban or rural areas, with adjustments empirical strategy involves the estimation quence of the retrenchment of the public made for regional price differentials. Yet of simple equations for GDP growth and sector and the insufficient response of the for an individual city attempting to tackle conventional inequality measures, aug- private sector to the opening up of infra- the problems of urban poverty, this level mented to include, among the regressors, structure industries to private participa- of aggregation is not sufficient for answer- infrastructure quantity and quality indi- tion in most countries. Calder6n and ing specific questions such as where the cators, in addition to standard controls. To Servdn document the recent trends in in- poor are located in the city, whether there account for the potential endogeneity of frastructure stocks and infrastructure are differences between poor areas, if ac- infrastructure (as well as that of other investment in major Latin American cess to services varies by subgroup, regressors), the authors use a variety of economies. Using an updated dataset con- whether specific programs are reaching generalized-method-of-moments (GMM) structed for this task, the authors describe the poorest, and how to design effective estimators based on both internal and the evolution of the quantity and quality poverty reduction programs and policies. external instruments and report results of infrastructure assets-power, trans- Answering these questions is critical, par- using both disaggregated and synthetic port, and telecommunications-as well as ticularly for large, sprawling cities with measures of infrastructure quantity and the investment expenditures of the pub- highly diverse populations and growing quality. The two robust results are: (1) lic and private sectors. They find that problems of urban poverty. growth is positively affected by the stock Latin America lags behind the interna- Understanding urban poverty presents of infrastructure assets, and (2) income tional norm in terms of infrastructure a set of issues distinct from general pov- inequality declines with higher infrastruc- quantity and quality, and there is little erty analysis and thus may require addi- ture quantity and quality. A variety of evidence that the gap may be closing- tional tools and techniques. Baker and specification tests suggests that these except in the telecommunications sector. Schuler summarize the main issues in results do capture the causal impact of the Furthermore, overall infrastructure in- conducting urban poverty analysis, with exogenous component of infrastructure vestment has fallen, as a combined result a focus on presenting a sample of case quantity and quality on growth and of the retrenchment of public investment studies from urban areas that were imple- inequality. These two results combined and the limited response of the private sec- mented by a number of different agencies suggest that infrastructure development tor, which has been mostly confined to the using a range of analytical approaches for can be highly effective to combat poverty. telecommunications industry. However, studying urban poverty. Specific conclu- Furthermore, illustrative simulations for there is considerable disparity across sions regarding design and analysis, data, Latin American countries suggest that countries. On the whole the data show timing, cost, and implementation issues these impacts are economically quite sig- that the countries most successful in at- are discussed. nificant and highlight the growth accel- tracting large volumes of private invest- This paper-a product of the Urban eration and inequality reduction that ment (Bolivia, Chile, and Colombia) are Unit, Transport and Urban Development would result from increased availability precisely those where public investment Department-is part of a larger effort in and quality of infrastructure. has remained high. the department to promote strategies for This paper-a joint product of the Fi- This paper-a joint product of the Fi- reducing urban poverty. Copies of the nance, Private Sector, and Infrastructure nance, Private Sector, and Infrastructure paper are available free from the World Department and the Office of the Chief Department, and the Office of the Chief Bank, 1818 H Street NW, Washington, DC Economist, Latin America and the Carib- Economist, Latin America and the Carib- 20433. Please contact Laura de Brular, bean Region-is part of a larger effort in bean Region-is part of a larger effort in room H3-222, telephone 202-473-0539, fax the region to assess the effects of infra- the region to assess the effects of infra- 202-522-3232, email address Idebrular@ structure development. Copies of the pa- structure development. Copies of the pa- worldbank.org. Policy Research Working per are available free from the World per are available free from the World Papers are also posted on the Web at Bank, 1818 H Street NW, Washington, DC Bank, 1818 H Street NW, Washington, DC http://econ.worldbank.org. The authors 20433. Please contact Patricia Soto, room 20433. Please contact Patricia Soto, room may be contacted at jbaker2@ 18-018, telephone 202-473-7892, fax 202- 18-018, telephone 202-473-7892, fax 202- worldbank.org or nschulerC@worldbank. 522-7528, email address psoto@ 522-7528, email address psoto@ org. (65 pages) worldbank.org. Policy Research Working worldbank.org. Policy Research Working Papers are also posted on the Web at Papers are also posted on the Web at http://econ.worldbank.org. Luis Serv6n http://econ.worldbank.org. Luis Serv6n 2 Policy Research Working Paper Series may be contacted at lserven@worldbank. Bank, 1818 H Street NW, Washington, DC 1987 to 1990 and 1996 to 2000, as well as org. (51 pages) 20433. Please contact Hua Wang, room slight nonoil export diversification from MC2-525, telephone 202-473-3255, fax 1996 to 2000, the government borrowed 202-522-3230, email address hwangl@ from commercial banks and donors, caus- 3402. Phasing out Polluting worldbank.org. Policy Research Working ing its external debt/GDP ratio to increase Motorcycles in Bangkok: Papers are also posted on the Web at from 30 percent of GDP in 1970-76 to 80 Policy Design by Using http://econ.worldbank.org. Jian Xie may percent in 1999. To pay the debt service, Contingent Valuation Surveys be contacted at jxie@worldbank.org. (19 it currently has to maintain large primary pages) surpluses. Only since 1996 has there been Jian Xie, Jitendra J. Shah , Elisabetta significant fiscal retrenchment and a Capannelli, and Hua Wang freezing of government wages. (September 2004) 3403. What Happens When a This paper-a product of Poverty Re- Country Does Not Adjust to duction and Economic Management 3, Xie, Shah, Capannelli and Wang use a Terms of Trade Shocks? Africa Technical Families-is part of a contingent valuation method to study the The Case of Oil-Rich Gabon larger effort in the Bank to study the design of economic incentives to phase out macroeconomic management ofvolatility. polluting motorcycles in Bangkok. Like in Ali Zafar Copies of the paper are available free from many other cities, the government of (September 2004) the World Bank, 1818 H Street NW, Bangkok has been considering a series of Washington, DC 20433. Please contact control measures to discourage and even- Gabon is currently one of the richest coun- Josiane Luchmun, room J7-276, telephone tually eliminate the use of heavily pollut- tries in Sub-Saharan Africa, having a 202-473-7530, fax 202-473-8466, email ing motorcycles. Two of the possible policy GDP per capita of close to $4,000, and is address jluchmun@worldbank.org. Policy instruments under consideration are characterized by a stable political climate Research Working Papers are also posted charges on those polluting vehicles which and rich forestry and mineral resources, on the Web at http://econ.worldbank.org. are operating in the streets and compen- as well as a small population. Oil is the The author may be contacted at azafar@ sation to those polluting vehicles which key economic sector, accounting for half worldbank.org. (28 pages) would stay off the roads. The policy re- of GDP and more than two-thirds of rev- search questions then include (1) what are enue. Discovered in the 1970s, oil wind- the charges implied or compensation pro- falls have delivered spectacular wealth 3404. The Corporate Governance vided, given a policy target, and (2) what and financed public expenditure over two of Banks: A Concise Discussion are the reactions of motorcycle owners to decades. However, the oil boom has led to of Concepts and Evidence those charges or compensation. To answer the Dutch disease and the shrinkage of the those policy questions, the authors con- industrial and agricultural sectors of the Ross Levine ducted a stochastic contingent valuation economy due to the appreciation of the (September 2004) survey in Bangkok to question motorcycle exchange rate and the movement of capi- owners on the likelihood they would keep tal to the oil sector. But with output pro- Levine examines the corporate gover- or give up riding their motorcycles in the jections suggesting that oil will be de- nance of banks. When banks efficiently streets given certain charges or compen- pleted within the next 10 to 15 years, there mobilize and allocate funds, this lowers sations. Results show that among others, are growing pressures on the the cost of capital to firms, boosts capital about 80 percent of those motorcycles policymakers to take actions to diversify formation, and stimulates productivity which did not pass the emission tests production. While Gabon's membership in growth. So, weak governance of banks would be off the streets if a charge of 1,000 the Central African economic and mon- reverberates throughout the economy baht a year was levied, while under a one- etary union means that it benefits from with negative ramifications for economic time compensation of 10,000 baht, the the macroeconomic stability from a com- development. After reviewing the major number would be about 50 percent. The mon external trade and fixed exchange governance concepts for corporations in authors also estimate the average values rate regime pegged to the euro, it relin- general, the author discusses two special of maximum willingness to pay (WTP) for quishes independence in the policy re- attributes of banks that make them spe- staying on the road and minimum willing- sponse to shocks. cial in practice: greater opaqueness than ness to accept (WTA) compensation for An analysis using a quantitative meth- other industries and greater government staying off the street, and analyze the de- odology to decompose responses to shocks regulation. These attributes weaken terminants of WTP and WTA. Their shows that Gabon's adjustment to adverse many traditional governance mecha- econometric analysis shows that, among movements in the terms and trade from nisms. Next, he reviews emerging evi- other factors, household income, fuel costs, 1980 to 2000 was considerably weak in dence on which government policies en- use of motorcycles, and/or public transit terms of three performance indicators- hance the governance of banks and draws affect the value of WTP and WTA. import intensity, economic compression, tentative policy lessons. In sum, existing This paper-a product of Infrastructure and nonoil export promotion. While the work suggests that it is important to and Environment, Development Research economy's growth rate was respectable, strengthen the ability and incentives of Group-is part of a larger effort in the Gabonese policymakers postponed adjust- private investors to exert governance over group to study environmental policy is- ment by resorting to considerable borrow- banks rather than to rely excessively on sues in developing countries. Copies ofthe ing during this period. While there was government regulators. These conclu- paper are available free from the World some decrease in import intensity from sions, however, are particularly tentative Policy Research Working Paper Series 3 because more research is needed on how Washington, DC 20433. Please contact 3407. State Ownership: legal, regulatory, and supervisory policies Ghita Alderman, room F4K-179, tele- A Residual Role? influence the governance of banks. phone 202-458-2905, fax 202-522-7588, This paper-a product of the Global email address galderman@worldbank.org. Enrico Perotti Corporate Governance Forum, Corporate Policy Research Working Papers are also (September 2004) Governance Department-is part of a posted on the Web at http://econ. larger effort in the department to improve worldbank.org. The author may be con- Perotti reviews the state of thinking on the the understanding of corporate gover- tacted at florencio.lopez@yale.edu. (46 governance role of state ownership. He nance reform in developing countries. pages) argues that a gradual transfer of opera- Copies of the paper are available free from tional control and financial claims over the World Bank, 1818 H Street NW, state assets remains the most desirable Washington, DC 20433. Please contact 3406. Special Issues Relating goal, but it needs to be paced to avoid regu- Ghita Alderman, room F4K-179, tele- to Corporate Governance and latory capture, and the capture of the phone 202-458-2905, fax 202-522-7588, Family Control privatization process itself. In addition, email address galderman@worldbank.org. the speed of transfer should be timed on Policy Research Working Papers are also Randall Morck and Bernard Yeung the progress in developing a strong regu- posted on the Web at http://econ. (September 2004) latory governance system, to which cer- worldbank.org. The author may be con- tain residual rights of intervention must tacted at rlevine@csom.umn.edu. (19 Control of corporate assets by wealthy be vested. In many countries institutional pages) families in economies lacking institutional weakness limits regulatory capacity and integrity is common. It has negative im- reliability, yet the author's conclusion is plications on corporate governance and that in such environments, maintaining 3405. A Survey of Securities adverse macroeconomic effects when it state control undermines the very emer- Laws and Enforcement extends across a sufficiently large part of gence of institutional capacity, and so the the country's corporate sector. Morck and balance should tip toward progressively Florencio Lopez-de-Silanes Yeung consider the reasons why family less direct state control. (September 2004) control and control pyramids predominate After all, what are "institutions" if not in emerging market economies and in governance mechanisms with some de- Lopez-de-Silanes examines the theoreti- some industrial economies. They also dis- gree of autonomy from both political and cal and empirical literature pertaining to cuss the reasons why widely held free- private interests? The gradual creation of securities laws and their enforcement by standing firms predominate in the United institutions partially autonomous from regulators and courts to establish what is States. The authors discuss policies that political power must become central to the known and what is yet unclear. Recent countries might adopt to discourage fam- development of an optimal mode of regu- empirical research in the field has estab- ily control pyramids, but caution that con- latory governance. lished that law matters. Mandatory dis- trol pyramids are but one feature of an The author offers some suggestions closure requirements, insider trading institutionally deficient economy. A con- about creating maximum accountability laws, safeguards against self-dealing certed effort to improve a country's insti- in regulatory governance, in particular transactions, adequate regulatory powers, tutions is needed before diffuse ownership creating an internal control system based and simple laws that are easily enforced is desirable. on a rotating board representative of us- aid in the development of capital markets. This paper-a product of the Global ers, producers, and civic organizations, to The debate is now focused on identifying Corporate Governance Forum, Corporate be elected by a process involving frequent which components of securities laws mat- Governance Department-is part of a reporting and disclosure. ter most and on what the optimal regula- larger effort in the department to improve This paper-a product of the Global tory framework for each country should the understanding of corporate gover- Corporate Governance Forum, Invest- be. Although public enforcement of secu- nance reform in developing countries. ment Climate Unit-is part of a larger rities laws is important, the author finds Copies of the paper are available free from effort in the department to improve the that the largest impact comes from aspects the World Bank, 1818 H Street NW, understanding of corporate governance of the law that facilitate private enforce- Washington, DC 20433. Please contact reform in developing countries. Copies of ment. This means that the development Ghita Alderman, room F4K-179, tele- the paper are available free from the of capital markets depends crucially on phone 202-458-2905, fax 202-522-7588, World Bank, 1818 H Street NW, Washing- creating laws that facilitate enforcement email address galderman@worldbank.org. ton, DC 20433. Please contact Ghita Al- and improving court procedures that al- Policy Research Working Papers are also derman, room F4K-179, telephone 202- low for a more efficient dispute resolution. posted on the Web at http://econ. 458-2905, fax 202-522-7588, email ad- This paper-a product of the Global worldbank.org. The authors may be con- dress galderman@worldbank.org. Policy Corporate Governance Forum, Corporate tacted at randall.morck@ualberta.ca or Research Working Papers are also posted Governance Department-is part of a byeung@stern.nyu.edu. (25 pages) on the Web at http://econ.worldbank.org. larger effort in the department to improve The author may be contacted at the understanding of corporate gover- e.c.perotti@fee.uva.nl. (24 pages) nance reform in developing countries. Copies of the paper are available free from the World Bank, 1818 H Street NW, 4 Policy Research Working Paper Series 3408. China's (Uneven) Progress enforcement environment is weak and might increase national saving when Against Poverty specific enforcement mechanisms function these funds are the result of a mandatory poorly, as in many developing and transi- pension program. By contrast, national Martin Ravallion and Shaohua Chen tion countries, few of the traditional cor- saving might be unaffected when pension (September 2004) porate governance mechanisms are effec- funds are the result of a public program tive. The principal consequence in these implemented to foster voluntary pension While the incidence of extreme poverty in countries is a large blockholder, but there saving. China fell dramatically over 1980-2001, are important potential costs to this This paper is a product of the Human progress was uneven over time and across mechanism. A range of private and pub- Development Group, Middle East and provinces. Rural areas accounted for the lic enforcement "tools" can help reduce North Africa Region. The study was bulk of the gains to the poor, though mi- these costs and reinforce other supple- funded by the Bank's Research Support gration to urban areas helped. The pattern mentary corporate governance mecha- Budget under the research project "Con- of growth mattered. Rural economic nisms. The limited empirical evidence tractual Savings Institutions and Na- growth was far more important to national suggests that private tools are more effec- tional Saving." Copies of this paper are poverty reduction than urban economic tive than public forms of enforcement in available free from the World Bank, 1818 growth. Agriculture played a far more the typical environment of most develop- H Street NW, Washington, DC 20433. important role than the secondary or ter- ing and transition countries. However, Please contact Rougiata Bah-Sanches, tiary sources of GDP. Rising inequality public enforcement is necessary regard- room H8-104, telephone 202-473-5620, fax within the rural sector greatly slowed less, and private enforcement mecha- 202-477-0036, email address poverty reduction. Provinces starting with nisms often require public laws to func- rbahsanches@worldbank.org. Policy Re- relatively high inequality saw slower tion. Furthermore, in some countries at search Working Papers are also posted on progress against poverty, due both to least, bottom-up, private-led tools pre- the Web at http://econ.worldbank.org. The lower growth and a lower growth elastic- ceded and even shaped public laws. Politi- authors may be contacted at ity of poverty reduction. Taxation of farm- cal economy constraints resulting from the pablolopezmurphy@yahoo.com or ers and inflation hurt the poor. External intermingling of business and politics, amusalem@worldbank.org. (46 pages) trade had little short-term impact. however, often prevent improvements in This paper-a product of the Poverty the general enforcement environment, Team, Development Research Group-is and adoption and implementation of pub- 3411. Implications of Genetically part of a larger effort in the group to un- lic laws in these countries. Modified Food Technology Policies derstand the causes of country success in This paper-a product of the Global for Sub-Saharan Africa poverty reduction. Copies of the paper are Corporate Governance Forum, Corporate available free from the World Bank, 1818 Governance Department-is part of a Kym Anderson and Lee Ann Jackson H Street NW, Washington, DC 20433. larger effort in the department to help (September 2004) Please contact Patricia Sader, room MC3- improve the understanding of corporate 556, telephone 202-473-3902, fax 202-522- governance reform in developing coun- The first generation of genetically modi- 1151, email address psader@worldbank. tries. Copies of the paper are available free fled (GM) crop varieties sought to increase org. Policy Research Working Papers are from the World Bank, 1818 H Street NW, farmer profitability through cost reduc- also posted on the Web at http:// Washington, DC 20433. Please contact tions or higher yields. The next generation econ.worldbank.org. The authors may be Ghita Alderman, room F4K-179, tele- of GM food research is focusing also on contacted at mravallion@worldbank.org or phone 202-458-2905, fax 202-522-7588, breeding for attributes of interest to con- schen@worldbank.org. (57 pages) email address galderman@worldbank.org. sumers, beginning with "golden rice," Policy Research Working Papers are also which has been genetically engineered to posted on the Web at http://econ. contain a higher level of vitamin A and 3409. Enforcement and Corporate worldbank.org. The authors may be con- thereby boost the health of unskilled la- Governance tacted at erik.berglof@hhs.se or borers in developing countries. Anderson sclaessens@worldbank.org. (49 pages) and Jackson analyze empirically the po- Erik Berglof and Stijn Claessens tertial economic effects of adopting both (September 2004) types of innovation in Sub-Saharan Africa 3410. Pension Funds and National (SSA). They do so using the global Enforcement more than regulations, laws- Saving economywide computable general equilib- on-the-books, or voluntary codes is key to rium model known as GTAP. The results effective corporate governance, at least in Pablo Lopez Murphy and Alberto R. Musalem suggest that the welfare gains are poten- transition and developing countries. Cor- (September 2004) tially very large, especially from nutrition- porate governance and enforcement ally enhanced GM wheat and rice, and mechanisms are intimately linked as they Murphy and Musalem conduct an empiri- that-contrary to the claims of numerous affect firms' ability to commit to their cal study of the effect of the accumulation interests-those estimated benefits are stakeholders, in particular to external in- of pension fund financial assets on na- diminished only slightly by the presence vestors. Berglof and Claessens provide a tional saving using a panel of 43 industrial of the European Union's current barriers framework for understanding these links and developing countries. The authors to imports of GM foods. In particular, if and how they are shaped by countries' find evidence suggesting that the accumu- SSA countries impose bans on GM crop institutional contexts. When the general lation of pension fund financial assets imports in an attempt to maintain access Policy Research Working Paper Series 5 to EU markets for non-GM products, the ments to help the authors identify the ef- plications of lowering stamp duty rates, loss to domestic consumers due to that pro- fects of export variety on country produc- which need to be understood if reform is tectionism boost to SSA farmers is far tivity. Empirical evidence supports their to be viable. Evidence indicates that the more than the small economic gain for hypothesis. Overall, while export variety current high duty rates, coupled with these farmers from greater market access accounts for only 2 percent of cross-coun- weak tax administration, lead to wide- to the EU. try productivity differences, it explains 13 spread evasion of the tax through This paper-a product of the Trade percent of within-country productivity underdeclaration. This underdeclaration Team, Development Research Group-is growth. A 10 percent increase in the ex- of property values directly affects collec- part of a larger effort in the group to bet- port variety of all industries leads to a 1.3 tion of other taxes, among them, property ter understand the contributions of both percent increase in country productivity, taxes and capital gains tax. Moreover, it new technologies and discriminatory while a 10 percentage point increase in indirectly affects the collection of all taxes trade policies to economic welfare of dif- tariffs facing an exporting country leads through the impact ofunderdeclaration on ferent groups in developing countries, to a 2 percent fall in country productivity. the circulation of black money. Simula- Copies of the paper are available free from This paper-a product of the Trade tions indicate that revenues lost due to a the World Bank, 1818 H Street NW, Team, Development Research Group-is lowering of stamp duty rates closer to in- Washington, DC 20433. Please contact part of a larger effort in the group to study ternational levels are quite likely to be re- Paulina Flewitt, room MC3-333, tele- the link between trade and productivity. covered in higher collections of other phone 202-473-2724, fax 202-522-1159, Copies of the paper are available free from taxes. However, these taxes would at least email address pflewitt@worldbank.org. the World Bank, 1818 H Street NW, in part be collected by other levels of gov- Policy Research Working Papers are also Washington, DC 20433. Please contact ernment. So reform could be made a more posted on the Web at http://econ. Michelle Chester, room MC3-322, tele- viable option through appropriately de- worldbank.org. Kym Anderson may be phone 202-458-2010, fax 202-522-1159, signed intergovernmental transfers. contacted at kanderson@worldbank. email address mchester@worldbank.org. This paper-a joint product of the En- org. (34 pages) Policy Research Working Papers are also ergy and Infrastructure Sector Unit, posted on the Web at http://econ. South Asia Region, and the Urban Unit, worldbank.org. Hiau Looi Kee may be Transport and Urban Development De- 3412. Export Variety contacted at hlkee@worldbank.org. (44 partment-is part of a larger effort in the and Country Productivity pages) Bank to to assess the impacts of alterna- tive tax systems in urban finance. Copies Robert Feenstra arid Hiau Looi Kee of the paper are available free from the (September 2004) 3413. Stamp Duties In Indian World Bank, 1818 H Street NW, Washing- States: A Case for Reform ton, DC 20433. Please contact Laura De Feenstra and Kee study the link between Brular, room H3-222, telephone 202-473- export product variety and country pro- James Alm, Patricia Annez, 0539, fax 202-522-3232, email address ductivity based on data from 34 industrial and Arbind Modi Idebrular@worldbank.org. Policy Re- and developing countries, from 1982 to (September 2004) search Working Papers are also posted on 1997. They measure export product vari- the Web at http://econ.worldbank.org. ety by the share of U.S. imports on the set Alm, Annez, and Modi review the options Patricia Annez may be contacted at of goods exported by each sampled coun- for reform of stamp duties on immovable pannez@worldbank.org. (80 pages) try relative to the world. It is a theoreti- property transfers collected by Indian cally sound index which is consistent with state governments. After briefly review- within-country GDP maximization, as ing some of the many administrative dif- 3414. Greco-Roman Lessons well as cross-country comparison. The ficulties experienced with the tax, they for Public Debt Management authors construct country productivity turn to an examination of its economic and Debt Market Development based on relative endowments and prod- impacts. A review of stamp duties inter- uct variety. Increases in output product nationally indicates that Indian rates are Alessandra Campanaro and Dimitri Vittas variety improve country productivity as exceptionally high, at rates often above 10 (September 2004) the new mix of output may better use re- percent. Most countries' rates are less sources of the economy and improve than 5 percent, including a number of low Greece and Italy initiated efforts to im- allocative efficiency. Such effects depend and middle-income developing countries. prove public debt management and de- on the elasticity of substitution in produc- With these high rates, the authors find velop their domestic debt markets respec- tion between the different varieties. The that while the tax has become the third tively in the late 1970s and mid-1980s. At more different the varieties are in terms largest revenue source for many Indian that time, both countries suffered from of production, the more efficient it is to use states, it imposes high compliance costs on large and rapidly growing public debt, the endowments of the economy when a taxpayers, has been subject to a good deal excessive reliance on short-term bills held new variety is available, which leads to ofevasion and fraud, and the distortionary by commercial banks, a strong preference productivity gains. In addition, as sug- impacts appear to be large, reducing the of households to save in bank deposits, and gested in the literature, export product responsiveness of real estate markets in a weak presence of institutional investors variety depends on trade costs, such as Indian cities by discouraging transactions (pension funds, insurance companies, and tariffs, distance, and transport costs. Such essential to the efficient growth of cities. mutual funds). Continuing large fiscal trade cost variables are used as instru- The authors then study the revenue im- deficits, high levels of interest rates and 6 Policy Research Working Paper Series inflation, and serious policy credibility 3415. The Challenge of Reducing 3416. Foreign Bank Entry, problems impeded the use of long-term Subsidies and Trade Barriers Performance of Domestic Banks, instruments. and Sequence of Financial Campanaro and Vittas provide a de- Kyrn Anderson Liberalization tailed analysis of the characteristics of the (September 2004) instruments that were used in these two Nihal Bayraktar and Yan Wang countries, their pace of issuance, and their This is one of 10 studies for the (September 2004) impact on the composition of public debt. Copenhagen Consensus Project that The authors note that the main Greco-Ro- sought to evaluate the most feasible op- The openness or internationalization of fi- man lesson for developing and transition portunities to improve welfare globally nancial services is a complex issue because countries concerns the transition from an and alleviate poverty in developing coun- it is closely related to structural reforms in excessive reliance on short-term Treasury tries. Anderson argues that phasing out the domestic financial sector with some bills, held by captive banks, to a liquid distortionary government subsidies and perceived implications for macroeconomic market with long-term instruments held, barriers to international trade will yield stability. Bayraktar and Wang investigate and actively traded, by long-term institu- an extraordinarily high benefit-cost ratio. the impact of foreign bank entry on the tional investors. The transition required A survey is provided of recent estimates performance of domestic banks and how moving gradually to medium-term instru- using global economywide simulation this relationship is affected by the sequence ments, experimenting with innovation, models of the benefits of doing that by way of financial liberalization. Their data set is and targeting households and foreign in- of the current Doha round of multilateral constructed from the BANKSCOPE data- vestors, while taking steps to establish trade negotiations. Even if adjustment base, including 30 industrial and develop- policy credibility by lowering fiscal defi- costs are several times as large as sug- ingcountries, and covering the period from cits and inflation. gested by available estimates, the benefit- 1995 to 2002. The authors apply panel data When reliance on captive sources of fi- cost ratio from seizing this opportunity regressions by pooling all countries to- nance was substantially reduced and exceeds 20. That is much higher than the gether, and by grouping countries accord- policy credibility was established, both rewards from regional or bilateral trade ing to the sequence of their financial liber- countries focused on developing active agreements or from providing preferential alization. One observation based on de- money markets and liquid secondary access for least-developed countries' ex- scriptive analysis is that the degree ofopen- markets with benchmark issues of fixed- ports to high-income countries. Such re- ness to foreign bank entry varies a great rate long-term securities. They ultimately form would simultaneously contribute to deal, which is not correlated with average succeeded in developing active profes- alleviating several of the other key chal- income levels or with GDP growth. Second, sional markets, using modern practices, lenges reflected in the United Nation's the sequence of financial liberalization targeting well-established European insti- Millennium Development Goals. matters for the performance of the domes- tutional investors, and integrating into This paper-a product of the Trade tic banking sector: After controllingfor mac- the highly sophisticated euro markets. Team, Development Research Group-is roeconomic variables and grouping coun- However, integration into the euro mar- part of a larger effort in the group to better tries by their sequence of liberalization, kets was the culmination of a prolonged understand the likely consequences of fur- foreign bank entry has significantly im- effort of modernization and adaptation ther trade liberalization for global economic proved domestic bank competitiveness in and was greatly facilitated by their strong welfare and its distributional effects, par- countries that liberalized their stock mar- political commitment to achieve economic ticularly for the poor in developing coun- ket first. In these countries, both profit and convergence and join the euro zone. tries. Copies of the paper are available free cost indicators are negatively related to the This paper-a product of the Financial from the World Bank, 1818 H Street NW, share of foreign banks. Countries that lib- Sector Operations and Policy Depart- Washington, DC 20433. Please contact eralized their capital account first seem to ment-is part of a larger effort in the de- Paulina Flewitt, room MC3-333, telephone have benefited less from foreign bank en- partment to study public debt manage- 202-473-2724, fax 202-522-1159, email try compared with the other two sets of ment and debt market development. Cop- address pflewitt@worldbank.org. Policy Re- countries. ies of the paper are available free from the search Working Papers are also posted on This paper-a product of the Poverty World Bank, 1818 H Street NW, Washing- the Web at http/lecon.worldbank.org. The Reduction and Economic Management Di- ton, DC 20433. Please contact Priscilla author may be contacted at kanderson@ vision, World Bank Institute-is part of a Infante, room MC9-702, telephone 202- worldbank.org. (52 pages) larger effort in the institute to develop 473-7642, fax 202-522-7105, email ad- materials for capacity building on trade in dress pinfante@worldbank.org. Policy Re- financial services. Copies of the paper are search WorkingPapers are also posted on available free from the World Bank, 1818 the Web at http://econ.worldbank.org. H Street NW, Washington, DC 20433. Dimitri Vittas may be contacted at Please contact Carole Evangelista, room dvittas@worldbank.org. (45 pages) J4-261, telephone 202-473-7179, fax 202- 676-9810, email address cevangelista@ worldbank.org. Policy Research Working Papers are also posted on the Web at http-//econ.worldbank.org. Yan Wang may be contacted at ywang2@worldbank.org. (42 pages) Policy Research Working Paper Series 7 3417. Is Environmentally-Friendly effort in the group to understand the eco- available free from the World Bank, 1818 Agriculture Less Profitable for nomics of pesticide contamination in de- H Street NW, Washington, DC 20433. Farmers? Evidence on Integrated veloping countries. Copies ofthe paper are Please contact Maria Kasilag, room MC3- Pest Management in Bangladesh available free from the World Bank, 1818 321, telephone 202-473-9081, fax 202-522- H Street NW, Washington, DC 20433. 1159, email address mkasilag@ Susmita Dasgupta, Craig Meisner, Please contact Yasmin D'Souza, room worldbank.org. Policy Research Working and David Wheeler MC2-622, telephone 202-473-1449, fax Papers are also posted on the Web at (September 2004) 202-522-3230, email address ydsouza@ http-//econ.worldbank.org. The author worldbank.org. Policy Research Working may be contacted at radams@worldbank. Concerns about the sustainability of con- Papers are also posted on the Web at org. (36 pages) ventional agriculture have prompted httpi//econ.worldbank.org. The authors widespread introduction of integrated may be contacted at sdasgupta@ pest management (1PM), an ecologically- worldbank.org, cmeisner@worldbank.org, 3419. Poverty Alleviation based approach to control of harmful in- or dwheelerl@worldbank.org. (26 pages) through Geographic Targeting: sects and weeds. IPM is intended to reduce How Much Does Disaggregation ecological and health damage from chemi- Help? cal pesticides by using natural parasites 3418. Remittances and Poverty and predators to control pest populations. in Guatemala Chris Elbers, Tomoki Fujii, Peter Lanjouw, Since chemical pesticides are expensive Berk Ozler, and Wesley Yin for poor farmers, IPM offers the prospect Richard H. Adams, Jr. (October 2004) of lower production costs and higher prof- (September 2004) itability. However, adoption of IPM may Using recently completed "poverty maps" reduce profitability if it also lowers over- Adams uses a large, nationally represen- for Cambodia, Ecuador, and Madagascar, all productivity, or induces more intensive tative household survey to analyze the the authors simulate the impact on pov- use of other production factors. On the impact of internal remittances (from Gua- erty of transferring an exogenously given other hand, IPM may actually promote temala) and international remittances budget to geographically defined sub- more productive farming by encouraging (from the United States) on poverty in groups of the population according to their more skillful use of available resources. Guatemala. With only one exception, he relative poverty status. They find large Data scarcity has hindered a full account- finds that both internal and international gains from targeting smaller administra- ing of IPM's impact on profitability, remittances reduce the level, depth, and tive units, such as districts or villages. But health, and local ecosystems. severity of poverty in Guatemala. How- these gains are still far from the poverty Using new survey data, Dasgupta, ever, he finds that remittances have a reduction that would be possible had the Meisner and Wheeler attempt such an greater impact on reducing the severity as planners had access to information on accounting for rice farmers in Bangladesh. opposed to the level of poverty in Guate- household level income or consumption. They compare outcomes for farming with mala. For example, the squared poverty The results suggest that a useful way for- IPM and conventional techniques, using gap-which measures the severity of pov- ward might be to combine fine geographic input-use accounting, conventional pro- erty-falls by 21.1 percent when internal targeting using a poverty map with duction functions, and frontier production remittances are included in household within-community targeting mechanisms. estimation. All of their results suggest income, and by 19.8 percent when inter- This paper-a product of the Poverty that the productivity of IPM rice farming national remittances are included in such Team, Development Research Group-is is not significantly different from the pro- income. This is true because households part of a larger effort in the group to de- ductivity of conventional farming. Since in the lowest decile group receive a very velop tools for the analysis of poverty and IPM reduces pesticide costs with no large share of their total household income income distribution. Copies of the paper countervailing loss in production, it ap- (expenditure) from remittances. House- are available free from the World Bank, pears to be more profitable than conven- holds in the bottom decile group receive 1818 H Street NW, Washington, DC tional rice farming. The interview results between 50 and 60 percent of their total 20433. Please contact Patricia Sader, also suggest substantial health and eco- income (expenditure) from remittances. room MC3-556, telephone 202-473-3902, logical benefits. However, externality When these "poorest of the poor" house- fax 202-522-1151, email address psader@ problems make it difficult for farmers to holds receive remittances, their income worldbank.org. Policy Research Working adopt IPM individually. Without collective status changes dramatically and this in Papers are also posted on the Web at adoption, neighbors' continued reliance on turn has a large effect on any poverty mea- http://econ.worldbank.org. Berk Ozler chemicals to kill pests will also kill help- sure-like the squared poverty gap-that may be contacted at bozler@ ful parasites and predators, as well as considers the number, distance, and dis- worldbank.org. (41 pages) exposing IPM farmers and local ecosys- tribution of poor households beneath the tems to chemical spillovers from adjoin- poverty line. ing fields. Successful IPM adoption may This paper-a product of the Trade therefore depend on institutional support Team, Development Research Group-is for collective action. part of a larger effort in the group to un- This paper-a product of the Infrastruc- derstand the impact of international mi- ture and Environment Team, Develop- gration and remittances on poverty and ment Research Group-is part of a larger development. Copies of the paper are 8 Policy Research Working Paper Series 3420. Have Consumers Benefited 3421. Universal Service simulations of how certain changes in the from the Reforms in the Electricity Obligations in Developing design of social policy could improve the Distribution Sector in Latin Countries performance of current social policies. America? The author's findings are that current Antonio Estache, Jean-Jacques Laffont, social policies do not prove to be very effec- Antonio Estache and Martin Rossi and Xinzhu Zhang tive in targeting resources to the poor. They (October 2004) (October 2004) have no real impact on the distribution of income across customers. An important Estache and Rossi bring new empirical Estache, Laffont, and Zhang develop a reason for this targeting failure is the ten- evidence on the impact of the choice of model to analyze the effects of asymmet- dency to allocate resources to all households ownership and regulatory regime on firms' ric information on optimal universal ser- resident in a particular geographical area, productivity and prices paid by consum- vice policy in the public utilities of devel- irrespective of socioeconomic status. ers. They collect the evidence from a oping countries. Optimal universal service A series of simulations that limit subsi- sample of electricity distribution compa- policy is implemented using two regula- dies to households reaching a minimum nies in Latin America. The authors rely tory instruments-pricing and network score on a multidimensional poverty index on estimations of labor and operation and investment. Under discriminatory pric- show that individual targeting of this kind maintenance (O&M) input requirement ing, asymmetric information leads to a potentially leads to a more progressive dis- functions using alternative econometric higher price and smaller network in the tribution of subsidies. However, the great- approaches. Their main conclusions are: rural area than under full information. est improvements in targeting perfor- * Private firms perform better (ap- Under uniform pricing, the price is lower mance would be achieved if efforts proximately 30 percent) than public firms. but the network is even smaller. In addi- switched from subsidizing the use of in- * The regulatory regimes matter, so tion, under both pricing regimes, not only frastructure services to subsidizing con- that price-cap regulated firms do better the firm but also taxpayers have incen- nections to those services. than rate-of-return regulated firms, and tives to collude with the regulator. This paper-a product of the Finance, firms regulated under hybrid regimes This paper-a product of the Office of Private Sector, and Infrastructure Unit, have intermediate performance. the Vice President, Infrastructure Net- Latin America and the Caribbean Re- * Private firms operating under rate of work-is part of a larger effort in the net- gion-is part of a larger effort in the re- return are at most as efficient as public work to promote analytical work on gion to understand and mitigate the so- firms. emerging policy issues in infrastructure cial impacts of infrastructure reform. The * There is no clear pattern of differ- service delivery. Copies of the paper are author wrote the paper in collaboration ences in electricity prices according to the available free from the World Bank, 1818 with Centro de Estudios Econ6micos de la regulatory regime. H Street NW, Washington, DC 20433. Regulaci6n, Universidad Argentina de la * Final prices fell in general but the Please contact Antonio Estache, room H3- Empresa. Copies of the paper are avail- drop did not match the productivity gains, 145, telephone 202-458-1442, fax 202-522- able free from the World Bank, 1818 H implying that the operators and the state 2961, email address aestache@'worldbank. Street NW, Washington, DC 20433. share some of the gains in the form of rents org. Policy Research Working Papers are Please contact Vivien Foster, room 15-005, and higher tax revenue, respectively. also posted on the Web at http://econ. telephone 202-458-9574, fax 202-522- This paper-a product of the Office of worldbank.org. (31 pages) 3552, email address vfosterCaworldbank. the Vice President, Infrastructure Net- org. Policy Research Working Papers are work-is part of a larger effort in the net- also posted on the Web at http:// work to promote analytical work on 3422. Toward a Social Policy econ.worldbank.org. (56 pages) emerging policy issues in infrastructure for Argentina's Infrastructure service delivery. Copies of the paper are Sectors: Evaluating the Past available free from the World Bank, 1818 and Exploring the Future 3423. Designing Performance: H Street NW, Washington, DC 20433. The Semi-Autonomous Revenue Please contact Antonio Estache, room H3- Vivien Foster Authority Model in Africa and Latin 145, telephone 202-458-1442, fax 202-522- (October 2004) America 2961, email address aestache@worldbank. org. Policy Research Working Papers are Argentina was a pioneer of infrastructure Robert Taliercio, Jr. also posted on the Web at http:// reform in the early 1990s. The social di- (October 2004) econ.worldbank.org. (33 pages) mension of infrastructure services was typically overlooked in the reform process. During the past decade, diverse develop- However, social sensitivities often resur- ing countries have introduced radical faced in the years that followed, leading reforms in their collection of taxes. In more to a series of ad hoc social policy measures than 15 countries, traditional tax depart- that cumulatively amount to US$200 ments have been granted the status of million a year. Foster quantifies and pri- semiautonomous revenue authorities oritizes the social challenges faced by the (ARAs), which are designed with a num- Argentine infrastructure sectors, evalu- ber of autonomy-enhancing features, in- ates how well existing social policies are cluding self-financing mechanisms, functioning, and provides illustrative boards of directors with high-ranking Policy Research Working Paper Series 9 public and private sector representatives, and internationally, for firms in Brazil, nels in the context of a student loan pro- and sui generis personnel systems. Chile, and Mexico. Costs include invest- gram (SOFES) implemented at private Taliercio addresses gaps in the public ment banking and legal fees, regulatory universities in Mexico. With regard to the management and tax administration lit- and exchange listing costs, rating agency first channel, enrollment, results from the eratures by closely examining ARA re- fees, and expenditures for marketing and Mexican household survey indicate that forms in Kenya, Mexico, Peru, South Af- publishing. Her findings suggest that financial support has a strong positive rica, Uganda, and Venezuela from their Brazilian firms face similar costs in issu- effect on university enrollment. Given inception to the early 2000s. Using the ing debt locally or abroad, whereas domes- completion of upper secondary education, comparative case study method, he tack- tic equity issuance is nearly twice as ex- the probability of entering higher educa- les three questions. First, what has moti- pensive as debt. While the Chilean domes- tion rises 24 percent. The authors use two vated the wave of ARA reforms over the tic corporate debt market is well developed data sources to investigate the second past decade? The author argues that from by emerging market standards (size of the channel, student performance. They ana- a public management perspective, reform- market and maturity of issues), Chilean lyze administrative data provided by ers intended to use autonomy to enhance firms can issue debt more cheaply inter- SOFES using a regression-discontinuity bureaucratic performance in low-capacity nationally than at home. In addition, design, and survey data enable them to public sectors. Second, is there a connec- while equity financing is cheaper in Chile perform a similar analysis using a differ- tion between autonomy and performance? from a transaction cost perspective, over ent control group. Empirical results sug- Focusing on revenue collection, compli- the past decade most firms have used gest that SOFES recipients show better ance management, taxpayer services, bonds rather than shares to raise capital. academic performance than students human resource management, and ad- This financing trend is true in all three without a credit from SOFES. However, ministrative costs, the author suggests countries. Finally, Mexican firms can is- the results cannot be interpreted as a that autonomy is associated with higher sue debt at the lowest costs of the three, purely causal impact of the student loan levels of performance. He also makes the but face the highest equity issuing costs. program, since the impacts also could re- case that higher levels of autonomy are In addition to documenting these features, flect (self-) selection of students. associated with higher levels of perfor- the author sheds light on how the inves- This paper-a product of the Human mance. Third, if there is a connection be- tor base in these countries plays a strong Development Sector Unit, Latin America tween autonomy and performance, which role in influencing the ability of firms to and the Caribbean Region-is part of a specific design features matter most and access domestic capital markets. larger effort in the region to measure and why? In spite of the popularity of the ARA This paper-a product of the Financial evaluate the impact of the unit's pro- reform, there is no consensus on best prac- Sector Operations and Policy Depart- grams. Copies of the paper are available tice in organizational design. The author ment-is part of a larger effort in the de- free from the World Bank, 1818 H Street offers hypotheses based on the cases about partment to understand and promote pri- NW, Washington, DC 20433. Please con- why certain designs work better than oth- vate sector financing in emerging mar- tact Samia Benbouzid, room 17-046, tele- ers, and makes specific recommendations kets. Copies of the paper are available free phone 202-458-8469, fax 202-522-1201, for the next generation of ARA reforms. from the World Bank, 1818 H Street NW, email address sbenbouzid@worldbank. This paper-a product of the Poverty Washington, DC 20433. Please contact org. Policy Research Working Papers are Reduction and Economic Management Priscilla Infante, room MC9-702, tele- also posted on the Web at http://econ. Sector Department, East Asia and Pacific phone 202-473-7642, fax 202-522-7105, worldbank.org. The authors may be con- Region-is part of a larger effort in the email address pinfante@worldbank.org. tacted at ed.f.canton@cpb.nl or ablom@ Bank to understand under what conditions Policy Research Working Papers are also worldbank.org. (45 pages) public sector performance improves. Cop- posted on the Web at http://econ. ies of the paper are available free from the worldbank.org. The author may be con- World Bank, 1818 H Street NW, Washing- tacted at sara.zervos@otaam.com. (19 3426. International Economic ton, DC 20433. Please contact Gloria pages) Activities and the Demand for Elmore, roomMC8-162, telephone 202-473- Skilled Labor: Evidence from 6701, email address gelmore@worldbank. Brazil and China org. Policy Research Working Papers are 3425. Can Student Loans Improve also posted on the Web at http://econ. Accessibility to Higher Education Pablo Fajnzylber and Ana M. Fernandes worldbank.org. The author may be con- and Student Performance? (October 2004) tacted atrtaliercio@worldbank.org. (83 pages) An Impact Study of the Case of SOFES, Mexico Increases in international economic inte- gration can lead to greater specialization 3424. The Transactions Costs Erik Canton and Andreas Blom according to comparative advantage, but of Primary Market Issuance: The (October 2004) also to the diffusion of skill-biased tech- Case of Brazil, Chile, and Mexico nologies. In developing countries charac- Financial aid to students in tertiary edu- terized by relative abundance ofunskilled Sara Zervos cation can contribute to human capital labor, these factors can have opposite ef- (October 2004) accumulation through two channels-in- fects on the relative demand for skilled creased enrollment and improved student labor. Fajnzylber and Fernandes investi- Zervos documents the precise costs of debt performance. Canton and Blom analyze gate the impact of the use of imported and equity issuance, both domestically the quantitative importance of both chan- inputs, exports, and foreign direct invest- 10 Policy Research Working Paper Series ment on the demand for skilled workers by emergence of both a new financial inno- cents). They also find that elderly men BrazilianandChinesemanufacturingplants. vation, micro-enterprise finance, and the have significantly lower exposure than They find that while in Brazil increased lev- increased emphasis given to project design elderly women. Across households, they els ofinternational integration are associated based on community participation, show- draw on results from their previous paper with an increased demand for skilled labor, ing how these approaches more fully rec- (Dasgupta and others, 2004), which relate the opposite is true in China. oncile the incentives faced by beneficiaries pollution variation across households to This paper-a product of the Growth and donors. In sum, the authors argue choices of cooking fuel, cooking locations, and Investment Team, Development Re- that the evolving consensus on shelter construction materials, and ventilation search Group-is part of a larger effort in strategy is not nearly as mysterious as practices. They find that these choices are the group to study the links between glo- some would claim. Housing markets in significantly affected by family income balization and labor markets. Copies of most developing countries remain highly and adult education levels (particularly the paper are available free from the idiosyncratic and constrained. Neverthe- for women). Overall, the authors find that World Bank, 1818 H Street NW, Washing- less, the evolving consensus on shelter the poorest, least-educated households ton, DC 20433. Please contact Paulina strategy appears to recognize these idio- have twice the pollution levels of relatively Sintim-Aboagye, room MC3-422, tele- syncrasies and policy constraints as evi- high-income households with highly- phone 202-473-7644, fax 202-522-1155, denced by the strong and improving per- educated adults. email address psintimaboagye@ formance of the Bank's shelter lending. For children in a typical household, worldbank.org. Policy Research Working This paper-a product of the Urban pollution exposure can be halved by adopt- Papers are also posted on the Web at Unit, Transport and Urban Development ing two simple measures-increasing http://econ.worldbank.org. The authors Department-is part of a larger, effort in their outdoor time from 3 to 5 or 6 hours a may be contacted at pfajnzylber@ the department to evaluate the lessons day, and concentrating outdoor time dur- worldbank.org or afernandes@worldbank. from 30 years of urban shelter loans. Cop- ing peak cooking periods. The authors org. (42 pages) ies of the paper are available free from the recognize that weather and other factors World Bank, 1818 H Street NW, Washing- may intervene occasionally, and that child ton, DC 20433. Please contact Oumi supervision outdoors may be difficult for 3427. Shelter Strategies for the Himid, room H3-333, telephone 202-458- some households. However, the potential Urban Poor: Idiosyncratic and 0225, fax 202-522-3232, email address benefits are so great that neighbors might Successful, but Hardly Mysterious uhimid@worldbank.org. Policy Research well agree to pool outdoor supervision once Working Papers are also posted on the they became aware of the implications for Robert M. Buckley and Jerry Kalarickal Web at http://econ.worldbank.org. The their children's health. (October 2004) authors may be contacted at rbuckley@ This paper-a product of the Infrastruc- worldbank.org orjkalarickal@worldbank. ture and Environment Team, Develop- In 1986 the World Bank prepared a strat- org. (35 pages) ment Research Group-is part of a larger egy for low-income housing in developing effort in the group to study environmen- countries. This work grew out of the tal health issues in developing countries. Bank's efforts to support the urban poor 3428. Who Suffers from Indoor Copies ofthe paper are available free from through an extensive housing assistance Air Pollution? Evidence from the World Bank, 1818 H Street NW, program that was launched by Bank Bangladesh Washington, DC 20433. Please contact President McNamara's speech on urban Yasmin D'Souza, room MC2-622, tele- poverty. By that time, the Bank had pro- Susmita Dasgupta, Mainul Huq, phone 202-473-1449, fax 202-522-3230, vided more than $4 billion of such assis- M. Khaliquzzaman, Kiran Pandey, email address ydsouza@worldbank.org. tance, and had undertaken an extensive and David Wheeler Policy Research Working Papers are also research effort to design support for that (October 2004) posted on the Web at http:/econ. lending. Much has changed since that worldbank.org. Susmita Dasgupta maybe time, not only in the way the Bank pro- In this paper the authors investigate in- contacted at sdasgupta@worldbank.org. vides shelter assistance, more than dou- dividuals' exposure to indoor air pollution. (23 pages) bling its support since that review, but Using new survey data from Bangladesh, also in the changing consensus as to what they analyze exposure at two levels-dif- shelter strategy should be. Buckley and ferences within households attributable to 3429. Creating Markets for Habitat Kalarickal review the emerging consen- family roles, and differences across house- Conservation when Habitats sus. They examine three new research holds attributable to income and educa- are Heterogeneous areas: the empirical analysis of the effects tion. Within households, they relate indi- policy has on housing supply; the richer viduals' exposure to pollution in different Kenneth M. Chomitz, Timothy S. Thomas, understanding of the effects that land locations during their daily round of ac- and Ant6nio Salazar Branddo market regulations have on specific tivity. The authors find high levels of ex- (October 2004) projects and on the functioning of urban posure for children and adolescents ofboth areas; and the alleged mysterious effects sexes, with particularly serious exposure A tradable development rights (TDR) pro- that de Soto, for example, claims that ef- for children under 5. Among prime-age gram focusing on biodiversity conserva- fective property rights have not only for adults, they find that men have half the tionfaces a crucial problem defining which shelter policy but for development more exposure of women (whose exposure is areas of habitat should be considered generally. The authors also examine the similar to that of children and adoles- equivalent. Restricting the trading do- Policy Research Working Paper Series 11 main to a narrow area could boost the ferent scales. The authors find plausible Their conclusion from this analysis is that range of biodiversity conserved but could evidence for a forest-biodiversity-poverty a positive long-run relationship between increase the opportunity cost ofconserva- connection in Guatemala, and to a lesser financial intermediation and output tion. The issue is relevant to Brazil, where extent in Honduras. In the rest of Central growth coexists with a mostly negative TDR-like programs are emerging. Current America, there are relatively few areas short-run relationship. The authors fur- regulations require each rural property to where forest meets agriculture on steep ther develop an explanation for these con- maintain a forest reserve of at least 20 slopes-either the forest or the slopes are trasting effects by relating them to recent percent, but nascent policies allow some lacking. And the ratio of these forest/ag- theoretical models, by linking the esti- tradability of this obligation. Chomitz, riculture/hillside interfaces to watershed mated short-run effects to measures of Thomas, and Brando use a simple, spa- area declines markedly as larger-scale wa- financial fragility (namely, banking crises tially explicit mode to simulate a hypo- tersheds are considered. This directs at- and financial volatility), and by jointly thetical state-level program. They find tention to relatively small watersheds for analyzing the effects of financial depth that wider trading domains drastically further investigation of the "nexus." and fragility in classic panel growth re- reduce landholder costs of complying with This paper-a product of the Infrastruc- gressions. this regulation and result in environmen- ture and Environment Team, Develop- This paper-a product of the Growth tally preferable landscapes. ment Research Group-is part of a larger and Investment Team, Development Re- This paper-a pr,oduct of the Infrastruc- effort in the group to understand the eco- search Group-is part of a larger effort in ture and Environment Team, Develop- nomics of conservation. Copies of the pa- the group to understand the sources of ment Research Group-is part of a larger per are available free from the World growth and volatility. Copies of the paper effort in the group to understand the eco- Bank, 1818 H Street NW, Washington, DC are available free from the World Bank, nomics of conservation. Copies of the pa- 20433. Please contact Viktor Soukhanov, 1818 H Street NW, Washington, DC per are available free from the World room MC2-523, telephone 202-473-5721, 20433. Please contact Tourya Tourougui, Bank, 1818 H Street NW, Washirgton, DC fax 202-522-3230, email address room MC3-361, telephone 202-458-7431, 20433. Please contact Viktor Soukhanov, vsoukhanov@worldbank.org. Maps in this fax 202-522-3518, email address room MC2-523, telephone 202-473-5721, paper are best viewed in color. AcolorPDF ttourougui@worldbank.org. Policy Re- fax 202-522-3230, email address file of this paper may be downloaded at search Working Papers are also posted on vsoukhanov@worldbank.org. Policy Re- http://econ.worldbank.org. Kenneth the Web at http://econ.worldbank.org. search Working Papers are also posted on Chomitz may be contacted at kchomitz@ Norman Loayza may be contacted at the Web at http://econ.worldbank.org. worldbank.org. (39 pages) nloayza@worldbank.org. (35 pages) Kenneth Chomitz may be contacted at kchomitz@worldbank.org. (29 pages) 3431. Financial Development, 3432. Growth, Inequality, Financial Fragility, and Growth and Simulated Poverty Paths 3430. The Forest-Hydrology- for Tanzania, 1992-2002 Poverty Nexus in Central America: Norman Loayza and Romain Ranci6re An Heuristic Analysis (October 2004) Gabriel Demombynes and Johannes G. Hoogeveen Andrew Nelson and Konneth M. Chomitz Loayza and Ranci6re study the apparent (October 2004) (October 2004) contradiction between two strands of the literature on the effects of financial inter- Although Tanzania experienced relatively A "forest-hydrology.-poverty nexus" hy- mediation on economic activity. On the rapid growth in per capita GDP in the pothesis asserts that deforestation in poor one hand, the empirical growth literature 1995-2001 period, household budget sur- upland areas simultaneously threatens finds a positive effect of financial depth as vey (HBS) data show only a modest and biodiversity and increases the incidence measured by, for instance, private domes- statistically insignificant decline in pov- of flooding, sedimentation, and other dam- tic credit and liquid liabilities (for ex- erty between 1992 and 2001. To assess the aging hydrological processes. Nelson and ample, Levine, Loayza, and Beck 2000). likely trajectory of poverty rates over the Chomitz use rough heuristics to assess the On the other hand, the banking and cur- course of the period, changes in poverty applicability of this hypothesis to Central rency crisis literature finds that monetary are simulated using unit-record HBS data America. They do so by using a simple rule aggregates, such as domestic credit, are and national accounts growth rates under of thumb to identify watersheds at greater among the best predictors of crises and varying assumptions for growth rates and risk of hydrologically significant land use their related economic downturns (for inequality changes. To this end the pro- change: these are watersheds where there example, Kaminski and Reinhart 1999). jection approach of Datt and Walker is a relatively large interface between The authors account for these contrasting (2002) is used along with an extension that agriculture and forest, and where this effects based on the distinction between is better suited to taking into account dis- interface is on a steep slope. The authors the short- and long-run impacts of finan- tributional changes observed between the compare the location of these watersheds cial intermediation. Working with a panel two household surveys. The simulations with spatial maps of poverty and forests of cross-country and time-series observa- suggest that following increases in poverty (for Guatemala and Honduras) and with tions, they estimate an encompassing during the economic slowdown of the early maps of population and forests (for Cen- model of short- and long-run effects using 1990s, recent growth in Tanzania has tral America at large). The analysis is the Pooled Mean Group estimator devel- brought a decline in poverty, particularly performed for watersheds defined at dif- oped by Pesaran, Shin, and Smith (1999). in urban areas. Unless recent growth is 12 Policy Research Working Paper Series sustained, the country will not meet its ket rent and value of their dwelling. Thus plus the United States (North America) 2015 Millennium Development Goal they can calculate individual rates of re- and the European Union. Using industry- (MDG). Poverty reduction is on track in turn for each unit without facing the typi- level data, they find that (1) technology urban areas, but reaching the MDG tar- cal selection bias problems. Comparing diffusion and productivity gains tend to be get for bringing down poverty in rural the distributions of returns in the infor- regional: Korea benefits mainly from trade areas, where most Tanzanians live, re- mal and formal sectors, the authors obtain with Japan, Mexico with the United quires sustaining high growth in rural the following results: States, and Poland with the European output per capita. * Rates of return are significantly Union; and (2) though these results sug- This paper-a product of the Poverty higher in the informal sector, as predicted gest that the dynamic version ofthe "natu- Reduction and Economic Management 2 by the model. ral trading partners" hypothesis holds for Team, Africa Technical Families-is part * These figures imply a perceived risk all three countries, careful analysis shows of a larger effort in the Tanzania country on housing investment in the informal that it holds for Korea and Mexico but not team to investigate the relation between sector equivalent to an annual destruction necessarily for Poland. economic growth and poverty reduction. rate ranging between 1 and 2 percent. This paper-a product of the Trade Copies of the paper are available free from * The two distributions of rates of re- Team, Development Research Group-is the World Bank, 1818 H Street NW, turn present highly idiosyncratic compo- part of a larger effort in the group to ex- Washington, DC 20433. Please contact nents and are not well explained by vari- amine the dynamic effects of North-South Tanisha McGill, room J10-138, telephone ables proxying either the strength of in- regional trade blocs. Copies of the paper 202-473-7605, fax 202-614-0759, email formal property rights or lower perceived are available free from the World Bank, address tmcgill@worldbank.org, or in Tan- risks of eviction. 1818 H Street NW, Washington, DC zania, Mary-Anne Mwakangale, tele- This paper-a joint product of the In- 20433. Please contact Paulina Flewitt, phone022-211-4575-77, fax022-211-3039, frastructure and Environment Team, room MC3-333, telephone 202-473-2724, email address mmwakangale@ Development Research Group, and the fax 202-522-1159, email address pflewitt@ worldbank.org. Policy Research Working Urban Unit, Transport and Urban Devel- worldbank.org. Policy Research Working Papers are also posted on the Web at http-// opment Department-is part of a larger Papers are also posted on the Web at econ.worldbank.org. The authors may be effort in the Bank to better understand the http://econ.worldbank.org. Maurice Schiff contacted at gabriel@demog.berkeley.edu dynamics of informal housing around the may be contacted at mschiff@ orjhoogeveen@worldbank.org. (36 pages) world. Copies of the paper are available worldbank.org. (20 pages) free from the World Bank, 1818 H Street NW, Washington, DC 20433. Please con- 3433. Measuring the Risk on tact David le Blanc, room H9-231, tele- 3435. Population Age Structure Housing Investment in the Informal phone 202-458-0990, fax 202-477-1993, and the Budget Deficit Sector: Theory and Evidence from email address dleblanc@worldbank.org. Pune, India Policy Research Working Papers are also Derek H. C. Chen posted on the Web at http://econ. (October 2004) Mudit Kapoor and David le Blanc worldbank.org. Mudit Kapoor may be con- (October 2004) tacted at mkapoor@worldbank.org. (47 Chen focuses on the effects of age struc- pages) ture changes on the size of budget deficits Kapoor and le Blanc provide an economic of national governments. More specifi- framework to analyze investment in infor- cally, he determines whether differences mal housingin developing countries. They 3434. North-South Technology in age structure can account for the ob- consider a simple model of investment in Diffusion, Regional Integration, served differences in budget deficits across the housing market where investors can and the Dynamics of the "Natural countries as well as across time. By way choose between two sectors-the formal Trading Partners" Hypothesis of an extension of the untested theory of sector, where physical investment faces no negative bequest motives advocated by risk of destruction, and the informal sec- Maurice Schiff and Yanling Wang Cukierman and Meltzer (1989), the au- tor, where investment in each period is (October 2004) thor argues that the commonly accepted subjected to an exogenous risk of destruc- notion that population aging tends to in- tion. Construction costs differ between the Based on static analysis, a number of stud- crease the budget deficits of economies is two sectors. All households are renters. ies argue that forming a regional trade theoretically consistent. However, pre- Renters shop for dwelling attributes and agreement is more likely to raise welfare liminary results from country and time do not care about the sector (formal or if member countries are "natural trading fixed-effects panel regressions, estimated informal) itself. The model implies that partners," while other studies claim that from 1975 to 1992 over 55 industrial and returns on investment, measured by the the opposite is true. Schiff and Wang look developing countries, indicate statistical rent-to-value ration, will be higher in the at the argument from a dynamic view- evidence for this postulation is present informal sector. The authors use a survey point by examining the impact of North- only in the developing countries but not conducted by the World Bank in Pune, South trade on technology diffusion and in the industrial countries. India in 2002. The sample comprises 2,850 total factor productivity (TFP) in the This paper-a product of the Knowledge households. This survey had the peculiar- South. Specifically, it examines the impact for Development Program, World Bank ity of asking the households, regardless of on TFP in the Republic of Korea, Mexico, Institute-is part of a larger effort in the tenure status, questions about the mar- and Poland of trade with Japan, Canada institute to study the economic and social Policy Research Working Paper Series 13 effects of population aging. Copies of the 3437. Bank Capital and Loan perpetrators. Intimate partner violence paper are available free from the World Loss Reserves under Basel II: and sexual coercion are the most common Bank, 1818 H Street.NW, Washington, DC Implications for Emerging forms of GBV, and these are the types of 20433. Please contact Faythe Calandra, Countries GBV that they analyze. room J2-267, telephone 202-473-6440, fax GBV has serious consequences for 202-522-1492, email address fcalandra@ Giovanni Majnoni, Margaret Miller, women's health and well-being, ranging worldbank.org. Policy Research Working and Andrew Powell from fatal outcomes, such as homicide, Papers are also posted on the Web at (October 2004) suicide, and AIDS-related deaths, to non- http/econ.worldbank.org. The author fatal outcomes, such as physical injuries, may be contacted at dchen2@worldbank. Majnoni, Miller, and Powell propose an chronic pain syndrome, gastrointestinal org. (39 pages) integrated approach to minimum bank disorders, complications during preg- capital and loan loss reserves regulation. nancy, miscarriage, and low birth-weight They break new ground in two main ar- of children. GBV also poses significant 3436. Approaches to Results- eas. First, the authors provide an explicit costs for the economies of developing coun- Based Funding in Tertiary measurement of the credit loss distribu- tries, including lower worker productivity Education: Identifying Finance tion for a sample of emerging countries and incomes, and lower rates of accumu- Reform Options for Chile providing a benchmark for discussing the lation of human and social capital. appropriate calibration of new regulatory The authors examine good practice ap- Kristian Thorn, Lauritz Holm-Nielsen, capital and loan loss provision require- proaches injustice, health, education, and and Jette Samuel Jeppesen ments for non-G10 countries. Second, on multisectoral approaches. In each sector, (October 2004) normative grounds, they propose a simpli- they identify good practices for: (1) law and fled version of the "internal rating based" policies; (2) institutional reforms; Unrealized potential exists for increasing (IRB) approach as a transition tool that, (3) community-level interventions; and (4) accountability and transparency in Chil- while retaining a risk-based definition of individual behavior change strategies. ean tertiary education by allocating re- solvency ratios, implies reduced supervi- The authors offer conclusions and rec- sources based on achieved results rather sory monitoring costs and could therefore ommendations for future work on gender- than historical precedence and political be of interest to emerging countries where based violence: negotiation. Against this background, supervisory resources are particularly * It is essential to focus on the preven- Thorn, Holm-Nielsen, and Jeppesen pro- scarce. tion of GBV, not just on services for its file approaches to results-based funding This paper-a product of the Finance survivors. of tertiary education to identify efficacious Cluster Sector Unit, Latin America and * Prevention is best achieved by em- finance reform options for Chile. Interna- the Caribbean Region-is part of a larger powering women and reducing gender tional experience shows that financing by effort in the region to analyze the effects disparities, and by changing norms and results is not a ready-made concept, but a of bank capital regulation. Copies of the attitudes which foster violence. broad label that offers a menu of design paper are available free from the World * Interventions should employ a options. To decipher results-based fund- Bank, 1818 H Street NW, Washington, DC multisectoral approach and work at dif- ing, the authors cover all phases in design- 20433. Please contact Helena Issa, room ferent levels-individual, community, ing and implementing a results-based 15-112, telephone 202-473-0154, fax 202- institutional, and laws and policies. funding system and highlight strengths 522-2106, email address hissa@ GBV may be common in the Latin and weaknesses of concepts, such as taxi- worldbank.org. Policy Research Working America and the Caribbean region, but meter funding, performance contracts, Papers are also posted on the Web at there are promising approaches available and formula-based allocations. http://econ.worldbank.org. The authors to begin working toward its elimination. This paper-a product of the Human may be contacted at gmajnoni@ This paper-a product of the Poverty Development Department, Latin America worldbank.org, mmiller5@worldbank.org Sector Unit, Latin America and the Car- and the Caribbean Region-is part of a or apowell@utdt.edu. (30 pages) ibbean Region-is part of a larger effort larger effort in the region to increase ac- in the region to address issues of violence countability for results. Copies of the pa- and its impact on development. Copies of per are available free from the World 3438. Addressing Gender-Based the paper are available free from the Bank, 1818 H Street NW, Washington, DC Violence in the Latin American World Bank, 1818 H Street NW, Washing- 20433. Please contact Tania Gomez- and Caribbean Region: A Critical ton, DC 20433. Please contact Lucy Bravo, Carcago, room 17-144, telephone 202-473- Review of Interventions room 18-104, telephone 202-458-2361, fax 2127, fax 202-614-1538, email address 202-522-3134, email address lbravol@ tgomez@worldbank.org. Policy Research Andrew Morrison, Mary Ellsberg, worldbank.org. Policy Research Working Working Papers are also posted on the and Sarah Bott Papers are also posted on the Web at Web at http://econ.worldbank.org. The (October 2004) http://econ.worldbank.org. The authors authors may be contacted at kthorn@ may be contacted at amorrison@ worldbank.org or lholmnielsen@ Morrison, Ellsberg, and Bott present an worldbank.org or mellsberg@path-dc.org. worldbank.org. (24 pages) overview of gender-based violence (GBV) (70 pages) in Latin America, with special emphasis on good practice interventions to prevent GBV or offer services to its survivors or 14 Policy Research Working Paper Series 3439. Elections, Special Interests, discipline both regardless of and through important. Proactive support policies of and the Fiscal Costs of Financial bank fundamentals. First, worsening sys- whatever stripe should be subject to cost- Crisis temic conditions can directly threaten the benefit analysis, based on the existence of value of deposits by way of dual agency an identified market failure, and moni- Philip Keefer problems. Second, to the extent that banks tored for performance and cost effective- (October 2004) are exposed to systemic risk, systemic ness. Transparency and accountability are shocks lead to a future deterioration of critical in ensuring that interventions ac- Keefer proposes a new approach to explain fundamentals not captured by their cur- complish their intended objectives rather why the costs of crisis are greater in some rent values. Using data from the recent than being vehicles for rent seeking. countries than in others. He begins with banking crises in Argentina and Uruguay, This paper-a product of the Trade the premise that many crises result from the authors show that market discipline Team, Development Research Group-is the willingness of politicians to cater to is indeed quite robust once systemic risk part of a larger effort in the group to ex- special interests at the expense of broad is factored in. As systemic risk increases, amine the effects of globalization on de- social interests. A parsimonious model the informational content of past funda- veloping countries. Copies of the paper are predicts that the less costly it is for aver- mentals declines. These episodes also available free from the World Bank, 1818 age citizens to expel politicians, the more show how few systemic shocks can trigger H Street NW, Washington, DC 20433. veto players there are; the less important a run irrespective of ex-ante fundamen- Please contact Paulina Flewitt, room are exogenous shocks, and the more diffi- tals. Overall, the evidence suggests that MC3-333, telephone 202-473-2724, fax cult it is for politicians and special inter- in emerging economies, the notion ofmar- 202-522-1159, email address pflewitt@ ests to forge credible agreements, the ket discipline needs to account for worldbank.org. Policy Research Working lower the costs of crisis are. Though these systemic risk. Papers are also posted on the Web at predictions differ from those in the litera- This paper-a product of the Finance http://econ.worldbank.org. The authors ture, empirical evidence presented shows Team, Development Research Group-is may be contacted at bhoekman@ that they explain the fiscal costs of finan- part of a larger effort in the group to study worldbank.org or bjavorcik@worldbank. cial crisis, even after controlling for the market discipline. Copies of the paper are org. (27 pages) financial sector policies believed to con- available free from the World Bank, 1818 tribute most to the efficient prevention H Street NW, Washington, DC 20433. and resolution of financial crisis. Please contact Agnes Yaptenco, room 3442. Emerging Infrastructure This paper-a product of the Growth MC3-439, telephone 202-473-1823, fax Policy Issues in Developing and Investment Team, Development Re- 202-522-1155, email address ayaptenco@ Countries: A Survey of the search Group-is part of a larger effort in worldbank.org. Policy Research Working Recent Economic Literature the group to understand the political Papers are also posted on the Web at economy of good policy. Copies of the pa- http://econ.worldbank.org. The authors Antonio Estache per are available free from the World may be contacted at ely@utdt.edu, (November 2004) Bank, 1818 H Street NW, Washington, DC mmartinezperia@worldbank.org, or 20433. Please contact Paulina Sintim- sschmukler@worldbank.org. (48 pages) Estache reviews the recent economic re- Aboagye, room MC3-422, telephone 202- search on emerging issues for infrastruc- 473-8526, fax 202-522-1155, email ad- ture policies affecting poor people in de- dress psintimaboagye@worldbank.org. 3441. Policies Facilitating Firm veloping countries. His main purpose is to Policy Research Working Papers are also Adjustment to Globalization identify some of the challenges the inter- posted on the Web at http://econ. national community, and donors in par- worldbank.org. The author may be con- Bernard Hoekman and Beata ticular, are likely to have tr address over tacted at pkeefer@worldbank.org. (48 Smarzynska Javorcik the next few years. He addresses six main pages) (November 2004) issues: (1) the necessity of infrastructure in achieving the Millennium Development Hoekman and Javorcik focus on policies Goals; (2) the various dimensions of fi- 3440. Market Discipline under facilitating firm adjustment to globaliza- nancing challenges for infrastructure; (3) Systemic Risk: Evidence from tion. They briefly review the effects of the debate on the relative importance of Bank Runs in Emerging trade and investment liberalization on urban and rural infrastructure needs; (4) Economies firms, focusing on within-industry effects. the debate on the effectiveness of infra- They postulate that governments' role in structure decentralization; (5) what works Eduardo Levy-Yeyati, Maria Soledad supporting the process is to (1) ensure that and what does not when trying to target Martinez Peria, and Sergio L. Schmukler firms face"right" incentives to adjust, and the needs of the poor, with an emphasis (November 2004) (2) intervene in areas where market fail- on affordability and regulation challenges; ures are present. Their main message is and (6) the importance of governance and Levy-Yeyati, Martinez Peria, and that while many policies could be adopted corruption in the sector. The author con- Schmukler show that systemic risk exerts to address market failures, they need to cludes by showing how the challenges a significant impact on the behavior of be carefully designed and implemented in identified define a relatively well inte- depositors, sometimes overshadowing a stable macroeconomic environment. An grated agenda for both researchers and their responses to standard bank funda- institutional infrastructure that supports the international infrastructure mentals. Systemic risk can affect market the functioning of modern markets is most community. Policy Research Working Paper Series 15 This paper-a product of the Office of Papers are also posted on the Web at tacted at hertel@purdue.edu or reimer@ the Vice President, Infrastructure Net- http:/econ.worldbank.org. The authors aae.wisc.edu. (40 pages) work-is part of a larger effort in the net- may be contacted at gmajnoni@ work to stimulate more analytical assess- worldbank.org, mmiller5@worldbank.org, ments of emerging issues in the sector. nmylenko@worldbank.org, or apowell@ 3445. Has Private Participation Copies of the paper are available free from utdt.edu. (37 pages) in Water and Sewerage Improved the World Bank, 1818 H Street NW, Coverage? Empirical Evidence Washington, DC 20433. Please contact from Latin America Marie Leon, room H3-145, telephone 202- 3444. Predicting the Poverty 473-6151, fax 202-522-2461, email ad- Impacts of Trade Reform George R. G. Clarke, Katrina Kosec, dress mleon@worldbank.org. Policy Re- and Scott Walisten search Working Papers are also posted on Thomas W. Hertel and Jeffrey J. Reimer (November 2004) the Web at http://econ.worldbank.org. The (November 2004) author may be contacted at aestache@ Introducing private sector participation worldbank,org. (42 pages) An important area of research in recent (PSP) into the water and sewerage sectors years involves assessing the micro- in developing countries is difficult and economic implications of macro-level controversial. Empirical studies on its 3443. Improving Credit policies-particularly those related to effects are scant and generally inconclu- Information, Bank Regulation, international trade. While a wide range sive. Case studies tend to find improve- and Supervision: On the Role of research methodologies are available ments in the sector following and Design of Public Credit for assessing the microeconomic incidence privatization, but they suffer from selec- Registries of micro-policies, as well as for assessing tion bias and it is difficult to generalize the effect of macro-level policies on their results. To explore empirically the Andrew Powell, Nataliya Mylenko, markets and broad groups of households, effects of PSP on coverage, Clarke, Kosec, Margaret Miller, and Giovanni Majnoni there is a gap when it comes to eliciting and Wal1sten assemble a new dataset of (November 2004) the disaggregated household and firm connections to water and sewerage ser- level effects of trade policies. Recent vices at the city and province level based Powell, Mylenko, Miller, and Majnoni research addresses this knowledge gap on household surveys in Argentina, Bo- analyze how data in public credit regis- and the present survey offers an overview livia, and Brazil. The household surveys, tries can be used both to strengthen bank of this literature. conducted over a number of years, allow supervision and to improve the quality of The preponderance of the evidence from them to compile data before and after the credit analysis by financial institutions, the studies encompassed by this survey introduction of PSP, as well as from simi- Empirical tests using public credit regis- points to the dominance of earnings-side lar (control) regions that never privatized try (PCR) data were performed in collabo- effects over consumption-side effects of at all. Their analysis reveals that, in gen- ration with the central banks in Argen- trade reform. This is problematic, since eral, connection rates to piped water and tina, Brazil, and Mexico. The results of the household surveys are notable for their sewerage improved following the intro- empirical tests confirm the value of the underreporting of income. From the per- duction of PSP, consistent with the case data for credit risk evaluation and provide spective of the poor, it is the market for study literature. The authors also find, insights regarding its use in supervision, unskilled labor that is most important. however, that connection rates similarly including in calculations of credit risk for The poverty effects of trade policy often improved in the control regions, suggest- capital and provisioning requirements, or hinge crucially on how well the increased ing that PSP may not have been respon- as a check on a banks internal ratings for demand for labor in one part of the sible for those improvements. On the other the Basel II's internal rating-based ap- economy is transmitted to the rest of the hand, connection rates for the poorest proach. The authors also define a set of economy by way of increased wages, in- households also tended to increase in the critical design parameters and use the creased employment, or both. Further regions with PSP and in the control re- results to comment on appropriate public econometric research aimed at discrimi- gions, suggesting that-in terms of con- registry design. Finally, they discuss the nating between competing factor mobility nections at least-PSP did not harm the relationship between the different objec- hypotheses is urgently needed. poor. tives of a PCR and how they influence the This paper-a product of the Trade This paper-a product of the Growth registry's design. Team, Development Research Group-is and Investment Team, Development Re- This paper-a product of the Finance part of a larger effort in the group to as- search Group-is part of a larger effort in Cluster, Latin America and the Caribbean sess the poverty impacts of trade policies, the group to study the impact of infra- Region-is part of a larger effort in the Copies of the paper are available free from structure reform on poor households. Cop- region to analyze the effects of bank capi- the World Bank, 1818 H Street NW, ies of the paper are available free from the tal regulation. Copies of the paper are Washington, DC 20433. Please contact WorldBank, 1818HStreetNW,Washing- available free from the World Bank, 1818 Paulina Flewitt, room MC3-333, tele- ton, DC 20433. Please contact Paulina H Street NW, Washington, DC 20433. phone 202-473-2724, fax 202-522-1159, Sintim-Aboagye, room MC3-427, tele- Please contact Helena Issa, room 15-112, email address pflewitt@worldbank.org. phone 202-473-7644, fax 202-522-1155, telephone 202-473-0154, fax 202-522- Policy Research Working Papers are also email address psintimaboagye@ 2106, email address hissa@ posted on the Web at http://econ. worldbank.org. Policy Research Working worldbank.org. Policy Research Working worldbank.org. The authors may be con- Papers are also posted on the Web at 16 Policy Research Working Paper Series http://econ.worldbank.org. The authors tacted at ddewalque@worldbank.org. (43 lic service delivery. Copies of the paper are may be contacted at gclarke@ pages) available free from the World Bank, 1818 worldbank.org, kkosec@worldbank.org, or H Street NW, Washington, DC 20433. swallsten@aei.org. (63 pages) Please contact Hedy Sladovich, room 3447. India's Public Health System: MC3-607, telephone 202-473-7698, fax How Well Does It Function at the 202-522-1154, email address hsladovich@ 3446. The Long-Term Legacy National Level? worldbank.org. Policy Research Working of the Khmer Rouge Period Papers are also posted on the Web at in Cambodia Monica Das Gupta and Manju Rani http://econ.worldbank.org. The authors (November 20P) may be contacted at mdasgupta@ Damien de Walque worldbank.org or mrani@woiidbank.org. (November 2004) India has relatively poor health outcomes, (24 pages) despite having a well-developed adminis- De Walque studies the long-term impact trative system, good technical skills in of genocide during the period of the Khmer many fields, and an extensive network of 3448. What Are the Right Rouge (1975-79) in Cambodia and con- public health institutions for research, Institutions in a Globalizing tributes to the literature on the economic training, and diagnostics. This suggests World? And ... Can We Keep analysis of conflict. Using mortality data that the health system may be misdirect- Them if We've Found Them? for siblings from the Cambodia Demo- ing its efforts, or may be poorly designed. graphic and Health Survey in 2000, he To explore this, Das Gupta and Rani use Roumeen Islam shows that excess mortality was ex- instruments developed to assess the per- (November 2004) tremely high and heavily concentrated formance of public health systems in the during 1974-80. Adult males had been the United States and Latin America based on Greater trade integration has often been most likely to die, indicating that violent the framework of the Essential Public viewed as requiring greater standardiza- death played a major role. Individuals Health Functions, identified as the basic tion in institutions, without which the with an urban or educated background functions that an effective public health benefits of trade do not materialize. There were more likely to die. Infant mortality system must fulfill. The authors focus on are many current debates concerning the was also at very high levels during the the federal level in India, using data ob- degree and area of standardization needed period, and disability rates from tained from senior health officials in the and these debates are likely to continue landmines or other weapons were high for central government. for the foreseeable future. This paper, males who, given their birth cohort, were The data indicate that the reported drawing on both the fiscal federalism and exposed to this risk. strengths of the system lie in having the the trade literature, argues that increas- The very high and selective mortality capacity to carry out most of the public ing trade integration is consistent with a had a major impact on the population health functions. Its reported weaknesses wide array of institutional choices. The structure of Cambodia. Fertility and mar- lie in three broad areas. First, it has over- final outcome, in terms of which institu- riage rates were very low under the looked some fundamental public health tions have prevailed, has depended sub- Khmer Rouge but rebounded immediately functions such as public health regula- stantially on political pressures for stan- after the regime's collapse. Because of the tions and their enforcement. Second, deep dardization and not necessarily on a clear shortage of eligible males, the age and management flaws hinder effective use of assessment of economic gains. education differences between partners resources-including inadequate focus on This paper-a product of the Poverty tended to decline. The period had a last- evaluation, on assessing quality of ser- Reduction and Economic Management ing impact on the educational attainment vices, on dissemination and use of infor- Division, World Bank Insti+ute-is part of of the population. The education system mation, and on openness to learning and a larger effort in the institute to under- collapsed during the period, so individu- innovation. Resources could also be much stand the concept of "good" governance als-especially males-who were of better used with small changes, such as and to disseminate its work in this area. schooling age during this interval had a the use of incentives and challenge funds, Copies of the paper are available free from lower educational attainment than the and greater flexibility to reassign re- the World Bank, 1818 H Street NW, preceding and subsequent birth cohorts. sources as priorities and needs change. Washington, DC 20433. Please contact This paper-a product of the Public Third, the central government functions Roumeen Islam, room J4-151, telephone Services Team, Development Research too much in isolation and needs to work 202-473-2628, fax 202-676-9810, email Group-is part of a larger effort in the more closely with other key actors, espe- address rislam@worldbank.org. Policy group to understand the consequences of cially with subnational governments, as Research Working Papers are also posted conflict. Copies of the paper are available well as with the private sector and with on the Web at http://econ.worldbank.org. free from the World Bank, 1818 H Street communities. The authors conclude that (40 pages) NW, Washington, DC 20433. Please con- with some reassessment of priorities and tact Hedy Sladovich, room MC3-607, tele- better management practices, health out- phone 202-473-7698, fax 202-522-1154, comes could be substantially improved. email address hsladovich@worldbank.org. This paper-a product of the Public Policy Research Working Papers are also Services Team, Development Research posted on the Web at http://econ. Group-is part of a larger effort in the worldbank.org. The author may be con- group to understand how to improve pub- Policy Research Working Paper Series 17 3449. Does It Matter Where You 20433. Please contact Paulina Flewitt, 7892, fax 202-522-7528, email address Come From? Vertical Spillovers room MC3-333, telephone 202-473-2724, psoto@worldbank.org. Policy Research from Foreign Direct Investment fax 202-522-1159, email address pflewitt@ Working Papers are also posted on the and the Nationality of Investors worldbank.org. Policy Research Working Web at http://econ.worldbank.org. The Papers are also posted on the Web at authors may be contacted at bailey Beata S. Javorcik, Kamal Saggi, http://econ.worldbank.org. The authors klinger@ksg05.harvard.edu or and Mariana Spatareanu may be contacted at bjavorcik@ dledermanCworldbank.org. (48 pages) (November 2004) worldbank.org, ksaggi@smu.edu, or mspatareanu@worldbank.org. (22 pages) Javorcik, Saggi, and Spatareanu use a 3451. Romania's Integration firm-level panel data set from Romania to into European Markets: examine whether the nationality of for- 3450. Discovery and Development: Implications for Sustainability eign investors affects the degree of verti- An Empirical Exploration of "New" of the Current Export Boom cal spillovers from foreign direct invest- Products ment. Investors' country of origin may Bartlomiej Kaminski and Francis Ng matter for spillovers to domestic produc- Bailey Klinger and Daniel Lederman (November 2004) ers in upstream sectors (supplying inter- (November 2004) mediate inputs) in two ways. First, the In defiance of its unimpressive track in share of intermediate inputs sourced by Klinger and Lederman use disaggregated structural reforms and relatively low for- multinationals from a host country is export data to explore the relationship be- eign direct investment (FDI) inflows, Ro- likely to increase with the distance be- tween economic discovery and economic manian exports have experienced surpris- tween the host and the source economy. development. They find that discoveries, or ingly strong performance in both EU and Second, the sourcing pattern is likely to episodes, when countries begin exporting non-EU markets since 2000 after a four- be affected by preferential trade agree- a new product are not limited to so-called year period of flat growth. While the first ments that cover somebut not other source "dynamic" industries. Rather, they also phase of growth in 1992-95 can be easily economies. In this case, the Association occur in traditional sectors such as agricul- explained by redirection of trade toward Agreement signed between Romania and ture. In addition, the data suggest discov- the EU once the state monopoly over for- the European Union (EU) implies that in- ery is a component of the stages of produc- eign trade was abolished and other policy puts sourced from the EU are subject to a tive diversification that occur with devel- areas liberalized, the current second lower tariff than inputs sourced from opment, following a consistent pattern- phase of export expansion raises questions America or Asia. Moreover, while for Eu- discovery activity peaks at the lower- concerning its drivers and sustainability. ropean investors intermediate inputs middle income level and then declines. Having examined overall foreign trade sourced from home country suppliers com- Based on this pattern, the authors show performance, evolving patterns of special- ply with the rules of origin and thus can be that discovery in the 1990s occurred with ization, Romania's competitiveness in EU exported to the EU on preferential terms, a higher than expected frequency in East- sunrise markets, changes in factor inten- this would not be the case for home coun- ern Europe and Central Asia, and lower sities of trade with the EU, and "intra- try suppliers of American or Asian multi- than expected frequency in Sub-Saharan product" trade, Kaminski and Ng conclude nationals. Therefore, one would expect that Africa. Discovery is not found to be a prod- that Romania's export offer has become American and Asian investors source more uct of structural transformation based on diversified, reflecting an impressive from Romania than EU investors and thus changing factor endowments across income progress in industrial restructuring. Re- present greater potential for vertical levels. Beyond export growth, population, structuring has been facilitated by FDI spillovers. The empirical analysis produces and development, there are no significant inflows, even though they appear to have evidence in support ofthe authors'hypoth- and positive relationships between the ex- been too small to generate such a big ef- esis. They find a positive association be- pected drivers of entrepreneurship and the fect. Romanian firms have become in- tween the presence of American and Asian frequency of discovery. Combined with the creasingly part of international produc- companies in downstream sectors and the finding that higher absorptive capacity and tion networks and traditional global value productivity of Romanian firms in the sup- lower barriers to entry are associated with chains. Sustainability of this performance plying industries. Further, the productiv- a reduction in discovery, this suggests that depends on maintaining macroeconomic ity ofRomanian firms in the supplying sec- market failures arising from imitation and stability and keeping wage increases in tors is negatively correlated with opera- free-riding may be inhibiting the emer- line with productivity growth, as well as tions ofEuropean investors in downstream gence ofnew export products in developing increasing Romania's ability to attract sectors. The differences between the effects countries. larger FDI inflows through improvements associated with investors of different ori- This paper-a product of the Office of in business climate and trade facilitation. gin are statistically significant. the Chief Economist, Latin America and This paper-a product of the Trade This paper-a product of the Trade the Caribbean Region-is part of a larger Team, Development Research Group-is Team, Development Research Group-is effort in the region to understand the role part of a larger effort in the group to ana- part of a larger effort in the group to study of innovation in development. Copies of lyze regional integration and trade policy. the effects of foreign direct investment on the paper are available free from the Copies of the paper are available free from developing countries. Copies of the paper World Bank, 1818 H Street NW, Washing- the World Bank, 1818 H Street NW, are available free from the World Bank, ton, DC 20433. Please contact Patricia Washington, DC 20433. Please contact 1818 H Street NW, Washington, DC Soto, room 18-018, telephone 202-473- Michelle Chester, room MC3-303, tele- 18 Policy Research Working Paper Series phone 202-458-2010, fax 202-522-1159, America (their status, impact, and ongo- Protocol by Russia. They conclude that email address mchester@worldbank.org. ing challenges) by making use of the ac- even under a very high economic growth Policy Research Working Papers are also countability framework developed by the assumption, and even under very conser- posted on the Web at http://econ. World Development Report 2004: Making vative assumptions about the decoupling worldbank.org. The authors may be con- Services Work for Poor People. She starts between carbon dioxide emissions and tacted at bkaminski@gvpt.umd.edu or by identifying three main groups of mod- economic growth, Russia still benefits fng@worldbank.org. (39 pages) els according to the subnational actors from a net surplus of emissions allow- involved, the pattern adopted in the dis- ances, and thus will not see its growth tribution of functions across subnational adversely affected by the Kyoto target. In 3452. Import Demand Elasticities actors, and the accountability system cen- addition, a review of the possible costs and and Trade Distortions tral to the model. She then reviews the benefits of the Kyoto Protocol suggests impact of these models according to the that the potential sale of excess allow- Hiau Looi Kee, Alessandro Nicita, available empirical evidence, and explores ances far outweighs the other costs. and Marcelo Olarreaga determinants of this impact, extracting This paper-a product of the Infrastruc- (November 2004) lessons useful to the design of future re- ture and Environment Team, Develop- forms. The author concludes that the ment Research Group-is part of a larger To study the effects of tariffs on gross single most important factor in ensuring effort in the group to analyze climate domestic product (GDP), one needs import the success or failure of a reform is the way change mitigation and adaptation options. demand elasticities at the tariff line level the accountability relationships are set to Copies of the paper are available free from that are consistent with GDP maximiza- work within each of the models and pro- the World Bank, 1818 H Street NW, tion. These do not exist. Kee, Nicita, and vides some lessons on how to get these Washington, DC 20433. Please contact Olarreaga modify Kohli's (1991) GDP relationships to work effectively. She also Yvonne Edwards, room MC2-533, tele- function approach to estimate demand provides three main general lessons for phone 202-473-6308, fax 202-522-3230, elasticities for 4,625 imported goods in 117 selecting "successful" models: (1) avoid email address yedwards@worldbank.org. countries. Following Anderson and Neary complicated models; (2) increase school Policy Research Working Papers are also (1992, 1994) and Feenstra (1995), they use autonomy and the scope for "client power," posted on the Web at http://econ. these estimates to construct theoretically maintaining a clear role for the other ac- worldbank.org. The authors may be con- sound trade restrictiveness indices and countability relationships; and (3) place tacted at flecocq@worldbank.org or GDP losses associated with existing tariff more emphasis on the "management" ac- zshalizi@worldbank.org. (25 pages) structures. Countries are revealed to be 30 countability relationship and the percent more restrictive than their simple sustainability of the models. or import-weighted average tariffs would This paper-a product of the Human 3455. Labor Market Distortions, suggest. Thus, distortion is nontrivial. GDP Development Sector Unit, Latin America Rural-Urban Inequality, and the losses are largest in China, Germany, In- and the Caribbean Region-is part of a Opening of China's Economy dia, Mexico, and the United States. larger effort in the region to assess the This paper-a product of the Trade effectiveness of service delivery. Copies of Thomas Hertel and Fan Zhai Team, Development Research Group-is the paper are available free from the (November 2004) part of a larger effort in the group to mea- World Bank, 1818 H Street NW, Washing- sure trade restrictiveness. Copies of the ton, DC 20433. Please contact Nelly Hertel and Zhai evaluate the impact of two paper are available free from the World Vergara, room 17-004, telephone 202-473- key factor market distortions in China on Bank, 1818 H Street NW, Washington, DC 0432, fax 202-522-1202, email address rural-urban inequality and income distri- 20433. Please contact Michelle Chester, nvergara@worldbank.org. Policy Re- bution. They find that creation of a fully room MC3-322, telephone 202-458-2010, search Working Papers are also posted on functioning land market has a significant fax 202-522-1159, email address the Web at http://econ.worldbank.org. The impact on rural-urban inequality. This mchester@worldbank.org. Policy Re- author may be contacted at edigropello@ reform permits agricultural households to search Working Papers are also posted on worldbank.org. (34 pages) focus solely on the differential between the Web at http://econ.worldbank.org. The farm and nonfarm returns to labor in de- authors may be contacted at hlkee@ termining whether to work on or off-farm. worldbank.org, anicita@worldbank.org, or 3454. Will the Kyoto Protocol This gives rise to an additional 10 million molarreaga@worldbank.org. (36 pages) Affect Growth in Russia? people moving out of agriculture by 2007 and lends a significant boost to the in- Franck Lecocq and Zmarak Shalizi comes of those remaining in agriculture. 3453. Education Decentralization (November 2004) This off-farm migration also contributes and Accountability Relationships to a significant rise in rural-urban migra- in Latin America In light of the recent argument that rapid tion, thereby lowering urban wages, economic growth in Russia over the next particularly for unskilled workers. As a Emanuela di Gropello decade might result in emissions higher consequence, rural-urban inequality (November 2004) than the Kyoto target, thereby putting declines significantly. much-needed growth at risk, Lecocq and The authors find that reform of the Di Gropello analyzes decentralization re- Shalizi revisit the discussion on the costs Hukou system has the most significant forms in the education sector in Latin and benefits of ratification of the Kyoto impact on aggregate economic activity, as Policy Research Working Paper Series 19 well as income distribution. Whereas the The main lesson is that slow growth and new knowledge and technology, and find- land market reform 'primarily benefits the frequent crises resulted, more often than ing a high value added niche in the Euro- agricultural households, this reform's pri- not, from shortcomings in the reform pean and global division of labor. mary beneficiaries are the rural house- agenda of the 1990s. These shortcomings This paper is designed to help Latvian holds currently sending temporary mi- essentially concern the depth and breadth leaders develop a clear diagnosis of the grants to the city. By reducing the implicit of the macroeconomic reform agenda, its innovation and competitiveness chal- tax on temporary migrants, Huhou reform attention to macroeconomic vulnerabili- lenges facing Latvia as it prepares to en- boosts their welfare and contributes to ties, and the complementary reforms out- ter the EU and, more important, design increased rural-urban migration. The side the macroeconomic sphere. and implement policies and programs to combined effect of both factor market re- This paper-a joint product of the Of- ensure that Latvia reaps the maximum forms is to reduce the urban-rural income fice of the ChiefEconomist, Latin America possible benefits from EU structural ratio dramatically, from 2.59 in 2007 un- and the Caribbean Region, and the Pov- funds. Section II analyzes the current der the authors' baseline scenario to 2.27. erty Reduction and Economic Manage- structure of Latvia's production, imports, When viewed as a combined policy pack- ment Network-is part of a larger effort and exports. Section III uses data from a age, along with WTO accession, rather in the Bank to draw policy lessons from number of competitiveness reports to than increasing inequality in China, the the development experience of the 1990s. benchmark Latvia's current progress combined impact of product and factor Copies of the paper are available free from against a number of comparator countries market reforms significantly reduces ru- the World Bank, 1818 H Street NW, and to pinpoint Latvia's strengths and ral-urban income inequality. This is an Washington, DC 20433. Please contact weaknesses as an innovative economy. important outcome in an economy cur- Patricia Soto, room 18-018, telephone 202- Section IV offers a detailed list of poten- rently experiencing historic levels of ru- 473-7892, fax 202-522-7528, email ad- tial policies and programs that could im- ral-urban inequality. dress psoto@worldbank.org. Policy Re- prove the competitiveness of Latvian en- This paper-a product of the Trade search Working Papers are also posted on terprises and the efficiency of the Latvian Team, Development Research Group-is the Web at http://econ.worldbank.org. The National Innovation System. The recom- part of a larger effort in the group to evalu- authors may be contacted at peter.j. mendations include specific policies and ate the poverty impacts of trade policy montiel@williams.edu or lserven@ programs to improve (1) the production of reforms. Copies of the paper are available worldbank.org. (49 pages) knowledge in Latvia, (2) the commercial- free from the World Bank, 1818 H Street ization oftechnology produced by Latvian NW, Washington, DC 20433. Please con- scientists, small companies, and research tact Paulina Flewitt, room MC3-333, tele- 3457. Creating a 21s' Century institutes, and (3) local firms' capacity to phone 202-473-2724, fax 202-522-1159, National Innovation System for absorb, adapt, and adopt existing knowl- email address pflewitt@worldbank.org. a 21s' Century Latvian Economy edge produced outside Latvia for use in- Policy Research Working Papers are also side Latvia. posted on the Web at http://econ. Alfred Watkins and Natalia Agapitova This paper-a product of the Private worldbank.org. The authors may be con- (November 2004) and Financial Sectors Development Unit, tacted at hertel@purdue.edu or fzhai@ Europe and Central Asia Region-is part adb.org. (39 pages) The Latvian economy made great strides of a larger effort in the region to promote in recovering from the economic shock of the knowledge economy. Copies of the the early transition and the adverse after- paper are available free from the World 3456. Macroeconomic Stability effects of the 1998 Russian financial cri- Bank, 1818HStreetNW, Washington, DC in Developing Countries: sis. Nevertheless, Latvia faces serious 20433. Please contact Rosamund Garner, How Much Is Enough? challenges to its future growth and pros- room H12-115, telephone 202-473-7670, perity despite these impressive achieve- fax 202-522-3687, email address lgarner@ Peter Montiel and Luis Serv6n ments and the outward appearance of worldbank.org. Policy Research Working (November 2004) macroeconomic stability and economic Papers are also posted on the Web at httpi// progress. econ.worldbank.org. The authors may be In the 1990s macroeconomic policies im- A wide variety of recent studies suggest contacted at awatkins@worldbank.org or proved in a majority of developing coun- that the Latvian economy is not particu- nagapitova@worldbank.org. (95 pages) tries, but the growth dividend from such larly competitive and, even more worri- improvement fell short of expectations, some, they indicate that Latvia is not well and a policy agenda focused on stability positioned to gain ground in the race for 3458. Regionalism in Standards: turned out to be associated with a multi- global competitiveness, prosperity, and Good or Bad for Trade? plicity of financial crises. Montiel and rising standards of living. Most of Latvia's Serv6n take a retrospective look at the growth to date has come from one-off gains Maggie Xiaoyang Chen and Aaditya Mattoo content and implementation of the mac- generated by structural reforms, (November 2004) roeconomic reform agenda of the 1990s. privatization, and reallocating resources, They review the progress achieved with not inexhaustible reservoirs of growth. Regional agreements on standards have fiscal, monetary, and exchange rate poli- Latvian enterprises will be able to sustain been largely ignored by economists and cies across the developing world, and the economic growth and create high wage unconditionally blessed by multilateral effectiveness of the changing policy frame- jobs only by becoming internationally trade rules. Chen and Mattoo find, theo- work in promoting stability and growth. competitive, innovating, accumulating retically and empirically, that such agree- 20 Policy Research Working Paper Series ments increase trade between participat- sight into the within skill group changes paper are available free from the World ing countries but not necessarily with the in returns over time. Bank, 1818 H Street NW, Washington, DC rest of the world. Adopting a common stan- This paper-a product of the Education 20433. Please contact Maria Colchao, dard in a region-that is, harmonization- Sector Unit, Latin America and the Car- room 17-162, telephone 202-473-8048, fax boosts exports of excluded industrial coun- ibbean Region-is part of a larger effort 202-522-3135, email address mcolchao@ tries to the region. But it reduces exports in the region to estimate the labor mar- worldbank.org, Policy Research Working of excluded developing countries, possibly ket outcomes of education. Copies of the Papers are also posted on the Web at because developingcountry firms are hurt paper are available free from the World http://econ.worldbank.org. The authors more by an increase in the stringency of Bank, 1818 H Street NW, Washington, DC may be contacted at hpatrinos@ standards and benefit less from economies 20433. Please contact Maria Colchao, worldbank.org or acsake@ntu.edu.sg. (23 of scale in integrated markets. Mutual rec- room 17-162, telephone 202-473-8048, fax pages) ognition agreements are more uniformly 202-522-3135, email address mcolchao@ trade promoting unless they contain re- worldbank.org. Policy Research Working strictive rules of origin, in which case Papers are also posted on the Web at 3461. Looking beyond Averages intra-regional trade increases at the http://econ.worldbank.org. The authors in the Trade and Poverty Debate expense of trade with other, especially may be contacted at hpatrinos@ developing, countries. The authors pro- worldbank.org or acsake@ntu.edu.sg. (34 Martin Ravallion pose a modification of international trade pages) (November 2004) rules to strike a better balance between the interests of integrating and excluded There has been much debate about how countries. 3460. Schooling and Labor much poor people in developing countries This paper-a product of the Trade Market Impacts of a Natural gain from trade openness, as one aspect Team, Development Research Group-is Policy Experiment of "globalization." Ravallion views the is- part of a larger effort in the group to un- sue through both "macro" and "micro" derstand the implications for trade of Harry Anthony Patrinos empirical lenses. The macro lens uses agreements on standards. Copies of the and Chris Sakellariou cross-country comparisons and aggregate paper are available free from the World (November 2004) time series data. The micro lens uses Bank, 1818 H Street NW, Washington, DC household-level data combined with struc- 20433. Please contact Michelle Chester, Patrinos and Sakellariou use a nationally tural modeling of the impacts of specific room MC3-322, telephone 202-458-2010, representative household survey to esti- trade reforms. The author presents case fax 202-522-1159, email address mate returns to schooling in Venezuela studies for China and Morocco. Both the mchester@worldbank.org. Policy Re- from instrumental variables based on a macro and micro approaches cast doubt on search Working Papers are also posted on supply-side intervention in the education some wide generalizations from both sides the Web at http://econ.worldbank.org. The market. These estimates apply to a sub- of the globalization debate. Additionally authors may be contacted at group of liquidity-constrained individuals, the micro lens indicates considerable het- xiaoyang.chen@colorado.edu or amattoo@ in the spirit of the Local Average Treat- erogeneity in the welfare impacts of trade worldbank.org. (37 pages) ment Effect (LATE) literature. Returns to openness, with both gainers and losers schooling estimates which apply to a sub- among the poor. The author identifies a group of individuals affected by the policy number of covariates of the individual 3459. Economic Volatility intervention maybe more interesting from gains. The results point to the importance and Returns to Education a policy perspective than the return to the of combining trade reforms with well-de- in Venezuela: 1992-2002 "average" individual. The authors use an signed social protection policies. instrument based on the 1980 education This paper-a product of the Poverty Harry Anthony Patrinos reform (the Organic Law of Education) Team, Development Research Group-is and Chris Sakellariou which provided for nine years of compul- part of a larger effort in the group to as- (November 2004) sory basic education. They also obtain sess the distributional impacts of alternative estimates using father's economywide policies. Copies of the paper Preliminary evidence suggests that the education as an instrument, in an attempt are available free from the World Bank, rates of return to education in Venezuela to derive high and low estimates of returns 1818 H Street NW, Washington, DC have been declining since the 1970s. to schooling in Venezuela. The estimates 20433. Please contact Patricia Sader, Patrinos and Sakellariou rigorously esti- are consistent with recent findings room MC3-556, telephone 202-473-3902, mate the returns to education in Venezu- suggesting that the effect of education, fax 202-522-1151, email address ela for the period 1992-2002 and link at least for certain subgroups affected psader@worldbank.org. Policy Research them to earlier available estimates from by a policy intervention, is as large or Working Papers are also posted on the the 1980s. They use consistent cross- larger than what is suggested by OLS Web at http://econ.worldbank.org. The sections fromtheEncuestadeHogarespor estimates. author may be contacted at mravallion@ Muestro to document falling returns to This paper-a product of the Education worldbank.org. (39 pages) schooling and educational levels until the Sector Unit, Latin America and the Car- mid-1990s, followed by increasing returns ibbean Region-is part of a larger effort thereafter. The authors use quantile re- in the region to estimate the labor mar- gression analysis to provide further in- ket outcomes of education. Copies of the Policy Research Working Paper Series 21 3462. The Returns to Participation 3463. Employment Regulations 3464. Microeconomic Evidence of in the Nonfarm Sector in Rural through the Eyes of Employers: Creative Destruction in Industrial Rwanda Do they Matter and How Do Firms and Developing Countries Respond to Them? Andrew Dabalen, Stefano Paternostro, Eric Bartelsman, John Haltiwanger, and Ga6lle Pierre Ga6lle Pierre and Stefano Scarpetta and Stefano Scarpetta (December 2004) (December 2004) (December 2004) Dabalen, Paternostro, and Pierre investi- Bartelsman, Haltiwanger, and Scarpetta gate the differences in outcomes (earnings Pier e peree eion provide an analysis of the process of cre- and consumption) between individuals how employers perceive labor regulations ative destruction across 24 countries and (households) who participate in the non- and react when these are perceived to 2-digit industries over the past decade. farm sector and those who do not. They use crai theron ofdthrfey They rely on a newly assembled dataset propensity score matching methods where draw from harmonized surveys of (up to) that draws from different micro data they create appropriate comparison 1700 firs run e wl acom- sources (business registers, census, or groups of individuals and households. pare employers' responses with actual representative enterprise surveys). The First the authors find that nonfarm self- labor legislation. The authors find that novelty of their approach is in the harmo- employed individuals in rural Rwanda eoyers' conern aboutdlabor rela- nization of firm-level data across coun- have significantly higher earnings than .tin re la by the rie tries, which enables international com- farm workers and nonfarm formal em- stringency of de jurelabor laws. Countries parisons and the identification of country- ployees. Second, they show that the ben- that have, from an mternational perspec- specific factors as opposed to sector and ~~~~~tive, tight labor regulations tend to have spcfcatossopsetoetran efits to nonfarm self-employment are tight laor tions end t time effects. All countries display a mas- much higher among the nonpoor than higher proportions of employers reporting sive reallocation of resources, with the amog te por.Thid, he uthrs how these regulations as severe constraints, entry and exit of many firms in all mar- among the poor. Third, the authors show But not all firms are affected in the same kets, the failure of many newcomers, and that diversified households-those with a wabyoeoslbrrgltosMeim ks,hefluefmnyecmr,ad farmanda nnfar enerpise-re ess way by onerous labor regulations. Medium farm and a nonfarm enterprise-arelds sized firms are those whose business and the expansion of successful ones. This likely to be poor. Finally, farm households posiecfis aore gthse os busnesan process of creative destruction affects pro- who do not participate in the market have prospects for growth are most negatively ductivity directly by reallocating re- significantly lower consumption levels fected. Similarly, innovating firms are sources toward more productive uses, but than households that do. However, the disproportionally affected by tight labor also indirectly through the effects of in- benefits to market participation appear to regulhaions. There is also clear evidence in creased market contestability. There are matter less for the poor than for the thedata that firmsfacing tight regulations also large differences across groups of nonpoor. The authors find little difference invest more in training and make greater countries. While entry and exit rates are in expenditures between market partici- use of temporary employment. Small firms fairly similar across industrial countries, pants and nonmarket participants for mainly rely on temporary employment, post-entry performance differs markedly comparable households in the bottom 40 while medium and large firms, as well as between Europe and the United States, a percent of the expenditure distribution, mnovating firms, tend to rely more on on- potential indication of the importance of This paper-a product of the Poverty the-job training if labor regulations make barriers to firm growth as opposed to bar- Reduction Group, Poverty Reduction and hiring and firing very costly. .i.i. riers to entry. Transition economies show Economic Management Network-is part This paper-a product of the Division, an even more impressive process ofcreative of a larger effort in the network to under- Human Development Network-is part of destruction and those that have progressed stand rural nonfarm employment deter- a larger effort in the network to under- the most toward a market economy show minants. Copies of the paper are available stand the effect of employment regula- better outcomes from this process. Finally, free from the World Bank, 1818 H Street tions on firm's performance. Copies of the Mexico shows large firm dynamics wit NW, Washington, DC 20433. Please con- paper are available free from the World many new firms entering the battle but also tact Cecile Wodon, room MC4-552, tele- Bank, 1818HStreetNW, Washmigton, DC many failing rapidly, while Argentina re- phone 202-473-2542., fax 202-522-3283, 20433. Please contact Social Protection sembles Continental Europe with smaller email address cwoon@worldbank.org. Advisory5Servic, room 7-130, ephmn flows and less impressive post-entrygrowth Policy Research Working Papers are also address socialprotection@worldbank.or of successful firms. posted on the Web at http://econ. addreseoalrcoin@worsare.0rg This paper-a product of the Division, worldbank.org. The authors may be con- Policy Research Working Papers are also Human Development Network-is part of tacted at adabalen@worldbank.org, posted on the Web at http://econ. a larger effort in the network to under- spaternostro@worldb,ank.org, or gpierre@ worldbank.org. The authors may be con- stand the process of creative destruction. worldbank.org. December 2004. (33 pages) tacted at gpierre@worldbank.org or Copies of the paper are available free from sscarpetta@worldbank.org. (41 pages) the World Bank, 1818 H Street NW, Washington, DC 20433. Please contact Social Protection Advisory Service, room G7-130, telephone 202-458-5267, fax 202- 614-0471, email address socialprotection@ worldbank.org. Policy Research Working Papers are also posted on the Web at 22 Policy Research Working Paper Series http://econ.worldbank.org. The author a diverse range of interests willing and This paper-a product of the Gover- may be contacted at ebartelsman@ able to defend themselves by making nance, Finance, and Regulation Division, econ.vu.nl, haltiwan@econ.umd.edu, or meaningful demands for accountability of, World Bank Institute-is part of a larger sscarpetta@worldbank.org. (49 pages) and limits on, official power, and for an effort in the institute to address gover- end to illicit advantages enjoyed by oth- nance and anti-corruption issues in devel- ers. Historically such a process has taken oping countries. Copies of the paper are 3465. Economic Geography: place gradually, as political development available free from the World Bank, 1818 Real or Hype? has proceeded and the base of participa- H Street NW, Washington, DC 20433. tion broadens. But today's high-corruption Please contact Sahr Kpundeh, room J4- Jun Koo and Somik V. Lall societies cannot wait for several genera- 109, telephone 202-473-6783, fax 202-676- (December 2004) tions to see such developments take place. 9810, email address skpundehl@ Johnston and Kpundeh argue that social worldbank.org. Policy Research Working Economic geography has become a man- action coalitions, linking public and pri- Papers are also posted on the Web at tra for many economists, geographers, and vate actors, are a way to mobilize these http://econ.worldbank.org. Michael regional scientists. Previous studies have sorts of participation and advocacy. Such Johnston may be contacted at mjohnston@ tested the importance of economic geog- coalitions are neither a new idea nor a mail.colgate.edu. (34 pages) raphy for production activities and found guarantee of successful reforms. In many a significant association between them. instances they win out by default as an Most of these studies, however, have not anti-corruption strategy. Buttheycontend 3467. Economic Growth, Income taken into account that economic geogra- that if sustained by careful planning and Distribution, and Poverty in Poland phy influences location decisions at the a diverse set of incentives, they can rein- during Transition firm level. Koo and Lall show a potential force political will and enhance the bias that can arise when firm location strength of civil society. Coalition-build- Pierella Paci, Marcin J. Sasin, and Jos Verbeek choices are not considered in estimating ing efforts are underway in many societ- (December 2004) the contribution of economic geography to ies. But too often they have focused only industry performance. Their analysis us- on anti-corruption tactics and pursuing Paci, Sasin, and Verbeek attempt to ana- ing microdata of Indian manufacturing their own growth, rather than looking at lyze the linkages between macroeconomic firms shows there is an upward bias in the the coalition-building process in more policies and economic growth variables, contribution of economic geography to general terms. In Part I, the authors their movement over time, and their im- productivity when firm location choices employ Wilson's (1973) analysis of the in- pact on poverty in the case of Poland. Po- are not considered in the analysis. centives that motivate and reward partici- land, a middle-income country, is of par- This paper-a product of the Infrastruc- pation in organizations. This approach ticular interest because its data sources ture and Environment Team, Develop- helps them identify ways in which the allow for a relatively detailed analysis of ment Research Group-is part of a larger anti-corruption goals can be augmented by such developments, and the macroeco- effort in the group to examine industry other kinds of appeals, even when mate- nomic environment and the economic location decisions. The study was partly rial incentives are scarce. The authors also growth variables show a relatively sizable funded by the Bank's Research Support identify four stages of the coalition-build- degree ofvariance. In addition, Poland has Budget under the research project "Ur- ing process-formation, credibility, ex- struggled in the past few years to reduce banization and the Quality of Life." Cop- pansion, and transformation-in which poverty while still experiencing positive ies of the paper are available free from the differing combinations of incentives will economic growth. The authors show that World Bank, 1818 H Street NW, Washing- be necessary to address the group's most in Poland, poverty-reducing growth de- ton, DC 20433. Please contact Viktor important problems and opportunities. In pends heavily on the ability of the economy Soukhanov, room MC2-532, telephone Part II the authors examine two impor- to generate jobs. During the early years 202-473-5721, fax 202-522-3230, email tant coalition-building efforts in light of of transition, net job growth was positive, address vsoukhanov@worldbank.org. the discussions thus far-Ghana's Anti- while after the Russian crisis of 1998, Policy Research Working Papers are also Corruption Coalition, and the Bangalore productivity gains were accomplished posted on the Web at http://econ. Agenda Task Force in Bangalore, mostly through labor shedding, hence- worldbank.org. The authors may be con- Karnataka State, India. In Part III the forth, increasing poverty in Poland. In tacted at jkoo@urban.csuohio.edu or authors link those cases to a broader addition, the authors identify how fiscal slalll@worldbank.org. (23 pages) analysis, suggesting that while purposive and social protection policies affect income incentives are common in the early phases distribution and poverty in Poland. of all coalitions, other varieties must be This paper-a product of the Poverty 3466. Building a Clean Machine: added to the mix. Wilson's scheme points Reduction and Economic Management Anti-Corruption Coalitions and to ways in which the imaginative use of Sector Unit, Europe and Central Asia Sustainable Reform incentives can aid the transition from one Region-is part of a larger effort in the phase of coalition development to the next. region to analyze the links between post- Michael Johnston and Sahr J. Kpundeh The authors conclude with general stra- transition economic growth and poverty (December 2004) tegic issues, suggesting ways in which reduction. Copies of the paper are avail- their analysis can be applied to those ques- able free from the World Bank, 1818 H Many societies have limited corruption tions given the important variations to be Street NW, Washington, DC 20433. through the broad-based mobilization of found among cases. Please contact Helena Makarenko, room Policy Research Working Paper Series 23 H4-170, telephone 202-458-7832, fax 202- 614-1501, email address hmakarenko@ worldbank.org. Policy Research Working Papers are also posted on the Web at httpf//econ.worldbank.org. The authors may be contacted at ppaci@worldbank. org, msasin@worldbank.org, and jverbeek@worldban]k.org. (18 pages) 3468. Infrastructure Services in Developing Countries: Access, Quality, Costs, and Policy Reform Cecilia Bricefio-Garmendia, Antonio Estache, and Nemat Shafik (December 2004) Bricefio, Estache, and Shafik review the evidence on the state of infrastructure in the developing world, emphasizing the investment needs and the emerging policy issues. While their assessment is seriously constrained by data gaps, they provide useful insights on the main challenges ahead, emphasizing that, in addition to the widely discussed access problems, the poorest also face major affordability and service quality issues which were not well addressed by the reforms of the 1990s. The authors make a case for a stronger com- mitment of the international community to generate the information needed to assess and monitor infrastructure needs and policies. This paper-a product of the Office of the Vice President, Infrastructure Net- work-is part of a larger effort in the net- work to upgrade economic and policy work in infrastructure. Copies of the paper are available free from the World Bank, 1818 H Street NW, Washington, DC 20433. Please contact Marie Leon, room H3-162, telephone 202-473-6151, fax 202-522- 2961, email address mleon@worldbank. org. Policy Research Working Papers are also posted on the Web at http:// econ.worldbank.org. The authors may be contacted at cbricenogarmendi@ worldbank.org, aestache@worldbank.org, or nshafik@worldbank.org. (33 pages)