W O R L D B A N K PO LIC Y A N D R E S E A R C H r1 -April-June 2000 Volume 11, Number 2 6 New Research 8 Publications and Data 16 Order Form 21200 Reducing pollution through community-based approaches onventional wisdom suggests that economic development, concern, given the other pressing social and economic problems these increases in global trade, and the opening of borders will countries needed to solve. C. For all these reasons, pollution in increase pollution in developing countries. But a new developing countries was expected to increase initially as a result of eco- World Bank study finds little evidence of such outcomes. In fact, some nomic development. Only after per developing countries are actually reducing their emissions, largely would pollutionacotl be pro- concern golien cthel oter prin smoted. This view was a variant of the famous Kuzne s curve, according to which income inequality first rises The severe decline in air quality witnessed in many as development proceeds, falling only after income reaches a industrializing countries has raised a worrisome concern: certain level. Is pollution the price of development? Do people in devel- A six-year study by the World Bank- Greening Industry oping countries have to choose between better living New Rolesfor Communities, Markets, and Governments (New standards and reasonable air quality? Does the negative York: Oxford University Press, 1999)-indicates that this relationship observed between per capita income and pessimistic prognosis is not borne out by the facts. In much industrial pollution mean that people living in developing of the developing world many factories are causing less countries will continue to be exposed to worse environmen- damage to the environment than they did just a decade ago. tal conditions than people living in wealthier countries Total emissions are actually declining in some areas in (figure 1)? which industry is growing rapidly. In China, for example, Many experts long believed that as countries developed, where air pollution is a serious problem, air quality has their pollution levels would increase, as they had in the remained stable or improved over the past decade- West. The decline in air quality would be exacerbated by despite the country's rapid development. the export of old, dirty machinery from the West to devel- Moreover, the pollution havens envisaged by many oping countries, where regulation had not yet banned such experts in the early 1970s have not materialized. As equipment. Lack of institutions, human capital, and infor- Greening Industry notes, "The record shows that developing marion flows in developing countries would prevent adop- countries are not destined to be the world's environmental tion of the regulation needed to curtail pollution. Moreover, dumping grounds. Even the most polluted areas are moving the argument went, even if developing countries had the away from the nightmare landscapes anticipated only a few ability to curtail pollution, doing so would not be a top years ago. Replacing traditional The conventional wisdom waS This change in approach was environmental regulation brought about by several factors. with fresh approaches wrong: economic Perhaps the most important was What has happened? How have the realization that centralized, developing countries succeeded need not lead to increased rigid regulatory systems had in stemming the increase in failed to achieve results in many pollution? What kinds of regula- industrialpollution developing countries. At the tory measures have proved same time, the increase in effective? personal computer-based information systems in develop- For years, developing countries adopted traditional ing countries made it possible to disseminate information means of regulating pollution, borrowed from the West. But more widely; new capital markets flourished; and Insoinu- Western methods-which set uniform discharge standards tional development models began putting much greater for all factories-proved difficult to enforce in developing cmphasis on community participation. The result has been countries. Moreover, this "one-size-fits-all" approach was a rapid shift toward new, community-based regulatory not cost-effective because it held all factories to the same models that use public information and market incentives. standards, regardless of the cost of abatement or the damage to the local environment. Charging polluters to reduce emissions Rather than mimicking traditional Western approaches, One innovative approach to pollution control is the use of many developing countries have adopted new, more flexible financial incentives. Colombia reduced organic discharges approaches to regulation. Some have turned to financial 18 percent in just one year after it began charging polluters incentives. Others have used simple rating systems to publi- for each unit of organic pollution discharged into the water- cize which factories do and which do nor adhere to local ways of the Antioquia district (box 1). These results and national standards. Many have increased public educa- contrasted sharply with the poor record of traditional on about pollution, which helps citizens work with envi- regulation in Colombia, which had failed to reduce air or ronmenral agencies and elected officials to curb emissions. water pollution. F IG U RE 1 Per capita income and industrial pollution: An international comparison Water pollution intensity inde r 100 80 60 40 20 0 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 20,000 Per capita income dU.S. dollars) aoae: The water pollution intensity index measures the organic pollutant per cit of industrial output. Source: World eank. Greening Industry (New York: Oxford University Press, 1999). 2 World Bak Policy ad w Research Bulletin ApridoJune 2000 The positive results of Traditional regulation of regulation does not exist, non- Colombia's program reveal the governmental organizations obvious: plant managers respond pollution failed to clean up the (NGOs) and community groups to financial incentives. Imposing can put pressure on polluters sufficiently high costs on pol- environment in developing themselves. luters will encourage them to In many different parts of the pollute less. These costs can take countries. But new approaches world factories negotiate directly various forms, including fines, with communities in response plant closures, pollution charges, are to threats of social, political, or credit refusals from bankers wor- r gphysical sanctions. But commu- ied about liability reduced sales to environment-conscious nity action depends on information (figure 2). Without consumers, and social ostracism within a community. information about pollution from individual factories, cor- Providing factory managers with disincentives to pollute munities have little leverage with which to pressure polluters allows them to make their own decisions about the level of to reduce emissions. pollution: if the cost of polluting exceeds the benefits, reduc- Regulators can play an important role in collecting ing pollution makes economic sense. By allowing managers and disseminating information. Public disclosure of to weigh the costs of abatement against the costs of pollut- information on pollution has proved to be an important ing, such incentives achieve a more equitable solution than disincentive to polluters, which often reduce emissions in imposing the same pollution standards on all polluters. order to avoid being publicly identified as serious polluters Experience in China, Colombia, and the Philippines has (box 2). revealed several important lessons about pollution charges. First, enforcement must be flexible. In China actual charges BOXo I per unit of emissions vary widely across regions, even though Cleainig up Colombia's waterways the official rate is supposed to be applied uniformly. Such by making poiluters pay flexibility in administering national regulations appears to beo critical to continued support for pollution charges in coun-n in t ried aboutnliobilitycoreduced srlesatohenvsronment-consdous tries in which conditions vary widely from community to commnit. Scon, inusty mst uppot plluionseven regions and n% ill co%er most of the countr w%ithin the o i co ry m st s t pollutfe ears. The re,its: polluters hae begun to egh charges. Factory owners need to be convinced that abating thecosts and benefits of polluting and to reduce emissions pollution will not drive them out of business. Presenting when It becomes cosrie ro pollute. iem with credible information from technical experts can Colombia program alotn each region to set t, own assuage their fears that pollution abatement is too costly. goals ofr rtducing pollution. Polluters in all seven regions Third, regulators must be able to audit emissions records initialltn pa a pollution charge of S28 a ton for organic and analyze effluent samples from factories. Good proce- waseand an additional $12 a ton for total uspended solids. dlures for collecting and accounting for charge funds are also Ifatri'mohsdcageaentrdudeogho meet a regions pollution abatement golP tergo a needed. Some countries without the capacity to audit emis- oals th olto hrefrtenxi-th eiod.a Expeienc ine China,io Colombia and the Phiippne hasmn:hprid sions or collect and track fees themselves have hired subceon- Discharges are tracked and pollution charges raised eery six tractors to do so. Colombia, for example, uses bonded months until the pollution abatement goals are ne. auditors to analyze emissions and has hired a large commer- The overall results f the program have been dramatic. cial bank to collect pollution fees and handle financial %iEh total organic discharges by factories cur by more than accounting. half. 'Still. most factories failed to reduce their emy-issions. with lust - of 55 regulated plants on the Rion Negro iaccountin for all the decline in oranic waste In that rver Inolvingithe pulcd industryumustnsuportmpollutio Ch .hisin Tha most factories preferred to incur cioninicant Com un te are keya L ton suc cs anl p oll t a tm e nt,c a s pollution charges rather than reduce dischirges, ma) uggest n fo A i Lt er an N r erthat the chages were set tU loW. demonstrates. Where regulation exists, communities can use the political process to push for strict enforcement. Where April-June 2000 World Bank Policy andResearch Bulletin 3 FIGURE 2 Public information and the channels through which it works 8 0 X 2 Reducing emissions in Indonesia by rating polluters Publi, Indonesia has adopted an innovative program that uses the infomation threat of public disclosure to discipline polluters. Under the * Ambient conditions . Damaescniin Program for Pollution Control, Evaluation, and Rating * Damages * Regulatory targets (PROPER), each factory receives a color-coded rating (see * Performance ratings * Adjustment costs cause serious environmental damage receive black ratings. Companies that use clean technology, minimize waste, and prevent pollution receive gold ratings. To maximize the impact of these ratings, in June 1995 Citizens NGOs Consumers Investors Vice President Tm Suarisno publicly commended the five o Media Demonstrations e*s Loan Indonesian companies that received green ratings. yReputation Negotiations k values BAPEDAL, the national pollution control agency, then pri- vately informed other factories of their ratings, giving those that failed to meet national standards sip months to clean eup. By December half the fctories that had received black polluters ratings had improved their compliance enough to warrant red ratings. Among plants that had received the less shame- Source, Adapted from World Bank, Greening industry (New York: Oxford University ful red raring, only 6 percent improved enough to receive Press, 1999).blertns In December 1995 the government made all ratings Using market incentives to reduce pollution public. This information proved very useful to citizen The preferences of consumers and investors may also affect groups, which used the ratings to negotiate pollution con- companies' willingness to pollute. Green consumers may trol agreements with factories in their communities. The boycott products of serious polluters and endorse those of publication of the ratings also reduced pollution: one year iafter the first ratings were publicized, the number of com- m atpliant factories rose from a third of the sample to more Investors may worry about regulatory penalties or liability than half settlements that serious polluters may face. And they may interpret a high level of pollution as a sign that a firm uses Pollution ratings in Indonesial inefficient production processes. Rating Performance _____ __ __ Several studies have shown that stock markets respond Godosecean technolog, mini-mize w -aste, prevent pollution positively to environmental news and that these changes Green Exceed standards, practice good maintenance thue osindusty createsp.anld ometmeseand housekeeping olues tleBlue Exert efforts meeting minimum standards ing companies in Argentina, Chile, Mexico, and the Red Exert efforts falling short of standards Black Exert no pollution control effort, cause serious Philippines found that stock prices of companies rose fol- environmental damage lowing the release of information showing good environ- Source: World Bank, Greening Industry (New York. Oxford University Copres es 1999).la tcnlgy iimz ase n mental performance and fell following news of citizens'r complaints. The gains in response to good news were sub- stantial, averaging 20 percent. Bad news led to declines of less able than richer, better-educated residents to put pres- 4-15 percent. sure on local factories or policymakers to control pollution. In China, for example, regions with high literacy were Helping the poor combat pollution found to complain about pollution 90 percent more often Throughout the world, the poor face worse environmental than regions with low literacy and similar levels of pollution conditions than the rich. Poor communities may welcome and income. People with lower rates of literacy may the jobs industry creates-and sometimes suffer from pollu- complain less than more literate people for a variety of ion unless they are well informed about the risks and orga- reasons, including lack of information about the effect of nized to protect their interests. The poor are also likely to be pollution on their health, difficulty in organizing for 4 World Bank Policy and Research Bulletin April-June 2000 political action, and the discom- Flexible programs based on he Brazilian state of Rio de fort they may feel confronting Janeiro, for example, regulators educated officials or factory community participation have found that targeting just 50 owners. of the largest factories would Environmental agencies can reduced emissions in many control 60 percent of the state's help the poor reduce pollution serious pollution. Because large in their communities by educat- developing countries factories account for the bulk of ing them about the risks they emissions, targeting these facto- face. Agencies can also establish ries also saves lives. and maintain decent minimum standards of environmental Transparency is important because it both prevents quality for all citizens by making sure that pollution control corruption and ensures that communities have access to regulaions are enforced, especially in poor communities, information. Without accurate, accessible, and timely where citizens are less likely to complain, information, communities cannot hope to participate in regulating polluters. Managing and sustaining reform Finally, community participation is vital to the process. Much progress has been made in reducing pollution. But By voicing their opposition to environmental pollution, much more needs to be done in regulatory reform, eco- communities make it difficult for political leaders to oppose nomic policy reform, and environmental management pollution control. They exert pressure on factory owners within factories. and shareholders, who may prefer to implement pollution Key to managing and sustaining reform are focus, trans- controls rather than deal with hostile neighbors. parency, and community participation. Focus can be main- tained by targeting a small group of the worst polluters, For information on ordering the World Bank Greening limiting regulation to a few important pollutants, auditing Industry, see the lastpage. For information on research relating emissions, and publicly disclosing polluters' performance. In to the study, go to www.worldbank.org/nipr. April-June 2000 World Bank Policy and Research Bulletin 5 ptmlPolicies to Control become available, the project will In fectious Diseases increase both the number of countries New Research Jeffley Hammer and the number of observations coy- The research projects described Development Research Group ered by the database. It will incorpo- here are directed by World Bank Infections and actions to prevent or rate data on decile income shares and staff and funded by the Banki cure infcctions have costs. Individuals a rural-urban disaggregation. And it central Research Support Budget balance the costs that they control- will add data on access to key social (RSB). Research proposals being pre- and government policy should balance services by income decile, facilitating pared with RSB funding are listed on the costs for society, taking into more comprehensive analysis of page 8. For information about the account individuals' behavior. That changes in the welfare of the poor research projects described here, con- requires a strategy combining preven- and their access to economic tact the researchers at the Banks tive and curative interventions, opportunities. main address (see back page). This study seeks to contribute to RSBfinding: $38,000 the debate on the relative emphasis A New Analytical Framework governments should give to preventing Regionalism and the Terms for Evaluating Social Programs and curing infectious diseases by of Trade Quentin Wodon merging the insights of epidemiology Maurice Schiff Latin America and the Caribbean with those of economics. Using math- DevelopmentResearch Group Region, Poverty Reduction and ematical models of the spread of dif- A standard approach in analyzing the Economic Management Sector Unit ferent infectious diseases, the study effects of regional integration agree- This study will test a new analytical will examine the effects of several ments (trade blocs) has been to framework for evaluating social pro- parameters: the responsiveness of assume homogeneous goods. Under grams and policies by applying it to a demand for private services (preven- this assumption it can be shown that if wide range of poverty alleviation non and cure), the cost structure of small open economies form a trade programs in Latin America. The interventions, the effect of policy bloc and continue to trade with out- framework takes into account flexible interventions on epidemiological para- side countries, only trade diversion distributional weights for translating meters, and the prices of all inputs, will result-with no trade creation- individual welfare gains into aggregate RSBfunding $28,000 and member countries' welfare will social gains. One problem with Staf weeks: 2 decline. If goods are differentiated by distributional weights based on country of origin, however, the welfare standard poverty measures is that Patterns of Inequality and effects may differ because giving pref- they place no weight on the welfare Government Intervention erential access to member countries of the nonpoor. The new framework Klaus Deiningr and Lyn Squire may force outside countries to lower takes the gains to all members of soci- Development Research Group; and their export price to the bloc, resulting ety into account, though weighting Office of the Senior Vice President, in an improvement in the bloc's terms them differently. Development Economics of trade. The framework also takes into The Deininger-Squire database on This study will examine the effects account the program's targeting income distribution has become a of regional integration on import performance, the effect of the alloca- standard source in cross-country prices in two countries-Mexico tion rules on the distribution of the analysis of the relationship between (North American Free Trade benefits among participants, and the inequality and economic growth. Agreement) and Tunisia (free trade loss that results because targeting is This project aims to update and agreement with the European Union). not perfect, so that some people in improve the database and increase its The analysis will be based on detailed the targeted group do not participate. usefulness. trade data at the commodity level. RSB funding: $39, 000 Taking advantage of the large num- RSBfunding $39, 000 Staff weeks: 10 bet of micro data sets that have Staff weeks: 10 6 Warld Bank Poicy and Research Bulletin April-June 2000 Yardstick Competition across Second, the study will examine the draw on household survey data from Ports: An Illustrated Guide effects of a recent sovereign debt India. for Regulators restructuring on rhe country's access RSBJunding: $25,000 Antonio Estache to the debt market and its borrowing World Bank Institute, Governance, costs, an analysis that should con- Twin Crises and Government Policy Regulation, and Finance Division tribute to the debate on bailout and Craig Burnside In many countries the restructuring of moral hazard. Finally, the study will Development Research Group ports-unbundling, decentralization, look at the relationship between Banking and currency crises have and often commercialization or priva- exchange rate regime (hard pegs, soft often coincided. This study will exam- tization-has left governments with a pegs, and relatively free floats) and the me such twin crises-and the role of need to monitor the performance of cost of external finance, government policies in them. port operators to ensure that efficiency RSBfunding. $40,000 The study will first document the gains are maintained. This study is common elements of twin crises. Then aimed at producing a monitoring Gender and Power Relations it will examine the role played by gov- approach port regulators can use that in the Household, Female Labor ement policies in precipitating twin is based on yardstick competition-in Supply, and Child Welfare crises, focusing on the effect of gov- which the performance of operators Lyn Squire ement guarantees to banks' creditors enjoying local monopolies can be Office of the Senior Vice President, on banks' investment and hedging compared as a way of creating com- Development Economics strategies, the effect of those strategies petitive pressure. A growing literature has challenged on the size of governments' implicit Using data on Mexican ports, the the unitary model of the household, in liabilities, and the link between those study will identify a reasonable quan- which a household pools the incomes liabilities and exchange rate crises. titative methodology for measuring of all its members and then maximizes Finally, the study will investigate the relative efficiency of port opera- a unique utility function. What avenues through which governments tors. It will then develop a procedure should replace this model? can minimize the possibility of specu- for new regulators to use in imple- One major contender is the collec- lative currency attacks. The project menting yardstick competition, tive model, which recognizes that will involve both statistical analysis of whether the comparators are multiple different agents in the household an open economy and case studies of ports in a single country or ports in may have different preferences and different countries. other countries in the region. that the household's consumption RSBfunding: $38,045 RSB funding: $30,000 pattern-and savings and investment Staffiweeks: 25 Staff weeks: 1 behavior-will change as the balance of power shifts from one agent to Forecasting Capital Flows another. But this model remains R E S E A R C H P R 0 P 0 S A L S Ashoka Mody looselydefined, in part because it is UNDER PREPARATION Development Prospects Group still unclear what determines the bal- This study will examine three issues ance of power. Institutional Means of Controlling relating to developing country bor- This study will test some ideas Administration and Reducing rowing. First, the study will look at about how power relations in the Corruption in Transition what determines the maturity of household can be modeled. And it will Economies developing country bonds. The results examine the effect of alternative mod- RichardMessick of this analysis should shed light on els of the collective household on deci- Poverty Reduction and Economic what factors might be manipulated to sions relating to children, such as Management Network, Public Sector move bonds away from short maturi- investments in their health and educa- Management Division ties, which have been shown to be a non, and on women's participation in RSBfunding: $15,000 risk factor in recent financial crises, the labor force. Empirical analysis will April-June 2000 World Bank Policy andResearch Bulletin 7 Economics of Tobacco Control: questionnaires in both written and Analysis of Distributional and P1blicati OiRS electronic (CD-ROM) format. Economic Impact Joyce de Beyer a11(1 Geographical Targeting for Poverty Human Development Network, Health, Alleviation: Methodology and Nutrition, and Population Team For information on how to order the Applications RSB funding: $10,000 World Bank publications reviewedin David Bigman and Hippolyte this issue, see page 16 Fofack, editors The Political Economy Regional and Sectoral Study of Decentralization B 0 0 K S Although development projects are Stuti Khemani carefully designed and meticulously Development Research Group Designing Household Survey evaluated for cost-effectiveness and RSBJunding: $15,000 Questionnaires for Developing benefits, too many of them are not Countries: Lessons from 15 Years sufficiently targeted geographically. Analyzing Differences in Income of the Living Standards The growing availability of spatial Distributions: A New Method Measurement Study data, organized in a computer system with Empirical Application MargaretE Grosh and Paul such as a geographic information sys- to South Africa Glewwe, editors tem (GIS), can help improve targeting Lyn Squire A copublication of the World Bank and analyze the impact of projects in Office of the Senior Vice President, and Oxford University Press specific locales. Development Economics Governments need accurate, current, This book introduces the basic con- RSB unding: $10,000 and relevant data from household sur- cepts of a GIS and demonstrates how veys to make sound economic and to organize geographic and nongeo- Successful Cities: Determinants policy decisions. Analysts need such graphic data. In addition, it presents of City Growth Rates data to model economic behavior, different methods for using the data Zmarak Shalizi which can provide answers to impor- of the Household Income and Development Research Group tant policy questions. For many coun- Expenditure Survey, together with RSB funding: $10,000 tries, however, household survey data other surveys and the population are incomplete, unreliable, or out of sus, to provide estimates for the stan- date. This handbook was developed dard of living and incidence of poverty to help remedy this situation. A corn- in different geographic areas of a Information on many more research prchensive treatise on the design of country. It also illustrates different projects under way or recently com- multitopic household surveys in GIS applications for identifying a pleted at the World Bank can be developing countries, it draws on 15 project's target population, determin- found in World Bank Research years of experience with the World ing its spatial "sphere of influence," Program 1999:Abstracts of Current Bank's Living Standards Measurement and deciding where to locate public Studies (see page 16 for ordering Study surveys and other household facilities. information). Searchable abstracts of research projects are on the Web at surveys conducted in developing www. worldbank.olesearch. countries. Asian Corporate Recovery: The three-volume handbook covers Findings from Firm-Level Surveys key topics in the design of household in Five Countries surveys, with many suggestions for Dominique Dwor-Fraut, customizing surveys to fir local cir- Francis X Colao, andoSary cumstances and improving data qual- Hallward-Driemeier, editors ity. To help users customize their Although macroeconomic studies surveys, it provides detailed draft investigating the causes of the East 8 World Bank Polig and Research Bulletin Apdt-June 2000 Asian financial crisis of the late 1990s The volume offers a thorough East Asia: Recovery and Beyond abound, there have until now been analysis of the broad range of issues in Recovery has at last begun in East few systematic microeconomic expla- development economics and a timely Asia. But it is now evident that recov- nations of the last two years' events. critique of what is needed in develop- ery involves much more than a macro- To fill this information gap, the gov- ment theory and policy to reduce economic adjustment. This study asks ernments of Indonesia, the Republic poverty. And it addresses the question three important questions: Is the of Korea, Malaysia, the Philippines, of whether development economics is recovery built on a solid foundation, and Thailand, with the technical assis- to be regarded in the future simply as or will it soon crumble under the tance of the World Bank, undertook applied economics or whether its weight of new competition in the surveys of 4,000 firms between nature and scope call for a special global marketplace? Has the crisis November 1998 and February 1999. development theory to supplement changed East Asias development strat- This volume reports the findings general economic theory. egy and its institutional underpin- of the surveys and explores the impact nings? Even if the recovery lasts into of the crisis by looking at changes in Can Africa Claim 2000, will its foundation be sufficient capacity utilization, export perfor- the 21st Century? to launch a new era of high growth? mance, and employment practices. A copublication of the African This volume provides a synthesis of It examines the causes of the Development Bank, African Economic recent work, incorporating selected economic decline from the perspective Research Consortium, Global Coalition pieces of analytical work and a of the firms and discusses credit avail- forAfrica, United Nations Economic progress report on the key elements of ability issues. It presents a data set Commission for Africa, andWorldBank concern to the World Bank. The with information on the financial This book is a product of the growing report concludes that East Asias long- positions of small and medium-size collaboration among some of the main term prospects hinge on unleashing enterprises and large unlisted compa- institutions involved in African devel- new productivity growth. Raising nies. And it relates the firms' leverage opment. More than 50 scholars, policy- productivity depends on policies and and their reliance on different sources makers, and development practitioners institutions, including regulatory of capital to their reported access to -predominantly African-appraised policies, business institutions, govern- credit. the region's development at the start of ment institutions, and broader social the new century and articulated a road institutions. Frontiers of Development map for the future. Economics: The Future Despite the enormous challenges The Quality of Growth in Perspective facing the region, the message of the A copublication ofthe World Bank and Gerald Meier and joseph Stiglitz, editors reportis optimistic. Development in Oxford University Press A copublication ofthe World Bank and Africa is possible-and the 21st cen- The last decade of the 20th century Oxford University Press tury offers the region a chance to take witnessed striking progress in the With contributions from 35 leading its proper place on the world stage. developing world but also stagnation economists, this book explores the Never before have the momentum and and setbacks in development. Key to future of development economics goodwill for change been better. But development are both the pace and against the background of the past to consolidate the momentum the quality of economic growth. This half-century of development thinking requires Africans to take a more active, volume presents a collection of essays and practice. The contributors, out- businesslike approach to governance from an ongoing research project on standing representatives of the past and economic management. The the quality of growth and the implica- two generations of economists, assess report provides a broad business plan tions for development. development thinking at the turn that countries can adapt-while also Taking as its departure point the of the century and look to the arguing for better, more effective part- World Banks World Development unsettled questions confronting nerships between Africa and its devel- Report 1991: The Challenge of the next generation. opment partners. Development, the book examines how April-June 2000 Worm Bank Policy the o Research Bulletin 9 far we have progressed in the decade J 0 U R N A L banking crisis can be used to monitor since that report was published. It banking sector fragility The proposed advocates broadening the policy 7 he articles summarized below approach relies on readily available framework, moving beyond a quanti- appear in the May issue of the data, and the fragility assessment has tative agenda for short-term economic World Bank Economic Review, a clear interpretation based on in- growth to a qualitative agenda involv- vol. 14, no. 2. sample statistics. ing human, social, and environmen- tally sustainable development. Understanding Patterns Trade Reform Dynamics of Economic Growth: Searching and Technical Efficiency: The Political Economy for Hills among Plateaus, The Peruvian Experience of Water Pricing Reforms Mountains, and Plains Ila AT SemenickAlam and Ariel Dinar editor Lant Pritchett Andrew R. Morrison A copublication of the World Bank and Stylized facts about the instability and This article explores whether or not Oxford University Press volatility of growth rates in developing the loosening of trade restrictions has In recent years many countries, devel- countries imply that the exploding a microeconomic impact on industrial oping and developed alike, have econometric growth literature that efficiency. It uses a previously undertaken massive reforms in various makes use of the "panel" nature of the ploited data set to gauge the impact of sectors. Institutional and pricing data is unlikely to be informative. In the 1990 Peruvian rcform on plant- reforms in the water sector are part of contrast, research into what initiates level technical efficiency The results that trend. These reforms are driven (or halts) episodes of growth has high support the argument that the degree by recognition of the need to address potential, of protection and the level of effi- the increased scarcity and reduced ciency are inversely related. quality of water. Macroeconomic Fluctuations Does the water sector differ from in Developing Countries: Monitoring Targeting Performance other sectors, as some claim? Should Some Stylized Facts When Decentralized Allocations to reforms in the water sector be Pierre-Richard Ag nor, C John the Poor Are Unobserved designed and implemented differently McDermott, and Eswar S. Prasad Martin Ravallion than similar reforms in other sectors? This article documents the main styl- How can a central government monitor This book answers these questions ized features of macroeconomic flue- the performance of a decentralized through analytical frameworks that tuations for 12 developing countries poverty program when the incidence of allow comparison across different and also analyzes the effects of eco- the program's benefits is unobserved at conditions and through comparisons nomic conditions in industrial coun- the local level? This article shows that of reform processes in different tries on output fluctuations in the using a poverty map and the corre- countries. The book shows the sample countries. The results point to sponding spending allocation across common threads in water pricing many similarities between macroeco- geographic areas, one can identify the reforms by analyzing different aspects nomic fluctuations in developing and latent differences in mean program allo- of reform in the irrigation and urban industrial countries and some impor- catons to the poor and the nonpoor. subsectors of 10 countries-Australia, rant differences. Belgium, Brazil, Honduras, Mexico, Child Labor, Child Schooling, Morocco, Pakistan, Senegal, the Monitoring Banking Sector and Their Interaction with Adult United States, and Yemen. These cases Fragility: A Multivariate Logit Labor: Empirical Evidence for illustrate the difficulties of designing Approach Peru and Pakistan and implementing "optimal" pricing Ash Demirgi(-Kunt and Enrica Ranjan Ray reforms and explain how reform Detragiache Using data from Peru and Pakistan, outcomes fall short of the original This article explores how a multivari- this article tests the hypotheses that objectives, ate logir model of the probability of a there is a positive association between 10 World Bank Policy and Research Budletin April-June 2000 hours of child labor and poverty and Intellectual Property Rights of a crisis? What set of policies con- that there is a negative association and Economic Development tributes to a rapid and successful reso- between child schooling and poverty. Carlos A. Primo Braga, Carsten Fink, lution of a banking crisis and under Both these hypotheses are confirmed and Claudia Paz Sepulveda what conditions? Can a model of bank by the Pakistani data, but not by the Discussion Paper 412 restructuring successful in one country Peruvian data. Over the course of history different be easily implemented in others? legal instruments have emerged for This paper addresses these ques- A New Development Database: protecting intellectual property. These tions by analyzing and comparing the A Cross-Country Database for instruments differ in subject matter, causes of the banking crises in the Sector Investment and Capital extent of protection, and field of appli- Republic of Korea and Mexico and the Donald Larson, Rita Butzer, Yair cation, reflecting society's objective of policies and tools used for managing Mundlak, and Al Crego balancing the interests of creators and and resolving the crises. Both crises This article presents a new database on consumers for different types of intel- were triggered by sudden currency investment and capital in agriculture, lectual works. They are just one of the devaluations and also had other simi- manufacturing, and the overall econ- pieces forming a national system of larities. But there were major differ- omy that covers 62 industrial and intellectual property rights protection. ences in how the countries resolved developing countries for the years Also crucial are the institutions admin- the crises. This report identifies and 1967-92. A common method is used istering these instruments, the mecha- explains those differences and assesses in the calculations to facilitate com- nisms for enforcing intellectual the management of the crises, focus- parisons across countries and sectors. property rights, and the rules on the ing on decisionmaking transparency, treatment of nonnationals. the speed and sequencing of reforms, This paper addresses issues relating and the social and political obstacles D I S C U S S 1 0 N ,to intellectual property rights. It evalu- to crisis resolution. TECH NICAL, AND ates the relationship between protection R E L A T E D P A P E R S of intellectual property and economic activity in developing countries. It also PO0L IC Y R ESE ARPC H Foreign Investment and summarizes the economic effects that W0R KING PAPERS Restructuring: The Evidence intellectual property rights have from Hungary through the creation and diffusion of Working Papers disseminate the Bartlomiej Kaminski and knowledge and information. And it dis- findings of work in progress and Michelle Rihoud cusses reforms of intellectual property encourage the exchange of ideas Technical Paper 453 rights regimes and makes recommenda- among Bank staffand all others Although the official rhetoric in most tions for administering and enforcing interested in development issues. transition economies has been in favor these regimes. Working Papers can be down- of foreign direct investment, few loadedfrom the Web at wwwworld countries have succeeded in attracting Management and Resolution of bank.org/research/workingpapers sizable inflows. Hungary stands out Banking Crises: Lessons from the or requestedfrom the contactperson among those that have done so effec- Republic of Korea and Mexico indicated at the Bank' main address. tively. Several factors helped Hungary Jose De Luna-Martinez Banking Systems around the Globe: get ahead of other transition econo- Discussion Paper 413 Do Regulation and Ownership Affect mies in attracting foreign direct invest- What can be done to rapidly and Performance and Stability? ment. This paper analyzes Hungary's effectively contain systemic risks, achievement, the scope and depth of restore the solvency and profitability ame R. Bathne foreign direct investment, and its of financial institutions, minimize the WIPS 2325 o Contact Agnes Yaptenco, effect on the country's economy and impact of financial sector distress on room MCo-446icaxDeve-22-me55 foreign trade. the economy, and limit the fiscal costs April-June 2000 World Bank Policy and Research Bulletin How Urban Concentration Affects Output Fluctuations in Latin Currency Substitution in Latin Economic Growth America: What Explains the Recent America: Lessons from the 1990s Vernon Henderson Slowdown? Pere Gomis-Porqueras, Caros Serrano, WPS 2326 * Contact Roula Yazigi, Santiago Herrera, Guillermo Perry, andAlejandro Somuano room MC2-337, fax 202-522-0056. and Neile Quintero WPS 2340 Contact Marjorie Puentes, How the Republic of Korea's Financial WPS 2333 - Contact Cristina Palarca, room 14-218, fax 202-522-2086 Structure Affects the Volatility of Four room 18-165, fax 202-522-2119. The Tyranny of Concepts: CUDIE Asset Prices Sex Workers and the Cost of Safe Sex: (cumulated, Depreciated Investment Hong G. Min and Jong-goo Park The Compensating Differential for Effort) Is Not Capital WPS 2327 * Contact Premi Rathan- Condom Use in Calcutta Lant Pritchett Raj, room MC2-742, fax 202- Vijayendra Rao, Indrani Gupta, WS 234] - Contact Retno Widuri, 522-3645. and Smarajitjana email address rwiduri@worldbank. org. Socal ranfes ad Scia Asisanc: /PS 2334 - Contact Patricia Sader, What Can We Learn about Country Social Transfers and Social Assistance: An Empirical Analysis Using Latvian room MC3-556, fax 202-522-1153. Performance from Conditional Household Survey Data Inflation and the Poor Comparisons across Countries? Branko Milanovic William Easterly and Stanley Fischer Martin Ravalion WPS 2328 * Contact Patricia Sader, W1PS 2335 - Contact Kari Labrie, WIPS 2342 - Contact Patricia Sader room MC3-556, fax 202-522-1153. room MC3-456, fax 202-522-1155. room MC3-556 fax 202-522-1153. Improving Russia's Policy on Foreign Endogenous Enforcement and Ownership and Performance Direct Investment Effectiveness of Chinas Pollution of Lithuanian Enterprises Joel Bergsman, Harry G. Broadman, Levy System DavidA. Crigorian and Vladimir Drebentsov Hua Wang and David Wheeler V/S 2343 - Contact Darlene Brown, WPS 2329 * Contact Sandra Craig, WIPS 2336 * Contact Yasmin DSouza, room H6-084, fax 202-522-0073. room H4-166, fax 202-522-2753. room MC2-622, fax 202-522-3230. Designing Direct Subsidies for Water Reducing Structural Dominance and Pollution Charges, Community and Sanitation Services: Panama- Entry Barriers in Russian Industry Pressure, and Abatement Cost of A Case Study Harry G. Broadman Industrial Pollution in China Vivien Foster, Andrs G mez-Lobo, WPS 2330 * Contact Sandra Craig, Hua Wang andjonathan Halpern room H4-166 fax 202-522-2753. V/PS 2337 - Contact Yasmin DSouza, V/PS 2344 - Contact Si/via Delgado, Competition, Corporate Governance, room MC2-622, fax 202-522-3230. room 15-196, fax 202-676-1821. and Regulation in Central Asia: The Geography of International Information and Modeling Issues in Uzbekistan's Structural Reform Investment Designing Water and Sanitation Challenges Howardj Shatz andAnthonyj Subsidy Schemes Harry G. Broadman Venables Andrs Qimez-Lobo, Vivien Foster WPS 2331 * Contact Sandra VPS 2338 - Contact Lili Tabada, andjonathan Ha4pern Craig, room H4-166, fax 202- room MC3-333,fax 202-522-1159. V/PS 2345 - Contact Si/via 522-2753. Building Sb al Debt Markets Delgado, room 15-196, fax 202- Financial Intermediary Distress in the Developing and Transition Economies: 676-1821. Republic of Korea: Small Is Beautiful? A Framework for Analysis, Policy The Middle Class Consensus Paola Bongini, Giovanni Ferri, and Tae Reform, and Assistance Strategy and Economic Development Soo Kang Michel Noel William Easterly WPS 2332 * Contact Kari Labrie, V/PS 2339 - Contact Michel Noel, V/PS 2346 - Contact Kari Labrie, room MC3 -456 fax 202-522-1155. room H6-1 61, fax 202-522-0073. room MC3-456, fax 202-522-3518. 12 World Bank Polic and Research Bulletin April-June 2000 Terror as a Bargaining Instrument: When the Bureaucrats Move out of The Welfare Effects of Private A Case Study of Dowry Violence Business: A Cost-Benefit Assessment Sector Participation in Guineas in Rural India of Labor Retrenchment in China Urban Water Supply Francis Bloch and Vijayendra Rao Yi Chen and Ishac Diwan George Clarke, Claude Mnard, WPS 2347 * Contact Patricia Sader, WIS 2354 - Contact Mona Yafi, room andAna Maria Zluaga room MC3 -556 fax 202-522-1153. J4-158, fax 202- 676-9810. W/PS 2361 - Contact Hedy Sladovich, rooom MC3-556, fax 202-522-1154. Taxing Issues with Privatization: Greed and Grievance in Civil War A Checklist Paul Collier andAnke Hoeffler A Transitory Regime: Jack M. Mintz, Duanjie Chen, WPS 2355 - Contact Audrey Kitson- Water Supply in Conakry, Guinea and Evangelia Zorotheos Walters, room MC3-527, fax 202- Claude Menard and George Clarke WPS 2348 * Contact Gabriela Chenet- 522-1150. WPS 2362 - Contact Hedy Sladovich, Smith, room J3-147, fax 202-676-9874 Bureaucratic Delegation and Political room MC2-609, fax 202-522-1154. Trade, Foreign Direct Investment, Institutions: When Are Independent Would Collective Action Clauses and International Technology Central Banks Irrelevant? Raise Borrowing Costs? An Update Transfer: A Survey Philip Keefer and David Stasavage and Additional Results Kamal Saggi WIPS 2356 - Contact Paulina Sintim- Barry Fichengreen andAshoka Mody WPS 2349 * Contact Rina Bonfield, Aboagye, room MC3-422, fax V/S 2363 - Contact Sydnella room MC3-354, fax 202-522-3518. 202-522-1155. Kpundeh, room MC2-325, fax 202- Multilateral Trade Liberalization and Evaluating Carbon Offsets from 522-2578. Political Disintegration: Implications Forestry and Energy Projects: How Perverse Effects of a Ratings-Related for the Evolution of Free Trade Areas Do They Compare? Capital Adequacy System and Customs Unions Kenneth M Chomitz Patrick Honohan Maurice Schiff WTS 2357- ContactJoseph Ancrum, V/S 2364 Contact Agnes W/PS 2350 * Contact Lili Tabada, room MC2-522, fax 202-522-3230. Yaptenco, room MC3-446, fax room MC3-333, fax 202-522-1159. Why Infrastructure Financing 202-522-1155. Environmental Policy and Time Facilities Often Fall Short Leading Indicator Project: Consistency: Emissions Taxes of Their Objectives Lithuania and Emissions Trading Daniela Klingebiel andjeff Ruster Stephen S. Everhart and Robert Peter W Kennedy and Benoit Laplante WPS 2358 - Contact Mina Salehi, Duval-Hernandez WPS 2351 * Contact Yasmin D'Souza, room 1] 0-118, fax 202-522-2029. VPS 2365 - Contact Michael room MC2-622, fax 202-522-3230. Reducing Carbon Dioxide Geller, room 14-142, fax 202- How Stronger Patent Protection Emissions through Joint 522-2019. in India Might Affect the Behavior Implementation of Projects Fiscal Constraints, Collection of Transnational Pharmaceutical WillMartin Costs, and Trade Policies Industries WTS 2359 - Contact Lili Tabada, Xeiko Kubota Carsten Fink room MC3-333, fax 202-522-1159. W/S 2366 - Contact Lili Tabada, WPS 2352 * Contact Lili Tabada, Corruption and the Composition room MC3-333, fax 202-522-1159. room MC3-333, fax 202-522-1159. of Foreign Direct Investment: Gender, Poverty and Nonfarm The Sdo Mateus-Jabaquara Firm-Level Evidence Employment in Ghana and Uganda Trolleybusway Concession in Brazil Beata K Smarzynska and Constance Newman and Sudharshan WPS 2353 * Contact Solange Van Shang-in Wei Canagarajah Veldhuizen, room 15-002, fax 202- V/S 2360 - Contact Hedy Sladovich, V/PS 2367 - Contact Melvina Clarke, 676-9594. room MC2-609, fax 202-522-1154. room G8-118, fax 202-522-3252. April-June 2000 World Bank Policy and Research Bullein 13 Seeds of Corruption: Do Market Asset Distribution, Inequality, Impediments to the Development and Institutions Matter? and Growth Efficiency of Financial Intermediation Harry G. Broadman and Klaus Deininger and Pedro 0/into in Brazil Francesca Recanatini WS 2375 - Contact Maria Fernandez, Thorsten Beck WPS 2368 * Contact Hedy Sladovich, room MC3-508, fax 202-522-1151. WS 2382 * Contact Elena room MC2-609, fax 202-522-1154. The Effect of Early Childhood Mekhova, room MC9-622, fax How the Proposed Basel Guidelines Development Programs on Women's 202-522-2031. on Rating-Agency Assessments Would Labor Force Participation and Older New Firm Formation and Industry Affect Developing Countries Children's Schooling in Kenya Growth: Does Having a Market- Giovanni Ferri, Li-Gang Liu, and MichaelM Lokshin, Elena Glinskaya, or Bank-Based System Matter? Giovanni Majnoni andMarito Garcia Thorsten Beck and Ross Levine WPS 2369 * Contact Elena Mekhova, WPS 2376 * Contact Ratricia Sader. WPS 2383 * Contact Elena room MC9-622, fax 202-522-2031. room MC3 -632. fax 202-522-1153. Mekhova, room MC9-622, fax room MC-622,202-522-5202031 A New Model for Market-Based Reforming the Water Supply in Regulation of Subnational Borrowing: Abidjan, C6te d'lvoire: Mild Reform Are Cost Models Useful for Telecoms The Mexican Approach in a Turbulent Environment Regulators in Developing Countries? Marcelo Giugale, Adam Korobow, Claude M nard and George Clarke DanielA. Benitez, Antonio Estache, and Steven Webb WS 2377 * Contact Hedy Sladovich, D. Mark Kennet, and Christian A. WPS 2370 * Contact Michael Geller, room MC2-609, fax 202-522-1154 Ruzzier room 14-1 42, fax 202-522-2019. WPS 2384 - Contact Gabriela Shock Persistence and the Choice of Evidence from the Former 2026 i,r9J17f Foreign Exchange Regime: An Soviet Union Empirical Note from Mexico Simeon Djankov and Caroline Freund The Rise, the Fall, and. the Marcelo Giugale and Adam Korobow WPS 2378 - Contact Rose Vo, room Emerging Recovery of Project WTS 2371 * Contact Michael Geller, MC9-624, fax 202-522-2031. Finance in Transport room 14-142, fax 202-522-2019. Antonio Estache andjohn Strong Financial Openness, Democracy, System after Seattle: Toward a CnSmith, rom ax and Redistributive Policy Proactive Rolc Mansoor Dailami Aaditya Mattoo andArvind 202-676-9874 WPS 2372 * Contact William Nedrow, Subramanian Regulators and the Poor: room ]3-283, fax 202-334-8350. WPS 2379 - Contact Lili Tbada, Lessons from the United Kingdom Recprcit aros MdesofSuPIV room MC3 -333, fax 202-522-1159. Richard Green Reciprocity across Modes of SupplyWP236*CnatGbia in the World Tradc Organization: Trade Policies for Electronic CnSmith, rom ax A Negotiating Formula Commerce Aaditya Mattoo and Marcelo Olarreaga Aaditya Mattoo and Ludger Schuknecht 202-676-9874. WPS 2373 * Contact Lili Tabada, WS 2380 - Contact Li/i Tabada, The Long and Winding Path to room MC3-333, fax 202-522-1159. room MC3-333, fax 202-522-1159. Private Financing and Regulation Should Credit Be Given for Savings and the Terms of Trade ono Es Autonomous Liberalization in under Borrowing Constraints Andon strong Multilateral Trade Negotiations? Pierre-RichardAgenor and andj2387Stront Aaditya Mattoo and Marcelo Olarreaga Joshua Aizenman CeTSmith, rom ax WPS 2374 * Contact Li/i Tabada, WPS 2381 - Contact Tnya Loftus, 202-76-9874. room MC3-333, fax 202-522-1159. room J4-282, fax 202-676-9810. 14 World Bank Policy and Research Bulletin April-June 2000 The Role of Special and Differential E L E C T R 0 N I C for public sector employment, Treatment for Developing Countries I N F 0 R M A T 1 0 N AND DATA including the coherence of civil service in GATT and the World Trade rules and the compliance with those Organization Tools for institutional analysis rules. Constantine Michalopoulos and assessment - Commitment to reform- WPS 2388 * Contact Lili Tabada, Many governments in developing a diagnostic tool for assessing the room MC3-333, fax 202-522-1159. and transition economies arc working political dcsirability, feasibility, and Vietnam: On the Road to Labor- to build more efficient and account- sustainability of proposed reforms. Intensive Growth? able public sector institutions. How - Revenue administration- Patrick Belser can these governments assess the a framework for assessing institutional WPS 2389 * Contact Hera Sutrisna, state of their institutions and and organizational deficiencies in room MC9-242, fax 202-522-1556 pinpoint the areas most in need of arrangements for administering attention? To help, the World Bank revenues. The Social Rate of Return on has been developing diagnostic Intcrgovernmental relations- Infrastructure Investments toolkits that public sector analysts a toolkit for assessing arrangements David Canning and Esra Bennathan can use in assessing institutional for fiscal, administrative, and political WTS 2390 * Contact Hedy Sladovich, arrangements. decentralization. room MC2-609, fax 202-522-1154. These toolkits, distilled from expe- Legal and judicial institutions- Are the Poor Protected from Budget rience in developing and transition a toolkit for assessing the public Cuts? Theory and Evidence for economies, set our the principles that system's performance in deterring Argentina this experience suggests should under- wrongful conduct, facilitating Martin Ravallion pin institutional arrangements, and transactions, resolving private WPS 2391 * Contact Patricia Sader, they provide questions and methods disputes, and redressing government roomMC3-56,Jax 02-22-153. to help in assessing the consistency of abuses of power. room MC3 -556, fax 202-522-1153. a countrys institutional arrangements - Public expenditure institutions- What Factors Appear to Drive Private with those principles. The toolkits a toolkit for assessing formal Capital Flows to Developing include the following: institutional arrangements for Countries? And How Does Official - Central government policymak- public expenditure and cabinet Lending Respond? ing institutions-a framework for arrangements for social and sectoral Dipak Dasgapta and Dilip Ratha identifying weaknesses in decision- policymaking. WPS 2392 * Contact Sarah making arrangements in cabinet The toolkits can be found on the Crow, room MC2-358, fax 202- government by drawing attention to Web at wwwl.worldbank.orgl 522-2578. the key institutional arrangements publisector, under Institutional Will the Euro Trigger More Monetary and the most likely systemic sources of Analysis and Assessment. Many of Unions in Africa? poor policy. the toolkits are still being refined and Patrick Honohan and Philip R. Lane - Constraints on service delivery- pilot tested. To encourage feedback WTS239 -Conac Agesa toolkit for locating key constraints from users, the Web page for each WPS 29 n o a and identifying the extent to which toolkit includes an electronic form Yaptenco, room MC3-446, they arise from problems within the for rating the toolkit and submitting 202-522-1155. agencies providing services or from comments. Tax Evasion, Corruption, weaknesses in provincial and national and the Remuneration of policymaking, administration, and Heterogeneous Inspectors governance. Waly Wane - Civil service institutions- WPS 2394 * Contact Hedy Sladovich, a toolkit for assessing formal and room MC2-609, fax 202-522-1154. informal institutional arrangements April-June 2000 World Bank Policy and Research Bulletin 15 he World Bank Policy and Research Bulletin is not copyrighted, and may be repro- Bulletin is published four times a year by duced with appropriate source attribution. the Research Advisory Staff. 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