IFIHIE \VORILD IBANIK RIESIEARC]Hl PROGRAM 11997 ABsTRAcTs oF CUIRRIENT STUD1ES THE WORLD BANK RESEARCH PROGRAM 1997 ABSTRACTS OF CURRENT STUDIES THE WORLD BANK WASHINGTON, DC Objectives and Definition of World Bank Research The World Bank's research program has four basic objectives: * To support all aspects of Bank operations, including the assessment of development progress in member countries. * To broaden understanding of the development process. * To improve the Bank's capacity to give policy advice to its members. * To help develop indigenous research capacity in member countries. Research at the Bank encompasses analytical work designed to produce results with wide applicability across countries or sectors. Bank research, in contrast to academic research, is directed toward recognized and emerg- ing policy issues and is focused on yielding better policy advice. Although motivated by policy problems, Bank research addresses longer-term concerns rather than the immediate needs of a particular Bank lending opera- tion or of a particular country or sector report. Activities classified as research at the Bank do not, therefore, include the economic and sector work and policy analysis carried out by Bank staff to support operations in particular countries. Economic and sector work and policy studies take the product of research and adapt it to specific pro- jects or country settings, whereas Bank research contributes to the intellectual foundations of future lending operations and policy advice. Both activities-research and economic and sector work-are critical to the design of successful projects and effective policy. Copyright @ 1997 International Bank for Reconstruction and Development/THE WORLD BANK 1818 H Street, NW, Washington, DC 20433, U.S.A. All rights reserved. First printing September 1997 Manufactured in the United States of America ISSN 0258-3143 ISBN 0-8213-4051-4 This report has been prepared by the staff of the World Bank. The judgments expressed do not necessarily reflect the views of the Board of Executive Directors or of the governments they represent. CONTENTS Introduction 1 Studies by Subject Area 3 Abstracts of Current Studies 9 Poverty and Social Welfare 11 Labor Markets and Education 27 Environmentally Sustainable Development 43 Infrastructure and Urban Development 67 Macroeconomics 74 International Economics 84 Domestic Finance and Capital Markets 112 Transition Economies 122 Private Sector Development and Public Sector Management 139 Bank Research Output 155 Index of Studies by Department 183 iii 勵 INTRODUCTION The World Bank is in the midst of a renewal. Through a What Research Is Now Under Way? long process of managed change, it is reshaping itself to strengthen its effectiveness in helping countries reduce This volume reports on research projects initiated, under poverty and improve the quality of life. Central to this way, or completed in fiscal 1997 (July 1, 1996, through process is a focus on learning: June 30,1997). The abstracts in the volume describe, for * Learning how to strengthen social and environmental each project, the questions addressed, the analytical meth- sustainability. ods used, the findings to date, and their policy implica- 9 Learning how to foster participation in the projects tions. Each abstract also identifies the expected completion that the Bank supports. date, the research team, and any reports or publications * Learning how to build partnerships with others in produced. To make it easier to obtain information and the development community. data, each abstract gives the e-mail address for the research - Learning how to support local institutions in devel- project's supervisor. oping countries. The abstracts cover 214 research projects from through- Some of this learning comes through accumulated out the Bank, grouped under nine major headings: experience-not only the Bank's but also that of clients 9 Poverty and social welfare, including equity, demo- and donors-from slow and sometimes painful trial and graphics, and health and nutrition. error. Some comes through discussions with other mem- * Labor markets and education. bers of the international community, as comparisons of e Environmentally sustainable development, includ- what each has done separately begin to reveal impor- ing environmental economics, energy, agriculture, and tant patterns in growth and development. But on the natural resources. issues that are the most complex and the most contro- * Infrastructure and urban development. versial-and often on the issues that involve the great- * Macroeconomics, including monetary and fiscal pol- est conflicts between those who will gain and those who icy and adjustment. will lose-useful lessons emerge only when such pat- - International economics, including trade, finance, terns are studied carefully, objectively, over time, and and debt. across countries or regions. a Domestic finance and capital markets. It is to these issues that World Bank research repeat- e Transition economies. edly turns. And because these issues usually involve 9 Private sector development and public sector man- tradeoffs, changes in patterns of living, and shifts in the agement, including industrial organization, regulation, distribution of losses and benefits under current policies, institutions, political economy, and privatization. the results of research investigating them are questioned, An appendix lists reports and publications produced examined, and disputed. So Bank researchers refine the from Bank research and explains how to obtain them. studies, revise the definitions and measures, and expand Finally, the abstracts are indexed by the sponsoring unit. the coverage of countries and possible policy approaches. The process of learning, of acceptance, and of change is How to Get More Information a slow one. This volume is a snapshot of one year in this process This is the annual compendium of current Bank research. of investigation, debate, and reassessment. Some issues Readers interested in obtaining more frequent and up- are just emerging, others are the subject of major pro- to-date information on Bank research projects and their grams of research, and a few have been resolved and the findings may wish to subscribe to the quarterly Policy findings are beginning to be reflected in policy. and Research Bulletin. Each issue includes information The Bank's work encompasses lending programs, tech- on recent World Bank publications and working papers, nical assistance, and policy advice across the broad range abstracts of newly initiated research projects and sum- of issues that governments confront. Because questions maries of recent research findings, a column identifying and conflicts arise across this entire range, the Bank's electronic information available from the Bank, and a research program is equally broad. form for ordering reports featured in that issue. The bul- Introduction letin is available free of charge. For information on how Bank reports are available on the World Wide Web at to subscribe, see the subscription request form at the back http://www.worldbank.org. Research reports and informa- of this volume. tion on the World Bank's research branch, the Develop- The bulletin, Abstracts of Current Studies, abstracts of ment Economics Vice Presidency, are available at articles in the Bank's two journals, the World Bank Research http://www.worldbank.org/html/dec/home.html. Observer and World Bank Economic Review, and a host of 2 STUDIES BY SUBJECT AREA Poverty and Social Welfare 11 Adjustment and Poverty in Mexican Agriculture: How Farmers' Wealth Affects Supply Response (679-50) 11 Improving the Policy Relevance of Living Standards Measurement Study Surveys (679-61) 11 The Public-Private Mix and Equity in Health Care: An Exploratory Empirical Study (679-95) 12 Nutrition, Health, and Labor Productivity in Kenya (680-03C) 13 Dynamics of Child Health in Indonesia (680-37) 14 Rural Poverty in Latin America: Analytics, New Empirical Evidence, and Policy (680-75C) 14 AIDS and Development: The Role of Government (680-80C) 15 Assessing the Economic Impact of Nonocular Onchocerciasis (680-81C) 16 Maternal and Child Overweight and Obesity: A Global Comparison (680-83C) 17 Valuing Mortality Reductions in India: A Study of Compensating Wage Differentials (680-84C) 17 Decentralizing Safety Nets: Community Choices and Their Impact on Households (680-98) 18 Impact of Targeted Credit Programs on Consumption Smoothing and Nutrition in Bangladesh (681-09C) 18 Welfare Impacts of Alternative Ways of Providing Rural Infrastructure (681-13C) 19 Policies for Poor Areas (681-39) 19 Incentives for Doctor Placements in Rural and Remote Areas (681-56) 20 Poverty and Income Distribution Dynamics in a High-Growth Economy: The Case of Chile, 1987-94 (681-59) 21 Does Schooling Expansion Equalize Income? (681-67) 21 The Measurement and Prediction of Poverty in an Aging World (681-73) 22 Poverty and the International Economy: What Are the Links? (681-83) 22 Quantifying the Net Economic Loss or Gain from Tobacco Use (681-95) 23 Public Expenditures and Poverty 23 A Volume on Subsidies Research 24 The Methodology of Poverty Assessments 25 World Poverty Monitoring 25 Allocation of Public Expenditures 26 Labor Markets and Education 27 Putting Inputs to Work in Primary Schools: Four Experiments in the Philippines (679-01C) 27 Impact Evaluation of Education Projects: Decentralization and Privatization Issues (679-18) 27 Note: The numbers in parentheses are reference numbers for projects funded centrally from the Research Support Budget. A "C" suffix denotes a project completed during fiscal 1997. Projects with no reference numbers are funded by departments. 3 Studies by Subject Area Dynamic Implications of "Return Migration" for Labor Markets (679-21C) 29 National and International Wage Differentials: Effects of Trade, Growth, and Education (679-26C) 29 Public Sector Retrenchment and Efficient Compensation Schemes (679-51C) 30 The Impact of Child Health and Nutrition on Education Outcomes in Cebu, Philippines (679-57) 31 Costs and Effectiveness of In-Service Primary Teacher Education at a Distance: A Comparative Study (679-93C) 32 An Institutional Approach to the Promotion of Education Services in Brazil (680-38C) 32 International Measures of Schooling Years and Schooling Quality (680-54C) 33 The Informal Sector in Mexico (680-59C) 33 Child Labor: What Role for Demand-Side Interventions? (680-64C) 34 Technology and Basic Education Reform: A Comparative Analysis in Chile and Costa Rica (680-68) 35 Technology, Education Costs, and Distance Education (680-70C) 35 The Effect of Education Decentralization Reforms on Resource Allocation, Quality, and Equity in Hungarian Schools (680-78C) 36 The Economics of Early Child Development Programs (680-87C) 37 Gender and the Rural Economy: Evidence from Mexico (680-95) 37 The Impact of Labor Market Policies and Institutions on Economic Performance (680-96) 38 Understanding the Rationale for Education Reform: Parents as Principals and Teachers as Agents (681-12C) 39 Improving Primary Education in Kenya: A Randomized Evaluation of Different Policy Options (681-14) 40 Explaining Gender Disparity in South Asia: A Cross-Sectional Approach (681-29) 40 Child Diet and Academic Achievement in Cebu, Philippines (681-78) 41 Child Labor and Schooling in Latin America (681-79) 41 Environmentally Sustainable Development 43 Land Tenure Insecurity in Honduras and Paraguay (678-74C) 43 The Determinants of Agricultural Growth: Country and Cross-Country Analysis (679-03C) 44 Energy Demand in Asian Developing Economies (679-19C) 45 Pollution Control by Electric Utilities (679-94C) 45 Measuring the Health Effects of Air Pollution in Developing Countries (679-96C) 46 The Catalytic Effect of Tree Plantings on the Rehabilitation of Native Forest Biodiversity on Degraded Tropical Land: An Exploratory Analysis (680-05C) 47 Cost-Effectiveness Analysis of Coral Reef Management and Protection: A Least-Cost Model for the Developing Tropics (680-08) 47 The Economics of Industrial Pollution Control in Developing Countries (680-20) 49 Total Factor Productivity Growth in the Post-Green Revolution Agriculture of Pakistan and Northwest India (680-34C) 50 Improving the Quality of Teak Germination: A Study of Seed Dormancy and Germination (680-56C) 51 Measuring the Impact of Climate Change on Indian Agriculture (680-63C) 51 Waste Imports for Recycling (680-71C) 52 Incentives for Pollution Control in Developing Countries: The Role of Capital Markets (680-76C) 52 Marine System Valuation: An Application to Coral Reefs in the Developing Tropics (681-05) 53 4 Studies by Subject Area An Evaluation of Cane Payment Systems in Selected Sugar Industries (681-30C) 54 Spatial Environmental Processes (681-35) 54 Public Involvement in Industrial Pollution Control in Argentina and Brazil (681-46) 55 Gender, Property Rights, and Resource Management in Ghana (681-47) 56 Water Management in Irrigation (681-50) 56 Causes and Consequences of Tropical Deforestation (681-56) 57 Land Tenure, Land Markets, and Land Productivity in Rural China (681-76) 58 Ash Management, Disposal, and Utilization in India 58 Environmental Accounting 59 Industrial Emissions and Abatement Costs 59 Common Property Resource Management Issues in World Bank Projects 60 Estimating the Extent of Corrosion Damage Caused by Acid Rain in China 61 World Food Situation 61 Survey of the Impact of Acid Rain in China 62 Air Quality Measurement in Asia Using Passive Samplers 62 Analysis of Critical Loads for Acid Rain in Asia 62 Social and Environmental Consequences of Growth-Oriented Policies 62 Integrated Acidification Study in China 64 Prices, Policies, and Industrial Pollution 65 Environmental Change and Adaptive Resource Markets: A Computer-Assisted Market for Water Allocation 66 Infrastructure and Urban Development 67 Urban Transport Indicators (679-64C) 67 Reaching Turkey's Spontaneous Settlements (680-66C) 68 Valuing Direct and Indirect Benefits of Water Supply and Sanitation Projects: Application to Project Investment Analysis (680-79) 68 Resolution of River Basin Disputes on the Indian Subcontinent (680-85C) 69 Performance Measures for Infrastructure and Environmental Resources, Phase 2 (680-88) 70 Infrastructure and Growth: A Multicountry Panel Study (680-89) 71 Infrastructure Productivity: Direct and Indirect Effects (681-54) 71 Contingent Valuation of the Rehabilitation of Cultural Heritage (681-98) 72 Private Financing of Toll Roads 72 The Financing of the Hub Project in Pakistan 72 Private Power Study 73 Macroeconomics 74 Decentralization, Fiscal Systems, and Rural Development (679-68) 74 Total Investment, Agricultural Investment, and Investment in Manufacturing (680-50C) 75 Estimating the Marginal Cost of Public Funds in Developing Countries (680-69) 76 Economic Liberalization and Industrial Restructuring: The Sri Lanka Experience (681-03) 77 Political Economy of Aid, Crises, and Growth (681-31C) 77 Comparative Analysis of Growth (681-37) 78 Impact of Intergovernmental Grants (681-58) 78 A Unique Data Set to Test Hypotheses about Inflation and Stabilization (681-77C) 79 Fiscal Decentralization and Fiscal Performance 79 5 Studies by Subject Area Latin American Growth Puzzle 79 New Dimensions in Public Expenditure Analysis 80 The Economics of the Informal Sector 80 Applied Macroeconomic Models for Developing Countries 81 Structural Adjustment Participatory Review Initiative 82 Tools for Fiscal Analysis 82 Joint Policy Research Department-Africa Region Work Program on African Development 83 International Economics 84 Determinants of Japanese Foreign Direct Investment: Policy Implications for Developing Countries (679-35C) 84 Foreign Direct Investment Spillovers in Developing Countries (680-07) 85 Analytical Perspectives on Aid Effectiveness in Africa (680-18C) 85 Is Finance a Barrier for Small and Medium-Size Enterprise Exports in Mercosur? (680-39C) 86 Revenue Consequences of Trade Reform (680-93) 87 A Strategic Approach to Asset and Liability Management in Developing Countries (681-23) 88 Exchange Rate Policy and Medium-Term Adjustment and Growth in South Africa (681-28) 89 Trade Reform: Incentives on the Ground (681-33C) 89 The Dynamic Impact of Trade Liberalization in Developing Countries (681-40) 89 Aid Allocation in a Federal System: A Case Study of India (681-41) 90 Implications of Financial Integration for Capital Market Reform: The Asian Experience (681-48C) 91 World Price Signals, Policy Reforms, and Domestic Commodity Price Behavior (681-49) 92 Implementation of the Uruguay Round Agreement for Agriculture: New Issues and Progress in Post-Round Liberalization (681-69) 92 Economic Policies and the Effectiveness of Foreign Aid (681-70) 93 The Implications of Rapid Growth in Large Developing Countries (681-75) 93 Africa and the International Economy 94 Measuring the Dynamic Gains from Trade 94 African Trade Barriers 95 Regionalism and Agricultural Trade 95 Trade Policy, Incentives, and Resource Allocation in Indian Agriculture 96 Components of Successful Commodity Exports 96 Private Capital Flows to Developing Countries: The Path to Financial Integration 97 Agricultural Trade Liberalization and Food Security 98 Commodity Marketing Systems 99 Developing Countries and Government Procurement 99 Opening Domestic Debt Markets in Developing Countries 100 Risk Management and Commodity Export Finance 101 Economic Integration: The Americas 101 Commodity Models: A Method to Evaluate Commodity Projects 102 Private Capital Flows and the Role of Economic Fundamentals 103 Global Economic Prospects-Related Research 103 Managing Private Capital Flows in Asia: Lessons and New Challenges 104 6 Studies by Subject Area Real Exchange Rate Misalignment in Latin America 105 Controlling Recidivism 105 Estimating Equilibrium Exchange Rates in Developing Countries 105 International Comparison Programme Analysis 107 Monitoring and Implementation of the Uruguay Round 107 Tradable Services 109 Trade and Labor Standards 109 The World Trade Organization and Developing Countries 109 Regionalism and Development 109 African Trade Policy 111 Domestic Finance and Capital Markets 112 Term Finance: Theory and Evidence (679-62C) 112 Bank Regulatory Regimes (680-36C) 113 Derivatives Markets and Risks in Emerging Economies (680-45C) 114 Saving in Developing Countries (681-36) 114 Managing Natural Disasters in the Caribbean through Mitigation and Financial Risk Sharing (681-44C) 115 The Financial Structure and Governance of Venture Capital Funds in Developing Countries (681-51) 116 The Effects of Urban Land Titling and Tenure Security on Investments, Property Value, and Credit Access in Ecuador (681-80) 117 Bank Reform, Concentration, and Costs (681-90) 117 Finance and Growth 117 Internationalization of Emerging Capital Markets: Cross-Country Experience 118 Bank Restructuring in Sub-Saharan Africa 118 World Bank Financial Sector Adjustment Lending: The Experience to Date 119 Bond Spreads in Emerging Markets 119 Sustainable Banking with the Poor 120 Best Practice in Postal Financial Services 121 Transition Economies 122 Impact of Market-Oriented Policy Reforms on Households in Rural China (677-16) 122 Dynamics of Rural Poverty in China (678-79C) 122 Labor Market Adjustment in Estonia (679-71C) 123 Government Financial Transfers to the Largest Recipient Enterprises in Russia (679-98C) 123 The Consequences of Large-Scale Privatization in Mongolia (680-27) 124 Poverty and Targeting of Social Assistance in Eastern Europe and the Former Soviet Union (680-33) 125 Formal Employment and Survival Strategies under Economic Reform in the Former Soviet Union (680-52) 126 Evaluating Active Labor Market Programs in Europe and Central Asia (680-73) 127 The Reach of Law into the Enterprise in Transition (680-90) 127 The Cultural Foundations of Economic Reform (681-18C) 128 Potential Sources of Growth in Funding for Chinese Agricultural Research (681-19C) 129 Household Welfare Change during the Transition in Poland (681-21) 130 Ownership, Labor Strategies, and Firm Performance in China (681-22C) 130 7 Studies by Subject Area Changing Ideas about Poverty in Russia (681-42) 131 The Determinants of Agri-Food Market Integration in the Transition Economies, Phase 2 (681-45) 131 Enterprise Restructuring in Bulgaria and Romania (681-96) 132 Bank-Led Restructuring of Problem Enterprises in Poland 133 A Comparative Overview of Transition 134 Welfare during the Process of Transition 135 Progress in Transition 136 Reform along the Volga 136 Trade Policy in Transition Economies 137 Social Capital in Transition 138 Private Sector Development and Public Sector Management 139 The Policy Effects of Political and Electoral Institutions in Developing Countries (680-41C) 139 Cross-Country Indicators of Institutional Uncertainty (680-51) 139 Regulating Technology Transfer in Agriculture: Impact on Technical Change, Productivity, and Incomes (680-61) 140 Efficiency and Equity Implications of Argentina's Privatization of Utilities (680-65C) 140 African Politics and African Development (680-86) 141 Ownership Structure, Corporate Governance, and Firms' Performance: The Case of Chinese Stock Companies (681-08C) 142 Bureaucratic Structures and Economic Performance in Developing Countries (681-16C) 142 Investment Performance in the Corporate Sector (681-25) 143 Effectiveness of World Bank Nonlending Services (681-26) 143 State Action and Private Sector Development (681-34) 144 Efficacy of Beneficiary Assessment (681-38C) 144 Science Parks and Firm-Level Productivity in China (681-43) 145 Indicators of Government Quality as Perceived by the Private Sector (681-52C) 145 Decentralization and Participatory Planning in Bolivia (681-62) 146 Infrastructure Privatization Database (681-66) 146 Managing Micro and Macro Risks for Private Participation in Infrastructure (681-81) 146 Government-Business Consultative Mechanisms and Economic Governance: A Three-Country Comparison (681-83) 147 Political Credibility and Economic Reform (681-85) 147 Institutions, Politics, and Contracts: Private Sector Participation in Urban Water Supply (681-87) 148 Delay in Disposition: Judicial Performance in Developing Countries (681-92) 148 Information and the Organization of Government 149 Private Means, Public Ends: Private Sector Participation in Caribbean Water Systems 149 Africa Privatization Study 150 Decentralization in Latin America and the Caribbean: Best Practice and Policy Lessons 151 Project Evaluation and Public Expenditure 152 Private Provision of Water and Sanitation 153 Regional Program on Enterprise Development in Africa 153 8 ABSTRACTS OF CURRENT STUDIES POVERTY AND SOCIAL WELFARE Adjustment and Poverty in Mexican Report: Agriculture: How Farmers' Wealth L6pez, Rimon, John Nash, and Julie Stanton. 1995. "Adjustment Affects Supply Response and Poverty in Mexican Agriculture: How Farmers' Wealth Affects Supply Response." Policy Research Working Paper 1494. Ref. no. 679-50 World Bank, International Economics Department, Washington, Mexico's government intends to undertake extensive DC. reforms in agriculture, eliminating virtually all controls and tariffs. It has already initiated reforms relating to vir- tually all important agricultural inputs-land, seeds, Improving the Policy Relevance of Living credit, fertilizer, machinery. The reforms promise higher Standards Measurement Study Surveys incomes for those who can take advantage of new oppor- tunities. But how well can farmers-particularly poor Ref. no. 679-61 farmers-adjust to the changes? The World Bank has assisted developing countries in A pilot study focusing on a small sample of farmers implementing Living Standards Measurement Study between 1991 and 1993 found interesting results. Although (LSMS) surveys for more than 10 years. This research pro- farmers with limited access to productive assets had ject draws on that work and the work of other house- lower-quality land, more difficulty getting credit, and hold survey programs to synthesize the lessons of less education than better-off farmers, they fared as well experience so that countries can incorporate them in the as or better than other groups of farmers in the face of design of their survey programs. The research focuses on the reforms. Yet econometric analysis showed that farm- the following questions: Can LSMS surveys be modified ers with access to irrigation and harvest machinery to cover policy issues that are difficult or impossible to showed a significant response to changes in prices, and analyze using existing LSMS data? Can the reliability and those without those productive assets no statistically sig- accuracy of the data currently gathered in LSMS sur- nificant response. veys be further improved? And can implementing LSMS This study uses an expanded data set-covering more surveys be made easier? years and more farmers-to increase the reliability of the The research includes detailed analysis of all major analysis and extend it in several directions. The broader sections (modules) of LSMS questionnaires, including data set supports a more accurate descriptive analysis those on health, education, fertility, migration, housing, of how the conditions of farmers have changed and anthropometrics, employment, agriculture, nonagricul- whether such changes are correlated with land tenure tural enterprises, credit and savings, and consumption. status and assets. It also allows expanded econometric Data from LSMS surveys and other pertinent surveys are analysis assessing the effects of constraints on poor farm- being analyzed for quality, literature on relevant analyt- ers' ability to adjust. This analysis, based on an enhanced ical issues is being reviewed for the implications for data model of the farm household, controls for household requirements, and field experiments have been set up for characteristics and improves the quality of the estimates the consumption module. and conclusions. The data for the analysis have been The interim results of the research support a re- collected, and the analysis is under way. endorsement of the original modular, multitopic approach The study will show whether the government's pol- of the LSMS surveys. Guidance will be given on how to icy reforms are meeting their goals. A finding that they combine modules more flexibly into different kinds of are not would signal a need for remedial action-for surveys with different purposes, samples, and periodic- example, certain kinds of targeted assistance. ities. The largest modifications will be made to the old Responsibility: Europe and Central Asia, Country health and agriculture modules. Options for environ- Department II, Agriculture and Regional Development mental modules are being explored, and questions about Operations Division-John Nash (jnashl@worldbank.org). how to better define the community for the community With HIL Actuarios; Rdmon L6pez and Julie Stanton, questionnaire are being addressed. For most modules, University of Maryland; Gloria Rubio; and Isidro Soloaga. short and long versions will be suggested to help in Completion date: December 1997. combining them into surveys for different purposes. I1I Poverty and Social Welfare The interim results were discussed at two workshops Integrales; Elaina Rose, University of Washington; Wim in Washington, DC, on April 17-19,1996, and June 11-13, Vijverberg, University of Texas at Dallas; and Dale 1997, each attended by about 75 participants. The work- Whittington, University of North Carolina, Chapel Hill. shops were meant principally to bring together the Completion date: December 1997. authors participating in the project to agree on a vision Reports: for the final output and to detect gaps and overlaps in Blank, Lorraine, Margaret E. Grosh, and Pauline Knight. 1996. the work. Representatives of eight client agencies in devel- "Building Analytic Capacity in Conjunction with LSMS Surveys: oping countries attended to ensure that the product would The Jamaica Story." Improving the Policy Relevance of LSMS meet their needs. World Bank operational staff imple- Surveys Research Paper 1. World Bank, Policy Research menting surveys and policy advisers in all sectors cov- Department, Washington, DC. ered in the questionnaire were also invited, to ensure that Contreras, Manuel E. 1995. "Building Analytic Capacity in Bolivia: their needs too were met. Representatives of other agen- The Social Policy Analysis Unit (UDAPSO)." Improving the cies involved in survey work in developing countries and Policy Relevance of LSMS Surveys Research Paper 2. World the United States were also invited, to benefit from their Bank, Policy Research Department, Washington, DC. experience and make them aware of the research. Drummond, Lisa B.W. 1995. "Building Analytic Capacity in The Manual for Planning and Implementing the LSMS ConjunctionwithLSMSSurveys:AReporton theVietnam Living Survey, produced under this project, was disseminated Standards Survey." Improving the Policy Relevance of LSMS at an international survey workshop sponsored jointly Surveys Research Paper 3. World Bank, Policy Research by the Inter-American Development Bank (IDB), the Department, Washington, DC. World Bank, and the Economic Commission for Latin Grosh, Margaret E., and Paul Glewwe. 1996. "Household Survey America and the Caribbean (ECLAC) in Asunci6n, Data from Developing Countries: Progress and Prospects." Paraguay, on December 3-4, 1996, and at a sampling American Economic Review 86(2):15-19. course for representatives of 30 francophone countries Grosh, Margaret E., and Juan Mufioz. 1996. A Manual for Planning on June 12-21,1997. The manual serves as the textbook for and Implementing the LSMS Survey. Living Standards Measure- the Bank's annual training course on household surveys. ment Study Working Paper 126. Washington, DC: World Bank. The project's work is expected to influence how sur- Grosh, Margaret E., Qing-hua Zhao, and Henri Jeancard. "The vey projects funded by the Bank and other agencies are Sensitivity of Consumption Aggregates to Questionnaire carried out. Project materials have already affected the Formulation: Some Preliminary Evidence from the Jamaican and design or implementation of surveys in Azerbaijan, Ghanaian LSMS Surveys." Improving the Policy Relevance of Cambodia, Jamaica, and the Kyrgyz Republic and are LSMS Surveys Research Paper 6. World Bank, Policy Research being used as training materials by the new joint Department, Washington, DC. IDB-World Bank-ECLAC survey program for Latin Jolliffe, Dean. "Review of the Agricultural Activities Module from America. the Living Standards Measurement Study Survey." Improving Responsibility: Policy Research Department, Poverty the Policy Relevance of LSMS Surveys Research Paper 7. World and Human Resources Division-Margaret Grosh Bank, Policy Research Department, Washington, DC. (mgrosh@worldbank.org), Paul Glewwe, Harold Alder- Oliver, Raylynn. 1995. "Building Analytic Capacity in Conjunction man, and Kinnon Scott, and Environment, Infrastructure, with LSMSSurveys: The Kyrgyz Republic." Improving the Policy and Agriculture Division-Maureen Cropper; Poverty Relevance of LSMS Surveys ResearchPaper4. World Bank, Policy and Social Policy Department-Nobuhiko Fuwa, Research Department, Washington, DC. Shahidur Khandker, Andrew Mason, and Tara Viswanath; Wilson, Francis, and Dudley Homer. 1996. "Lessons from the Project and Europe and Central Asia, Country Department IV, for Statistics on Living Standards and Development: The South Moldova Resident Mission-Wlodek Okrasa. With Indu African Story." Improving the Policy Relevance of LSMS Surveys Bhushan, Asian Development Bank; Kim Chung, Brown Research Paper 5. World Bank, Policy Research Department, University; the Central Statistical Bureau, Latvia; Angus Washington, DC. Deaton, Princeton University; Elizabeth Frankenburg, Rand Corporation; Paul Gertler, University of California at Berkeley; Andrew Harvey, St. Mary's University; Hanan The Public-Private Mix and Equity in Health Jacoby, University of Rochester; Anjini Kochar and Julie Care: An Exploratory Empirical Study Schaffner, Stanford University; Robert Lucas, Boston University; Fiona Mackintosh; Stephen Malpezzi, Ref no. 679-95 University of Wisconsin; Andrew McKay, University of Many governments have stated an objective to ensure Nottingham; Donald Mead and Thomas Reardon, thathealth care is available to everyone according to med- Michigan State University; Juan Muitoz, Sistemas ical need, not by ability to pay. Laudable as this objec- 12 Poverty and Social Welfare tive is, in reality resources are scarce, and in the absence vate health facilities. Similarly, residents of rural areas of a price mechanism other forms of rationing take over. spend as much of their income on health care as urban In most developing countries doctors and hospitals are residents, but receive lower-quality care. For example, a concentrated in the cities, where they are available to smaller percentage of people who are ill visit a doctor in the urban middle class but too far away to benefit most rural areas than in urban. of the rural poor. The results of the study will be used to inform the Even when care is provided free of charge, equal access growing number of health care reform efforts under way. to medical care is an illusion. When medical care is pub- For example, they should shed light on the role of the pri- licly financed, the distribution of services is often regres- vate sector in health care. sive, with middle-income and higher-income groups Responsibility: HumanDevelopment Department, Office benefiting disproportionately. When the poor do receive of the Director-Jacques van der Gaag (jvandergaag services, the quality is generally low. Lacking access to @worldbank.org). With Hailu Mekonnen. adequate public services, the poor often turn to the pri- Completion date: December 1997. vate sector, where they face high prices for brand-name drugs and private office visits. So the poor often spend more on health care as a share of household budgets than Nutrition, Health, and Labor Productivity the rich do, even in countries where all care is supposed in Kenya to be provided free of charge by the public sector. But few studies have systematically documented the Ref. no. 680-03C incidence of publicly provided health services and the Using panel data for rural Kenya, this project investi- distribution of private health care expenditures. For most gated the relationships between nutritional status, mor- developing countries the total amount spent on health bidity patterns, time allocation, and child school care is not known. This research addresses these issues performance. The study estimated a system of dynamic using data from Living Standards Measurement Study equations explaining morbidity patterns, time allocation (LSMS) surveys for 12 countries. It is also investigating decisions, and scores on psychometric tests. The the issues at a regional level, through a study under way analysis incorporated biomedical, behavioral, infra- in LatinAmerica and the Caribbean and studies planned structural, and seasonal factors. And it tested whether for Africa and Asia. results in an earlier, related project in Rwanda also hold In assessing the "equity" of a country's health care true in Kenya. system, the project uses household survey data to show Results show that poor nutritional status significantly the distribution of health indicators between urban and compromises children's learning ability and school rural households and by income level, and the distribu- performance. The findings suggest that interventions tion of the use of health care services (both public and to improve early childhood nutritional status in poor private) for the same population groups. Data from the areas can bring lasting gains in schooling and future LSMS surveys make it possible to calculate total private productivity. spending on health care and, when combined with gov- Results from the study have been presented at the ernment budget data from the International Monetary World Bank, the International Food Policy Research Fund and other sources, to obtain a reliable estimate of Institute, the World Food Programme, and the Indian a country's total health care spending. A particularly Statistical Institute. important result will be estimates of the private resources Responsibility: Policy Research Department, Poverty spent on health care relative to public resources, even in and Human Resources Division-Martin Ravallion countries where all health care spending is supposed to (mravallion@worldbank.org). With Alok Bhargava, be public. The study is attempting to determine the rela- University of Houston. tionship between the public-private mix and different Completion date: June 1997. measures of equity in health care. Reports: Preliminary findings indicate that the incidence of Bhargava,Alok. 1996. "EconometricAnalysisof PsychometricData: illness is about the same across income groups. But a A Model for Kenyan Schoolers." World Bank, Policy Research slightly higher percentage of the better-off than of the Department, Washington, DC. poor seek medical care. The poor devote as large a share _. 1997. "A Dynamic Model of the Cognitive Development of of household expenditures to health care as the better- Kenyan School Children." University of Houston, Department off do. But the quality of the health care the poor receive of Economics. is somewhat lower, in part because they often visit pub- _ . 1997. "Modeling the Development of Kenyan Infants." lic health facilities, while the better-off rely more on pri- University of Houston, Department of Economics. 13 Poverty and Social Welfare Dynamics of Child Health in Indonesia Expenditure Data." World Bank, East Asia and Pacific, Country Department III, Washington, DC. Ref. no. 680-37 The first phase of this research identified determinants of infant and child mortality in Indonesia in an effort to Rural Poverty in Latin America: Analytics, explain the dynamics of decline in such mortality there. New Empirical Evidence, and Policy The second phase is assessing the relative importance of interventions for improving infant and child health. The Ref no. 680-75C intent of the study is to inform government and World This study profiled rural poverty and carried out a quan- Bank efforts to formulate and evaluate strategies for titative analysis of the determinants of income differences improving child health status in Indonesia and to con- among the rural poor in Chile, Colombia, El Salvador, tribute to methodologies for analysis of health sector Honduras, and Paraguay. Its purpose was to contribute interventions. to the design of a strategy for rural poverty reduction. Using pooled data from the 1987, 1991, and 1994 Using data from recent cross-sectional household sur- Demographic and Health Surveys in Indonesia, the study veys in the five countries, the study analyzed the deter- has completed a descriptive analysis of trends and minants of income differences through econometric differentials in mortality by mother's education, island estimation of income functions. Drawing on other group, sex, age, and household expenditure. It has used research, several thematic studies examined the links multivariate models to capture the effects of maternal between rural poverty and land, rural finance, labor, gen- factors, reproductive dynamics, socioeconomic status, der and ethnicity, off-farm income-earning opportuni- and use of preventive and curative health services, as ties, and natural resource degradation. The study was well as time period, which captures unmeasured factors. structured around three themes: building the assets of The results indicate that child mortality in Indonesia the poor, countering the effects of missing or failing mar- declined markedly from the early 1970s to the early 1990s. kets, and remedying the failures of the government. The under-five mortality rate declined by about 60 per- Building the assets ofthe poor. The study found that edu- cent over the period, and the infant mortality rate by cation has only a small effect on rural incomes and farm almost 50 percent. The study found large differences in output. Its main contribution might be to prepare peo- under-five mortality by education of mother and among ple to migrate. The study found that family size and regions. Sex patterns of child mortality show a net advan- dependency have a powerful negative effect on per capita tage for females of about 20 percent under age five. income. It found that small farmers are not better off than Multivariate analysis shows that the infant mortality rate landless farm workers and that poor farmers have lower declined fastest in the period after 1990, quite slowly in total factor productivity than nonpoor farmers. And con- 1970-83, and by an almost negligible amount in 1983-89, trolling for household characteristics, it found that geo- a period of budgetary retrenchment. Mortality is signif- graphical location does not appear to determine per capita icantly lower in urban than in rural areas, suggesting that income. access to health services is important. Countering the effects of missing or failing markets. The Findings were presented at a World Bank seminar held study's analysis showed that the potential efficiency gains in September 1996 in Washington, DC, for about 40 par- from land redistribution have been overrated. It also ticipants, primarily World Bank staff and Indonesian showed that land has a smaller effect on per capita income health professionals. than on output. Because of the high transaction costs of Responsibility: East Asia and Pacific, Country credit, the traditionally disadvantaged groups are trapped Department III, Population and Human Resources in low-risk, low-return investment strategies, which lim- Division-FadiaSaadah (fsaadah@worldbank.org). With its their economic opportunities. But rural nonagricul- Kenneth Hill, Steve Chapman, and Nick Hill, Johns tural employment is large and growing and is greater in Hopkins University. rural areas that are better served by roads, electricity, and Completion date: September 1997. communications. Reports: Remedying the failures of government. The study's find- Saadah, Fadia, Kenneth Hill, and Steve Chapman. "Child Mortality ings suggest that countries should not rely exclusively Declines in Indonesia: Trends and Differentials, 1970 to 1995." on land reform to improve land markets; other options World Bank, East Asia and Pacific, Country Department III, include rental, titling and registration, and land taxation. Washington, DC. The potential of land reform to raise income is more lim- - Forthcoming. "Measuring the Socioeconomic Status of ited than generally expected, and expanding market- Households Using DHS Data in the Absence of Income and/or based land reform would increase land prices, raising the 14 Poverty and Social Welfare cost of land redistribution. The findings also suggest that tries, as seen through the lens of an economist. The main the role of government in financial markets needs to be audience for the report is developing country policy- reexamined. Traditional rural credit interventions have makers, in health as well as other sectors, and others with failed and may actually prevent the development of a an interest in public policy in developing countries. The well-functioning rural financial market. The study found report will identify priority actions for government as that labor legislation designed to protect farm workers well as activities that can be undertaken by private indi- may have reduced permanent employment. Most of the viduals and organizations. It will also provide guidance disadvantage of indigenous people and of women to the World Bank's lending program. The Bank is now appears to be explained by government failures-not the single largest source of external finance for HIV/AIDS by market-induced distortions. programs in developing countries, with $700 million in Responsibility: Agriculture and Natural Resources commitments for such programs in 1996. Department, Office of the Director-Alberto Vald6s The background studies financed by the research pro- (avaldes@worldbank.org); Policy Research Department, ject and other sources addressed several key themes of Poverty and Human Resources Division-Peter Lanjouw; the report: the public economics of the AIDS epidemic, Latin America and the Caribbean Region, Sector the economic determinants and impact of HIV/AIDS Leadership Group-Rodrigo Chavez and Susana morbidity and mortality, public and donor spending on Sanchez; and Poverty and Social Policy Department- IHV/AIDS interventions, the cost-effectiveness of alter- Alejandra Cox-Edwards. With Ram6n L6pez, Roberto native interventions, and priorities for public policy. Korzeniewicz, and Claudia Romano, University of The studies included literature reviews, reanalysis of Maryland; Edward Barber, University of York; Michael existing data sets (such as Demographic and Health Carter, University of Wisconsin; and Eduardo Zegarra. Surveys), and, in a few cases, original data collection and The Italian Trust Fund contributed funding for the research. research. The Policy Research Report, scheduled for publica- Completion date: June 1997. tion in October 1997, will be disseminated at international AIDS conferences in 1997 in Manila and Abidjan. The background papers will be issued in a companion vol- AIDS and Development: ume to the main report. The Role of Government Responsibility: Policy Research Department, Office of the Director-Lyn Squire (1squire@worldbank.org) and Ref no. 680-80C Nina Brooks, Poverty and Human Resources Division- The World Health Organization estimates that 23 million Martha Ainsworth and Emmanuel Jimenez, Environment, adults worldwide were infected with the human immuno- Infrastructure, and Agriculture Division-Mead Over deficiency virus (HIV), the virus that causes AIDS, by the and Zmarak Shalizi, and Public Economics Division- end of 1996. Two-thirds of all infections were in Africa, Jeffrey Hammer; Human Development Department, and more than 90 percent in developing countries. Health, Nutrition, and Population Team-Eduard Bos; There are two extremes of opinion on what the South Asia, Country Department II, Population and response to the AIDS epidemic in developing countries Human Resources Division-Salim Habayeb; Europe should be. Many of those close to the epidemic predict and Central Asia Regional Office, Office of the Regional that the economic and social impact of AIDS on devel- Vice President-Christine Jones; and East Asia and Pacific, oping countries will be catastrophic. They argue that Country Department I, Human Resources Operations funding for AIDS prevention and mitigation should Division-Nicholas Prescott. With Dennis Ahlburg, receive priority in the portfolio of government programs University of Minnesota; Stefano Bertozzi, UNAIDS; Julia in all sectors. But many policymakers outside the health Dayton, Yale University; Jean-Claude Deheneffe, ICP; sector believe that there is little that the government can Deon Filmer; Samantha Forusz; Lieve Fransen, European or should do. This debate is complicated by the fact that Commission; Dik Habbema and Carina van Vliet, policy responses to the AIDS epidemic compete with Erasmus University, Rotterdam; King Holmes, University other development programs for resources. of Washington; Roberto lunes, University of Sao Paolo; This research project supported background studies Jos6 Antonio Izazola-Licea, Fundaqion Mexicana para la for a forthcoming World Bank Policy Research Report, Salud; Wattana Janjareon, Chulalongkorn University, Confronting AIDS: Public Priorities in a Global Epidemic Thailand; Eric Jensen, College of William and Mary; (New York: Oxford University Press), that will clarify the Ti6koura Kone and Allechi M'Bet, University of Abidjan; role of public policy in preventing IHV/AIDS and mit- Sukhontha Kongsin, Mahidol University, Thailand; igating the impact of the epidemic in developing coun- Michael Kremer, Massachusetts Institute of Technology; 15 Poverty and Social Welfare Lawrence MacDonald; Ajay Mahal, Harvard Institute for Riehman, Kara. 1996. "Drug Use and AIDS in Developing Countries." International Development; Kathleen Mantila; Rekha Shah, Manju, and Tyler Biggs. Forthcoming. "The Impact of AIDS Menon and Anne Mills, London School of Hygiene and on African Firms." Tropical Medicine; Martina Morris, Pennsylvania State Shepard, Donald, J. Izazola, R. lunes, S. Kongsin, T. Kone, P. University; Hnin Hnin Pyne; Kara Riehman, University Tibandebage, and others. 1996. "Levels and Determinants of of Florida; Deirdre Ruffino; Manju K. Shah; Donald Public Expenditures on the Treatment and Prevention of Shepard, Brandeis University; Burton Singer, Princeton HIV/AIDS: Five Case Studies." University; Diane Steele; John Stover, Futures Group; Stover,John. 1997. "TheFutureDemographic Impactof AIDS: What Paula Tibandebage, University of Dar es Salaam; and Do We Know?" Maria Wawer, Johns Hopkins University. The report is van Vliet, Carina, King Holmes, Burton Singer, and Dik Habbema. cosponsored by UNAIDS and financed in part by the Forthcoming. "Effectiveness of HIV PreventionStrategies under European Commission and the governments of Australia Alternative Epidemiological Scenarios." and Switzerland. The European Commission has pledged funding for publication of the background papers as a companion volume to the Policy Research Report and Assessing the Economic Impact translation of the report into French in fiscal 1998. of Nonocular Onchocerciasis UNAIDS has pledged funding for translation of the report into a foreign language in fiscal 1998. Ref. no. 680-81C Completion date: August 1996. Onchocerciasis, caused by infection with the nematode Reports: worm onchocercal volvulus, is a serious public health prob- Ahlburg, Dennis, and Eric Jensen. 1997. "Economics of the lem in much of tropical Africa, where an estimated 17.5 Commercial Sex Industry." million people are infected. The devastating impact of Ainsworth, Martha, and Innocent Semali. Forthcoming. blinding caused by onchocerciasis is relatively well doc- "Socioeconomic Correlates of Adult Deaths in Kagera, Tanzania." umented, but the impact of the nonblinding strain of Dayton, Julia. 1996. "World Bank Support of AIDS Interventions." onchocerciasis is not. This study investigated the eco- Deheneffe, Jean-Claude, Michel Cara6l, and Amadou Noumbissi. nomic impact of nonblinding (or nonocular) onchocer- 1996. "Socioeconomic Determinants of Sexual Behavior and ciasis, whose symptoms are intense itching, fatigue, and Condom Use: Analysis of the WHO/GPA Sexual Behavior insomnia. Surveys." The research was based on wage and employment Filmer, Deon. 1997. "Socioeconomic Correlates of Risky Behavior: data collected from a sample of workers at a coffee plan- Results from the Demographic and Health Surveys." tation in southwest Ethiopia, an area known for its high Janjareon, Wattana, and others. Forthcoming. "The Economic Impact prevalence of onchocercal skin disease. In addition, clin- of AIDS on Households in Thailand." ical examinations were conducted to classify the sever- Jones, Christine, and Allechi M'bet. 1996. "The Impact of Macro- ity of the disease. Using regression and other data analysis economic Reforms on the Spread of HIV in Developing techniques, the research tested a variety of hypotheses Countries." on the incidence and severity of the disease and its impact Kremer, Michael. 1996. "AIDS: The Economic Rationale for Public on economic productivity. Intervention." Analysis of data from plantation records shows that . 1996. "The Optimal Subsidies for AIDS Prevention." the economic impact of onchocercal skin disease is a func- Menon,Rekha, Maria Wawer, and others. 1996."TheEconomicImpact tion of such factors as age, gender, and type of employ- of Adult Mortality on Households in Rakai District, Uganda." ment. The effects on labor productivity are greatest for .1996. "TheSocioeconomic Correlates of HIVInfection among older (aged 35 and above), permanent, male employees. Heads of Household in Rakai District, Uganda." Infection with onchocercal skin disease reduces daily Mills, Anne, and Charlotte Watts. 1996. "The Cost-Effectiveness of earnings by about 10-15 percent. HIV Prevention and the Role of Government." Responsibility: Africa Technical Families, Onchocerciasis Morris, Martina. 1996. "Sexual Networks: What Is Their Relevance I, Program Administration-Aehyung Kim (akim to Modeling the Spread of HIV?" @worldbank.org) and Ajay Tandon. With the Institute Over, Mead. Forthcoming. "Societal Determinants of HIV Infection: of Pathobiology, University of Addis Ababa, Ethiopia. A Cross-National Study." Completion date: June 1997. Prescott, Nicholas, J. Perriens, and Ken Hill. Forthcoming. "The Report: Cost-Effectiveness of Anti-Retroviral Therapies in Thailand." World Bank, Africa Human Development Department, Oncho- Pyne, Hnin Hnin. 1996. "The Government Response to the cerciasis Coordination Unit, and University of Addis Ababa, HIV/AIDS Epidemic." Institute of Pathobiology. Forthcoming. "Health and Labor 16 Poverty and Social Welfare Productivity:TheEconomicImpactof OnchocercalSkinDisease." Valuing Mortality Reductions in India: Policy Research Working Paper. World Bank, Africa Human A Study of Compensating Wage Development Department, Washington, DC. Differentials Ref no. 680-84C Maternal and Child Overweight and Obesity: Conducting cost-benefit analyses of health and safety A Global Comparison regulations requires putting a dollar value on reduc- tions in health risks, including the risk of death. In the Ref. no. 680-83C United States a widely accepted method of valuing As developing countries become richer, overweight and changes in risk of death is to estimate compensating obesity are emerging as important global public health wage differentials using observed labor market data. problems. But lack of nationally representative and inter- These estimates measure the additional wages workers nationally comparable data has impeded documentation would require to accept an increased risk of dying on of the extent of the problem of overweight in develop- the job. ing countries, its geographical and social class distribu- Although there is an extensive literature on compen- tion in each country, and its global patterns. sating wage differentials in the United States, no such This research examined the extent of maternal and studies exist in developing countries. In the absence of child overweight and obesity using the data sets from these studies policymakers often value improvements in 16 national Demographic and Health Surveys from Africa, life expectancy using the human capital approach, in Asia, the Near East, and Latin America and the Caribbean. which a person's additional earnings over a longer life As indicators of nutritional status, the research used span are said to equal the value of the risk reduction. height, weight, and body mass index relative to those of But this approach tends to understate what people would reference populations of the U.S. Center for Health be willing to pay for small changes in risk. Statistics. Prevalence was estimated as the proportion of The purpose of this research was to provide estimates the population falling above or below cutoff points for of compensating wage differentials for risk of death using height-for-age, weight-for-age, and body mass index. data from India. Using multivariate regression techniques, Preliminary results indicate that overweight and the study estimated hedonic wage equations explaining obesity in children are increasing problems even in variation in wages-by occupation and industry-as a populations in which undernutrition remains a signifi- function of the risk of fatal and nonfatal injury. The study cant concern. In these same populations overweight and used wage data collected and published by the Indian obesity are also increasing problems among women of Labor Bureau in the Occupational Wage Survey and injury childbearing age. And overall, the prevalence of over- rates reported in the Labor Yearbook. Additional data on weight and obesity is greater in urban than in rural pop- profits and value added per worker, government own- ulations. Because overweight and obesity are important ership, and separation rates were taken from the Annual risk factors for a number of noncommunicable diseases Survey of Industries. (such as cardiovascular disease and diabetes), their The resulting estimates provide values of improve- growing prevalence suggests that national departments ments in life expectancy that can be used to evaluate the of health will need to devote increased resources to benefits of health and safety programs. These estimates control overnutrition as well as to deal with high levels were used in a related study (Measuring the Health Effects of undernutrition. of Air Pollution in Developing Countries, ref. no. 679- This research is expected to influence Bank operations 96) to value mortality risks associated with ambient air in two ways: by alerting task managers to the problems pollution, but they also could easily be used to value of both undernutrition and overnutrition in all regions, improvements in industrial safety risks. and by providing a basis for discussions of these prob- Responsibility: Policy Research Department, Environ- lems with countries. A seminar will be held at the Bank ment, Agriculture, and Infrastructure Division-Maureen in October 1997 to present the results to Bank staff, par- L. Cropper (mcropper@worldbank.org) and Nathalie B. ticularly task managers in health and nutrition. Simon. With Anna Alberini, University of Colorado, Responsibility: Human Development Department- Boulder; and Seema Arora, Vanderbilt University. Peter Heywood (pheywood@worldbank.org); and East Completion date: June 1997. Asia and Pacific, Country Department III, Population and Human Resources Division. With Laura Kettel Khan, Emory University. Completion date: April 1997. 17 Poverty and Social Welfare Decentralizing Safety Nets: Community data collected between 1992 and 1995, straddling a major Choices and Their Impact on Households reform of social assistance initiated in 1993. Responsibility: Policy Research Department, Poverty Ref no. 680-98 and Human Resources Division-Harold Alderman A number of countries in Eastern Europe and North Africa (halderman@worldbank.org) and Carlo del Ninno; and have begun to expand their cash-based safety nets. Akey Europe and Central Asia, Country Department II, Human obstacle to improving means-tested or indicator target- Resources Operations Division-Sandor Sipos. With ing of safety nets is the cost of obtaining accurate infor- Rafaelli Nanetti, University of Illinois; Robert Leonardi, mation on incomes and need. Ideally, decentralizing the London School of Economics; Artan Agolli; Anne Case, finance and administration of safety nets through block Princeton University; Robert Ackland; Leka Bezhani, grants could alleviate this problem-presuming that local Consulente Albania; and Maria Zam, Social Policy and authorities can monitor poverty and need more accu- Development Enterprise. rately than can more distant administrators. But the poten- Completion date: November 1997. tial advantages of block grants may be overstated, and Reports: even their real advantages may not be realized because Alderman, Harold. 1997. "Decentralization and Targeted Transfers: of inherent drawbacks. So there is a need for further infor- Social Assistance in Albania." World Bank, Policy Research mation on their performance in practice. Department, Washington, DC. Draft. This research seeks to derive lessons on the institu- Case,Anne. 1997. "ElectionGoals and Income Redistribution: Recent tional framework of poverty reduction in order to con- Evidence from Albania." Princeton University, Princeton, N.J. tribute to the design of more effective programs. It uses three related approaches to study efforts to decentralize safety nets in Eastern Europe by means of block grants Impact of Targeted Credit Programs to local governments. First, it studies the range of tar- on Consumption Smoothing and geting rules used for distribution by analyzing the bud- Nutrition in Bangladesh getary decisions of communities. Data on these decisions are also used to study what determines the types of invest- Ref no. 681-09C ments made with the block grants. Second, the research Targeted credit programs of Grameen Bank, the uses household data to indicate the levels and incidence Bangladesh Rural Advancement Committee (BRAC), and of social assistance under alternative distribution mech- a number of other organizations in Bangladesh provide anisms that have delivered the same level of funding, production credit and other services to the poor who lack providing a perspective on the effects of the mechanisms access to formal credit institutions. The purpose is to gen- themselves. Third, it uses qualitative research techniques erate income and employment for the poor and thus to study the community decisionmaking processes, to reduce poverty. In recent years government and non- determine whether they are participatory or exclusive. governmental organizations in many low-income coun- All three approaches are being used to study decen- tries have introduced similar programs. tralization in Albania, which legislated the use of block A recent World Bank study (Credit Programs for the grants to urban and rural communities in October 1995. Poor: Household and Intrahousehold Impacts and This reform continues the reorganization of the country's Program Sustainability, ref. no. 676-59) showed that the network of social assistance and insurance initiated with targeted credit programs of Grameen Bank, BRAC, and the assistance of technical support funded through a the Bangladesh Rural Development Board (BRDB) have World Bank credit. Analysis indicates that allocation of boosted per capita consumption in participating house- block grants to the communes, which is not based on holds. But that research did not address the question of fixed funding rules, appears to be partially determined whether women-often the primary target of such pro- by voting patterns, particularly in swing areas. The impor- grams-and children benefit from the increased per capita tance of the size of the grant to the commune in deter- consumption. Nor did it address the question of whether mining the level of assistance to a household was program participation affects the seasonality of con- confirmed from household survey data collected by the sumption, an important issue in Bangladesh's predom- Ministry of Labor and Social Protection in August 1996. inantly agricultural rural economy. Nevertheless, the targeting of social assistance on the This study addressed the following questions: Does basis of poverty compares favorably with international program participation enhance the nutritional status of experience. children? Does program participation affect the season- A parallel study combining the first and second ality of consumption and labor supply? And does the approaches is under way in Hungary. This study uses gender of program participants matter in the effects of 18 Poverty and Social Welfare participation on nutrition and on the seasonality of con- * The kind of organizational structures used to pro- sumption and labor supply? vide rural roads, including the degree of participation by The research examined these issues using data rural communities and others, competition in execu- from a household survey in Bangladesh conducted in tion, and devolution of decisionmaking, financing, exe- the earlier study. This survey, a multipurpose, quasi- cution, or maintenance to local governments and rural experimental household survey, was conducted in communities. 1991-92 in 87 villages in 29 thanas (subdistricts) of rural * The institutional factors determining the type of pro- Bangladesh, randomly drawn from 391 thanas. Of these vision mechanism adopted in a particular setting. 29 thanas, 24 had one or more of the three credit programs * The impact of the provision mechanism on infra- under study (Grameen, BRAC, and BRDB RD-12), and structure outcomes and the living standards of the rural 5 had none. poor. The research found that microcredit provided by the This project laid the theoretical, methodological, and programs helps smooth consumption and labor supply data foundation for the empirical analysis. It designed a by reducing seasonality in both consumption and labor baseline survey of initial conditions that includes a use in various activities. Microcredit also improves the detailed commune-level questionnaire, a household ques- nutritional status of children. These effects are much larger tionnaire, and a district-level questionnaire. These are for credit extended to women than for credit extended being implemented in 200 or so communes (both project to men, suggesting that targeting credit to women may communes and nonproject "control" communes) in six be a way to reduce poverty, especially among children. provinces throughout Vietnam. A second round of the Responsibility: Poverty and Social Policy Department- survey is planned for 1999. The resulting data set will Shahid Khandker (skhandker@worldbank.org). With include a time series of project characteristics, regional Mark M. Pitt, Brown University. fixed and time-varying characteristics, and household- Completion date: June 1997. level characteristics. It should provide the basis for a rigorous impact evaluation. The research involves close collaboration with the Welfare Impacts of Alternative Ways World Bank's Vietnam country operations project team. of Providing Rural Infrastructure Responsibility: Policy Research Department, Public Economics Division-Dominique van de Walle Ref. no. 681-13C (dvandewalle@worldbank.org); and South Asia, Country Many World Bank rural roads projects have as their pri- Department I, Infrastructure Division-Frannie mary objective raising the living standards of the rural Humplick. With Lorena Alcazar, Nathalie Simon, and poor. Yet despite a general consensus on the importance Tran Tu. The Canadian International Development of rural roads and other infrastructure for promoting Agency is providing funding for the data collection. economic development and reducing poverty, there is Completion date: June 1997. little hard evidence on the size and nature of the bene- fits. And little attention has been paid to the effect of the mechanism through which the infrastructure is provided. Policies for Poor Areas Yet project design-such as the degree of competition, participation, and decentralization used in planning Ref no. 681-39 and executing road works-is largely about that Most countries have well-recognized "poor areas" in mechanism. which the incidence of absolute poverty is unusually high This project is part of a larger research effort to study by national standards. In China, for example, there is a the effect of rural roads on living standards, allowing high incidence of poverty in rural areas of the south- for the organizational and institutional arrangements west and northwest. Similar examples in other coun- used in providing the roads. The empirical investiga- tries abound. tion focuses on Vietnam, where physical infrastructure Are specific policy interventions called for in response is poor and poverty levels are high and where the World to such poor areas? One would hope, and under certain Bank is financing and helping to implement a large- conditions expect, that the growth process would help scale rural roads project designed to reduce poverty these poor areas catch up. But that does not appear to be The research will test the assumption that basic infra- happening in some countries. Poor areas appear to per- structure investments will reduce poverty in Vietnam. sist even with robust economic growth. The research will investigate three aspects of rural Governments and donors are regularly called on roads provision: to do something about these lagging poor areas, and area- 19 Poverty and Social Welfare based interventions are now found in most countries. Reports: The World Bank has assisted more than 300 area devel- Jalan, Jyotsna, and Martin Ravallion. Forthcoming. "Are There opment projects since the early 1950s, most designed to Dynamic Gains from a Poor-Area Development Program?" develop a rural area for the benefit of poor people. Other Journal of Public Economics. agencies also provide substantial support for such _. "Spatial Poverty Traps? Consumption Growth and Geo- programs. graphic Capital in Rural China." World Bank, Policy Research How much impact do these efforts have on living stan- Department, Washington, DC. dards? To answer this question we must be able to assess Ravallion, Martin. Forthcoming. "Poor Areas." In David Giles and what would have happened to living standards in the Aman Ullah, eds., The Handbook of Applied Economic Statistics. absence of the interventions. It should not be assumed New York: Marcel Dekkar that such schemes will bring net gains to poor people; Ravallion, Martin, and Jyotsna Jalan. 1996. "Growth Divergence by acting against the flow of labor from low- to Due to Spatial Externalities." Economics Letters 53(2):227-32. high-productivity areas, they may actually make matters Ravallion, Martin, and Quentin Wodon. 1997. "Poor Areas, or Only worse in the longer term. Poor People?" Policy Research Working Paper 1798. World Bank, Properly assessing the benefits (net of hidden costs) Policy Research Department, Washington, DC. of these programs is problematic. But the geographic vari- ation in initial conditions and in the evolution of living standards over time offers scope for disentangling the Incentives for Doctor Placements effects of poor-area programs from other factors. Even in Rural and Remote Areas within poor countries geographic areas differ widely in their endowments of "geographic capital," including Ref no. 681-56 locally provided public services and access to area- In most countries rural areas are underserved by physi- specific subsidies. These differences are both geo-climatic cians. The problem is particularly acute for countries that and the outcomes of past policies and projects. There typ- have poor populations living in remote areas, such as ically is also a spatial variance in poverty indicators. Indonesia. If physicians could be induced to relocate to By exploiting this spatial variation in the incidence of these areas and effectively manage health services there, poverty and in area characteristics, this project aims to the access of the poorest to health care and public health understand what part lack of geographic capital plays services could be substantially improved. The cost- in creating poor areas, as opposed to such factors as res- effectiveness of this strategy depends on the cost of induc- idential differentiation, whereby people who lack "per- ing physicians to relocate. sonal capital" end up being spatially concentrated. By This study seeks to inform project and policy design identifying specific policy interventions-or their imme- by determining how responsive doctors' decisions on diate outcomes in terms of community-level attributes- location might be to the level and composition of differ- the analysis will assess the gains from poor-area policies ent compensation packages. Using a utility-theoretic and projects and the implications for the design of future framework, the study will assess the relative sensitivity projects. of these decisions to such attributes as cash salaries, loca- The project will study the dynamics of the geogra- tional amenities and disamenities, and working condi- phy of poverty from a microeconomic level so that it tions. The results can be used to design cost-effective can help in understanding how various governmental incentive packages for improving the geographic distri- and nongovernmental area-based actions as well as bution of physicians. other variables affect households' prospects of escaping The analytic framework will be applied to three data poverty. This will be done through a microeconometric sets from Indonesia. The first describes actual choices investigation of the economic geography of poverty in made by recent medical graduates when choosing among selected countries in Asia. The proposed empirical locations for compulsory service. The locations differ in approach entails a substantial increase in the policy- amenities, salary, and the prospects for subsequent relevant variables included in micro-empirical models of appointment to the civil service. Because the range of poverty. actual choices is limited, the study will complement Responsibility: Policy Research Department, Poverty this revealed preference data by conducting two and Human Resources Division-Martin Ravallion surveys-of medical students and of doctors-and (mravallion@worldbank.org), Shaohua Chen, Jyotsna assessing their preferences between pairs of hypotheti- Jalan, and Quentin Wodon. With Shankar Subramanian, cal assignments. This approach, often used in environ- Cornell University. mental and market research, will permit estimation Completion date: June 1999. of a utility function defined over a wider set of prospec- 20 Poverty and Social Welfare tive compensation and locational packages than now The findings were presented at the 1997 Latin American exists. Meetings of the Econometric Society. Responsibility: East Asia and Pacific, Country Responsibility: East Asia and Pacific Regional Office, Department III, Population and Human Resources Office of the Regional Vice President-Francisco H. G. Operations Division-Howard Barnum (hbarnum Ferreira (fferreira@worldbank.org). With Osvaldo @worldbank.org); and Policy Research Department, Larranaga, University of Chile; and Julie A. Litchfield, Environment, Infrastructure, and Agriculture Division- London School of Economics. Kenneth Chomitz, and Poverty and Human Resources Completion date: September 1997. Division-Yvonne Ying. With David Witzel and Report: Margareta Kettner, ForumOne Communications. The Ferreira, Francisco H.G., and Julie A. Litchfield. 1997. "Poverty Indonesian Ministry of Health is contributing funding and Income Distribution in Chile: 1987-94." World Bank, World for the research, and the Indonesian Medical Association Development Report Office, Washington, DC. is collaborating in the study. Completion date: December 1997. Does Schooling Expansion Equalize Income? Poverty and Income Distribution Ref no. 681-67 Dynamics in a High-Growth Economy: This project aims to explore the interaction between edu- The Case of Chile, 1987-94 cation and the distribution of income in order to deter- mine to what degree a massive expansion of education Ref no. 681-59 can be used to improve income distribution. Because few The past decade saw persistent, high rates of economic high-inequality countries have embarked on rapid expan- growth in Chile in the context of a market-oriented pol- sion of education, this research requires a counterfactual. icy environment coupled with a deliberate government The project will construct a counterfactual by decom- emphasis on targeted interventions to ensure "growth posing the changes in income distribution in countries with equity." Nevertheless, a wide-ranging debate has with rapid expansion in education using comparable ensued on whether the fruits of economic growth are ben- cross-sections of household income data at various points efiting all or whether large segments are being left behind in time. as a result of increasing poverty and inequality. The project uses a traditional earnings equation to con- This study seeks to establish the facts for a struct a conditional distribution of schooling and earn- better-informed debate. It relies on detailed analysis of ings that would allow isolation of the impact of four waves of the CASEN (Caracterizaci6n Socio- education-and education policies-on distributional econ6mica Nacional) household surveys (for 1987,1990, outcomes. Appropriate adjustment for endogenous labor 1992, and 1994), using methods and techniques not force participation and family rather than individual previously applied to Chilean data. Special care is taken incomes makes it possible to construct a counterfactual to control for regional differences in cost of living, for that can answer the research question in a partial equi- differences in needs among households, and for librium context. Because the assumption of an unchanged economies of scale within households. In addition to earnings function implicit in the micro-level earnings scalar measures of poverty and inequality and three dif- function model will not necessarily hold, the study com- ferent poverty lines, the study brings to bear stochastic plements the model with aggregate demand functions dominance techniques to establish robust intertemporal for various types of labor, which makes it possible to comparisons. derive equilibrium remuneration rates and thus incor- The results show that there was a substantial reduc- porate price effects that may result from the expansion tion in the incidence, depth, and severity of poverty from of schooling. 1987 to 1994, although the last years in the sample saw This methodology has been applied to data for Taiwan some losses for the poorest decile because of increasing (China) derived from a series of household surveys from unemployment. There were no robust changes in Chile's 1975-93. Earnings functions have been estimated, and high level of inequality over the period, although there conditional distributions of income based on the micro- is some evidence of a slight compression (improvement) level model have been derived. Work on derivation of at the lower tail, compensating for an increase in dis- equilibrium wage rates from the general equilibrium persion at the upper tail. Decomposition analyses sug- model is in progress. gest that the distribution of educational opportunities is Contacts have been established with Bank operational a key determinant of the continuing high inequality. staff to considerably expand the project's country cov- 21 Poverty and Social Welfare erage. Given the promising results thus far and the impor- Michael Walton. With Angus Deaton and Christina tance of education policies in the Bank's policy advice, Paxson, Princeton University. it is expected that the findings will have an important Completion date: January 1998. impact on Bank operations. They could have major implications for the kind of policy instruments that policymakers choose to improve the welfare of the Poverty and the International Economy: poor. What Are the Links? Responsibility: Policy Research Department, Office of the Director-Lyn Squire (1squire@worldbank.org). With Ref. no. 681-83 Frangois Bourguignon; and Marc Gurgand, DELTA. This research investigates the effects of increased inter- Completion date: June 1998. national openness on the very poor. As countries liber- alize their trading regimes and allow dramatic exchange rate adjustments, prices change, wages adjust, and The Measurement and Prediction of Poverty resources are reallocated. The study uses multiple econo- in an Aging World metric methodologies and data sets to investigate the effect of these changes on poverty, using Indonesia and Ref no. 681-73 South Africa as case studies. Although we have relatively good predictions of how The links between poverty and trade reform are an many elderly there will be in South and East Asia 10, 25, important policy issue, but one for which evidence is or 50 years from now, we have much less information lacking. The heightened emphasis on addressing poverty on how many of them are likely to be poor. But there are in the development process suggests that evidence on many reasons to expect an increase in poverty in older the links between internationalization and poverty is age groups. The size of the baby boom generation affects desirable both in its own right and to help with the design its wage earning potential and savings opportunities. The of policy packages or compensation policies. The issues skills of older groups may fast become obsolete as Asian are of particular relevance to South Africa, where a vig- economies undergo rapid change. Changing family struc- orous policy debate about liberalization is under way. tures may also affect the proportion of the elderly in In an ideal world this study would investigate the poverty. impact of internationalization on the very poor using a This project will use a time series of cross-sectional well-specified and econometrically estimated general equi- data sets from a number of Asian countries to investigate librium model. This would encompass both the link two questions. First, how should poverty among the between policy and prices (of goods, services, and factors) elderly be measured? In particular, what can we say about and the link between prices and household welfare. But the poverty of the elderly as a group in countries where this has never been done in one step-for fairly obvious N the elderly typically live with family members? Second, practical reasons. This study too will separate the two links. what are the implications of rapid population aging for The study starts by asking how trade liberalization poverty and inequality among the elderly? affects the prices of the goods consumed and produced The fact that the data sources have a number of sur- and the wages and other incomes of the poor. It will exam- veys for different years that are directly comparable is ine detailed time-series data from particular liberaliza- central to the project's analytical approach. While the tions to establish a basis of evidence on these pass- data sets do not allow the tracking of individuals over throughs and couple this work with computable gen- time (as a panel data set would), they do allow compar- eral equilibrium modeling to derive implications for a ison of cohorts and the tracing of average income and its wider set of policy shocks than have actually been dispersion over time. observed. It will then perform a careful household-level The study will produce two papers, one reporting on analysis of demand and supply to explore how house- the sensitivity of poverty measures to the way in which holds adjust to these shocks and what the net effects are. household equivalence scales are constructed, and the For South Africa only one year of household data are other looking at changes in income and its dispersion available, so responses to price changes will need to be over time. Both reports will make cross-country simulated. For Indonesia the household data span cer- comparisons. tain reforms, so responses and consequences can be Responsibility: Policy Research Department, Poverty observed. The Indonesia case study will experiment with and Human Resources Division-Harold Alderman highly data-intensive, nonparametric approaches to the (halderman@worldbank.org); and East Asia and Pacific estimation. Both case studies will recognize that the poor Regional Office, Office of the Regional Vice President- are not a homogeneous group. 22 Poverty and Social Welfare Responsibility: International Economics Department, on hospital budgets and data from the literature on treat- International Trade Division-L. Alan Winters (awinters ment costs per year for tobacco-attributable diseases, @worldbank.org) and Will Martin; and Policy Research average number of years until the onset of tobacco-related Department, Public Economics Division-Shantayanan disease, and average expected years of life after the onset Devarajan, and Poverty and Human Resources Division- of disease. Martin Ravallion. With Steven Berry, Yale University; Results will be disseminated through the health, Anne Case, Princeton University; and W. Fan and James nutrition, and population lecture series, starting in June Levinsohn, University of Michigan. The Swedish 1998. The analysis should provide approaches that International Development Authority is contributing countries could use in preparing tobacco control funding for the research. projects. Completion date: June 1998. Responsibility: Human Development Department, Health, Nutrition, and Population Team-Prabhat Jha (pjha@worldbank.org); and Europe and Central Asia, Quantifying the Net Economic Loss Country Department IV, Municipal and Social Services or Gain from Tobacco Use Division-Laura Rose. With Frank Chaloupka, Rich Peck, and Nicole Klingen. Ref. no. 681-95 Completion date: June 1998. This study tests the hypothesis that tobacco production and use result in a global economic loss and that this loss remains over a range of discount rates, mortality and Public Expenditures and Poverty morbidity effects, and prices. The study proposes a novel cost-benefit analysis. The Public expenditure programs play an important part in methodology builds on initial work by Howard Barnum poverty reduction, income redistribution, and safety net ("The Economic Burden of the Global Trade in Tobacco," provision in many countries. The past decade has seen Tobacco Control 3[41:358-61, 1994), refining the estimates tremendous advances in the use of household-level data of benefits and costs arising from tobacco consumption. sets to explore a vast array of issues relating to public The study will calculate the net benefit or cost of a unit expenditures as access to good data has markedly reduction in tobacco consumption, taking into account improved, at least for some countries. some of the major direct and indirect costs of tobacco use. This research developed and used econometric tech- The main benefits from tobacco use include the consumer niques on household-level data sets in order to learn more and producer surpluses; the main costs include the direct about the wide range of factors underlying the incidence and indirect costs of morbidity and mortality. The study of public expenditures and, where feasible, about dynamic will also examine income transfers (formal and informal) issues in incidence and social income provision. The in relation to the cost-benefit analysis and experiment research also aimed to improve on the standard method- with different approaches. ology for analyzing the incidence of public expenditures. Data for calculating the consumer and producer sur- And the research explored the closely related issue of pluses will be drawn from Food and Agriculture fiscal federalism and countries' revenue-collecting and Organization (FAO), World Bank, and World Health other constraints-constraints that can have consequences Organization (WHO) sources. The indirect costs of pre- for poverty and inequality. mature death will be estimated on the basis of tobacco In one study the project looked at dynamic issues in consumption data from the FAO and WHO, data on incidence using new panel data on consumption and deaths and years of life lost from the recent work quan- social incomes from the Hungarian Household Budget tifying the global disease burden and smoking-related Surveys of 1987 and 1989. It reviewed Hungary's social mortality (C. J. L. Murray and A. Lopez, Global Burden of safety net and the changes that occurred during the period Disease, Cambridge, Mass.: Harvard University Press, of study. It tried to throw light on such questions as, How 1996, and R. Peto and others, Mortality from Smoking in have the reforms instituted so far performed? How has Developed Countries, 1950-2000, New York: Oxford the incidence of social spending been affected? What University Press, 1994), and Bank projections of future are the implications for future reform? income. To estimate the indirect costs of morbidity, the The study found that while social incomes in Hungary study will use correlations of tobacco consumption and are redistributive-accounting for higher shares in the disability from the Murray and Lopez book, adjusted by consumption of the poor than in that of the rich-they disability weights for the different regions. The study will are not well targeted. In both survey years the richest estimate the direct costs of morbidity using Bank data group received more than twice the social income of the 23 Poverty and Social Welfare poorest. Disaggregating social incomes shows that A Volume on Subsidies Research targeting performance differs between components: family allowance receipts decrease sharply as the Despite general, impressive progress in reducing poverty standard of living increases; the opposite is true for over the past 30 years, widespread poverty and its cor- pensions. relates continue to present a challenge to governments The study also tried to distinguish policy impacts on and development institutions. As budget constraints have persistent poverty from transient poverty. To do so it used tightened in recent years, the need for cost-effective strate- a new approach in which consumption changes over time gies for poverty reduction has taken on special urgency. are simulated with and without policy changes, allow- Interest in the concept of targeting government spend- ing for behavioral responses. The study found that ing toward the poor has grown. There is heightened inter- poverty increased over the period and would have est, too, in the distributional effect of government increased even more if not for the gains in social income spending and in the effect of public programs on the wel- that protected many households from poverty. It also fare of the poor. found that almost all the safety net's ability to protect This project responded to the widespread and grow- the poor lies in higher average outlays rather than ing interest in these topics and the importance of under- improved targeting. standing these issues for effective poverty reduction. The The project included a case study on Vietnam's spend- research, which consisted of both theoretical and empir- ing on physical infrastructure, focusing on its effects on ical studies, investigated public expenditure benefit inci- rural living standards. In particular, it asked how phys- dence, the effectiveness of public spending in reducing ical infrastructure constraints affect households' partic- poverty, and the role and scope for better targeting of ipation in the emerging market economy. The study used public spending toward the poor. Some of the studies newly available data from the Vietnam Living Standards used primary data, particularly from household surveys, Measurement Study survey. and others surveyed the literature. Some of the empiri- A workshop on the research on the Hungarian social cal studies used econometric estimation; others used safety net was held in July 1993 in Budapest, with par- noneconometric techniques, such as benefit incidence ticipants from universities and government ministries. analysis, to explore the distribution of government sub- The Vietnam infrastructure and poverty work was pre- sidies and other issues. sented at the International Economics Association The research highlights the following points: Congress in Tunis in December 1995, as well as at a Measuring the distributional effect of the benefits from University of Namur (Belgium) conference, Economic public spending and determining the effectiveness of tar- Growth and Poverty: The Roles of the Market, Public geted programs and their targeting mechanisms in reduc- Action, and the Community, in July 1996. ing poverty are extremely complex. The desirability of Responsibility: Policy Research Department, Public alternative instruments must be decided case by case. In Economics Division-Dominique van de Walle particular, the usefulness of targeting must be evaluated (dvandewalle@worldbank.org). in the context of each policy environment, ideally on the Completion date: October 1996. basis of the relevant counterfactual. The behavioral Reports: responses of participants and others must be taken into Ravallion, Martin, Dominique van de Walle, and Madhur Gautam. account when designing and evaluating antipoverty pro- 1995. "Testing a Social Safety Net." Journal of Public Economics grams; a number of the studies show that these responses 57(2). can have a large effect on the potential of a scheme to van de Walle, Dominique. 1995. "Rural Poverty in an Emerging reduce poverty. Market Economy: Is Diversification into Non-Farm Activities in Results and findings were presented at a World Bank Rural Vietnam the Solution?" World Bank, Policy Research conference in June 1992; in Tokyo, at the Bank's Japan Department, Washington, DC. Research Fair, and in Tunis, Tunisia, at the International . 1996. Infrastructure and Poverty in Vietnam. Living Standards Economics Association Congress, in December 1995; in Measurement Study Working Paper 121. Washington, DC: World Santiago, Chile, at the Regional Fiscal Policy Seminar Bank. for Latin America, organized by the Economic van de Walle, Dominique, Martin Ravallion, and Madhur Gautam. Commission for Latin America and the Caribbean 1994. How Well Does the Social Safety Net Work? The Incidence of in January 1996, to about 60 economists from all Cash Benefits inHungary, 1987-89. LivingStandards Measurement over the region; in Washington, DC, at three training Study Working Paper 102. Washington, DC: World Bank. courses for World Bank economists; and in Nairobi, . 1994. "Poverty and Social Spending in Hungary." World Kenya, at the African Economic Research Consortium Bank, Policy Research Department, Washington, DC. research workshop in May 1996, to an audience of 24 Poverty and Socia We0fre 120 African economists. A workshop on the topic just how confident analysts can be in forming poverty was held in Amsterdam in June 1996, at the Tinbergen comparisons. Institute, for researchers and Netherlands Ministry of The project examined the properties of the measures Foreign Affairs staff. Presentations have also been made used for assessing individual welfare, including the prac- to government officials and other policymnakers in tices used in comparing the welfare of different demo- Argentina, Chile, and Zimbabwe and to the Board of the graphic groups (such as large and small households). It World Bank. also investigated the different methods used for setting Responsibility: Policy Research Department, Public poverty lines and how much they matter to the policy Economics Division-Dominique van de Walle conclusions drawn. And it studied ways of making bet- (dvandewalle@worldbank.org). With Kimberly Nead. ter use of such nonincome indicators of welfare as health The Ministry for Development Cooperation, the and education indicators. Netherlands, contributed funding for dissemination. The research project was tailored to the problems that Completion date. December 1996. are faced by World Bank staff undertaking poverty assess- Reports: ments, and there is an active program of training and van de Walle, Dominique. 1995. "Public Spending and the Poor. dissemination. What We Know, What We Need to Know." Policy Research Responsibility: Policy Research Department, Poverty Working Paper 1476. World Bank, Policy Research Department, and Human Resources Division-Martin Ravallion Washington, DC. (mravallion@worldbank.org), Peter Lanjouw, Gaurav -__ 1996. "Assessing the Welfare Impacts of Public Spending." Datt, and Benu Bidani. Policy Research Working Paper 1670. World Bank, Policy Completion date: June 1997. Research Department, Washington, DC. Reports: .1997. "Broad or Narrow Targeting?" World Bank, Policy Chaudhuri, Shubham, and Martin Ravallion. 1994. "How Well Do Research Department, Washington, DC. Static Indicators Identify the Chroni cally Poor?" Journal of Public van de Walle, Dominique, and Kimberly Nead, eds. 1995. Public Economics 53(March):367-94. Spending and the Poom- Theoryand Evidence. Baltimore and Lond on: Lanjouw, J.O., and Peter Lanjouw. 1996. "Aggregation Consistent Johns Hopkins University Press. Poverty Comparisons: Theory and Illustrations." World Bank, Policy Research Department, Washington, DC. Lanjouw, Peter, and Martin Ravallion. 1994. "Poverty and Household The Methodology of Poverty Assessments Size." Economic Journal 105(November). (Also published as Policy Research Working Paper 1332, World Bank, Policy Research Policies to fight poverty rely increasingly on data about Department, Washington, DC, 1994.) the living conditions of the poor, as reflected in a poverty Ravallion, Martin. 1994. "A Better Way to Set Poverty Lines." profile. But constructing a poverty profile that can be Outreach 15. World Bank, Policy Research Department, relied on to guide policy choices is often difficult. And Washington, DC. the data and methods used can matter greatly to the poli- -__ 1994. Fundamentals of Pure and Applied Economics. Vol. 56, cies chosen. At their worst, poorly devised poverty pro- Poverty Comparisons. Chur, Switzerland: Harwood Academic files can misdirect poverty reduction efforts-for example, Publishers. by channeling scarce resources to cities when poverty is ___ 1994. "Poverty Rankings Using Noisy Data on Living worse in rural areas, or vice versa. Standards." Economics Letters 45:481-85. What methods are available for constructing poverty ___ 1996. "How Well Can Method Substitute for Data? Five profiles? What are their strengths and weaknesses? This Experiments in Poverty Analysis." World Bank Research Observer research project sought to answer those questions by 11(2):199-221. investigating the theoretical and empirical foundations Ravallion, Martin, and Benu Bidani. 1994. "How Robust Is a Poverty of the methods that are used in constructing poverty pro- Profile?" World Bank Economic Review 8(l):75-102. files. Typically, too little work goes into assessing the Ravallion, Martin, and Shankar Subramanian. 1996. "Welfare robustness of poverty comparisons as the underlying Measurement with and without Substitution." World Bank, measurement assumptions change. Many of the data that Policy Research Department, Washington, DC. are routinely used in poverty analysis are full of errors- a situation that is unlikely to change. There also are unavoidable value judgments underlying measurement World Poverty Monitoring practices. The quality of the World Bank's policy assess- ments and prescriptions may or may not depend on these Is poverty increasing in the developing world? This ques- errors and assumptions. An important task is to find out tion is surprisingly difficult to address convincingly using 25 Poverty and Social Welfare existing data sources because little effort has gone into and Human Resources Division-Martin Ravallion compiling and analyzing the available distributional data (mravallion@worldbank.org), Gaurav Datt, Shaohua on a reasonably comparable basis. Yet there is a clear need Chen, and Benu Bidani. to do so-to help monitor progress in reducing poverty Completion date: June 1997. and as a first step toward understanding the causes and Reports: effects of changing distribution. This project aimed to Anand, S., and Martin Ravallion. 1993. "Human Development in monitor progress in reducing aggregate poverty using a Poor Countries: On the Role of Private Incomes versus Public consistent compilation of distributional data from house- Services." Journal of Economic Perspectives (winter). hold surveys. Bidani, Benu, and Martin Ravallion. 1994. "Decomposing Social Estimates of various poverty measures are available Indicators Using Distributional Data." Policy Research Working from numerous studies of individual countries, but their Paper 1487. World Bank, Policy Research Department, use for monitoring world poverty is questionable because Washington, DC. of comparability problems. Pastwork at the country level Ravallion, Martin. 1994. "Measuring Social Welfare with and with- has used poverty lines appropriate to each country. But out Poverty Lines." American Economic Review (May). there is a marked tendency for the real value of local . 1997. "Can High-Inequality Developing Countries Escape poverty lines to increase with the average income of a Absolute Poverty?" Policy Research Working Paper 1775. World country. This fact clouds attempts to compare and aggre- Bank, Policy Research Department, Washington, DC. gate across countries using the poverty data that are Ravallion, Martin, and Shaohua Chen. 1996. "WhatCan NewSurvey available in standard (secondary) sources. The use of offi- Data Tell Us about Recent Changes in Living Standards in cial exchange rates also biases international poverty Developing and Transitional Economies?" Background paper comparisons. to World Bank, Poverty Reduction and the World Bank- Progress and This project therefore turned to the primary data Challenges in the 1990s (Washington, DC, 1996). World Bank, sources and reestimated all poverty measures on a Policy Research Department, Washington, DC. consistent basis. It converted local currencies to con- _. 1997. "What Can New Survey Data Tell Us about Recent stant purchasing power parity. The project also tested the Changes in Poverty and Distribution?" World Bank Economic robustness of comparisons across regions and over time Review 11(2):357-82. to measurement assumptions. The data set it constructed Ravallion, Martin, Gaurav Datt, and Dominique van de Walle. 1991. contains 60 countries, 40 of which have data at two or "QuantifyingAbsolutePovertyintheDevelopingWorld."Review more points in time over the period 1981-94. of Income and Wealth 40(December):359-76. The estimates indicate that around 1993, 1.3 billion people-roughly one in three-were living on less than a dollar a day at 1985 prices. The incidence of absolute Allocation of Public Expenditures poverty in the developing world as a whole fell slightly over 1987-93. The number of poor-by any consump- This project aims at formulating methods for analyzing tion standard for defining poor-has been growing at the impact of government expenditures on welfare. The about the same rate as the population of the developing focus is on measuring the welfare gain from corrections world, about 2 percent a year. But there is marked vari- of market failures such as externalities (as in primary ation among regions and countries, with generally ris- education), deviations from perfect competition (as in ing poverty incidence in Africa, Europe and Central Asia, health care), and in poverty reduction. The emphasis in and Latin America and the Caribbean and generally the coming year will be on social sector issues, primar- falling incidence in Asia. ily health, and on expenditures with significant effect Results of this research were used in the World Bank's on people's exposure to risks. Poverty Reduction and the World Bank: Progress and Responsibility: Policy Research Department, Public Challenges in the 1990s (Washington, DC, 1996). Results Economics Division-Jeffrey Hammer (jhammer have also been used in recent World Development Reports. @worldbank.org). Responsibility: Policy Research Department, Poverty Completion date: June 1998. 26 LABOR MARKETS AND EDUCATION Putting Inputs to Work in Primary Schools: the flip of a coin), there was little possibility of inter- Four Experiments in the Philippines vention selection bias. The study investigated two outcomes of the inter- Ref. no. 679-02C ventions: the effect on dropping out and the effect on stu- Education in the Philippines appears relatively well devel- dent test scores. It found that the interventions had little oped at first sight. The gross primary enrollment rate is measurable direct effect on dropping out. The transmis- 112 percent, well above the 87 percent rate for Asian coun- sion mechanism appeared to be through test scores. The tries with comparable per capita GNP. But not all is well. study found that multilevel learning materials were par- Although most Filipino children enter first grade, 30 per- ticularly useful in raising test scores; this had an indirect cent drop out before finishing the cycle. Of those, 60 effect in then lowering the probability of dropout. percent drop out in the first two grades, when still too As part of a collaborative arrangement to enhance local young for many tasks at home, on the farm, and in the analytical capacity, the Bureau of Elementary Education, family business. That suggests that poor progress at school Philippine Department of Education, oversaw the com- plays a part in parents' decision to terminate a child's puterization of the data. schooling. Responsibility: Human Development Department, The government recognizes the need to improve stu- Education Team-Jee-Peng Tan (jptan@worldbank.org). dent achievement and has invested heavily to do so, in With Julia Lane, American University; and Gerard part with assistance from the World Bank. Under the Lassibille, University of Bourgogne. Second Elementary Education Project, four experiments Completion date: September 1996. addressed the problem of dropouts in low-income com- Report: munities: school feeding programs, use of multilevel Tan, Jee-Peng, Julia Lane, and Gerard Lassibille. "Schooling learning materials, school feeding programs with par- OutcomesinPhilippineElementarySchools:ThelmpactofFour ent participation, and use of multilevel learning materi- Experiments." World Bank, Human Development Department, als with parent participation. Washington, DC. This research evaluated the cost-effectiveness of the four interventions in enhancing student achievement and lowering dropout rates. The results are expected to Impact Evaluation of Education Projects: provide guidance for future investments in elementary Decentralization and Privatization Issues education. The research used data from a survey of students Ref no. 679-18 in 30 schools that received the interventions and in 10 There is a growing awareness in many developing coun- control schools that received no intervention. The survey tries that central governments are limited in their ability tracked the students in the sample for attendance and to address local needs and to use local capacity to meet test scores over the course of two years, the first being those needs. In the education sector this awareness has the base year before the interventions were put in place. led to such policies as transferring decisionmaking from The survey also generated information about the central to local governments, increasing autonomy for students' family backgrounds and their schooling schools, involving communities in school management environments. and resource mobilization, introducing voucher schemes, The data allowed the study to separate out a number and offering incentives for private school providers. But of different effects. Repeated observations over schools will these reforms improve the delivery of services and made it possible to control for school heterogeneity, and thus, ultimately, enrollment and student performance? repeated observations across individuals over time for What type of decentralization will achieve this differ- individual heterogeneity. The presence of a control group ence? What incentive structures are needed at the com- captured the impact of interventions. Since students are munity and school levels to raise enrollments and school relatively immobile across schools, the potential for sub- quality? On the methodological side, what types of data stitution of interventions was limited. And since the and empirical methods are needed to evaluate institu- assignment of interventions was random (determined by tional changes of this sort in the education sector? 27 Labor Markets and Education This study is relating how schools operate and how Nicaragua suggest that it takes more than two years for students learn in a decentralized setting to detailed infor- such reform to produce a discernible effect on student mation on schools and their directors, teachers, and school performance. councils and to characteristics of students and their par- Second, using the private sector to deliver education ents and families. In addition, the research is drawing services to disadvantaged groups (to the poor in Colombia lessons on how effective the nongovernmental sector can and to girls in Pakistan) serves the central mandate of be in increasing enrollment among targeted groups such promoting equity. In Colombia a school voucher system as girls and the poor. The study is looking at the educa- appears to be reaching the communities most likely to tion sector in five countries: Colombia, El Salvador, benefit. In Balochistan Province, Pakistan, the net enroll- Nicaragua, Pakistan, and Tanzania. ment of girls has increased significantly in program com- To assess the impact of decentralization and privati- munities relative to control communities. zation on school effectiveness and student performance, The study has included extensive and broad-ranging the research must identify changes in institutions (schools dissemination efforts targeting the donor, academic, and or communities) and education indicators that can be policymaking communities. attributed to the reform-which requires identifying and Responsibility: Policy Research Department, Poverty measuring the counterfactual. To define and measure the and Human Resources Division-Elizabeth King counterfactual, the research has used different impact (eking@worldbank.org), Harold Alderman, Emmanuel evaluation strategies-including matched comparison Jimenez, Dan Levy, Berk Ozler, Laura Rawlings, and designs, reflexive comparisons, and experimental Diane Steele; Human Development Department, design-depending on how the reform has been imple- Education Team-Jee-Peng Tan; and Latin America and mented and on the timing of the research relative to the the Caribbean Region, Human and Social Development start of the reform. Group-Donald Winkler. With Hideo Akabayashi, The first two years of the project were spent design- Keio University, Japan; Bruce Fuller, University of ing evaluation strategies, developing survey instruments California at Berkeley; Peter Orazem and Elizabeth and sampling designs, collecting the baseline data from Paterno, Iowa State University; Magdalena Rivarola; program and nonprogram schools (or communities), and Carlos Torres; Julia Lane, American University; K. Rust, monitoring the implementation of the reforms. The Westat, Australia; R. M. Rakotomalala, IREDU, Tanzania; research has doubled its efforts to measure school indi- P. P. Gandye; S. A. Sumra, National Exams Council of cators often missing from survey data-attendance rates Tanzania; A. Bryk, University of Chicago; Rodrigo of teachers and students, grade repetition, and parental Villar; F. Akbar; D. Morganstein; P. Gupta; S. Khemani; participation. In addition to quantitative surveys applied and local evaluation teams in Colombia, El Salvador, in schools and households, the research has developed Nicaragua, Pakistan, and Tanzania. The Ministry of student achievement tests or analyzed available test Education and National Testing Service, Colombia; the scores. Finally, in three of the five countries a qualitative Ministry of Education, Nicaragua; the Ministry of evaluation is being undertaken, based on focus group Education, El Salvador; the Ministry of Education, meetings and intensive interviews with local stakehold- Pakistan; the Ministry of Education, Tanzania; and ers, to flesh out some of the findings from the quantita- the Japan Trust Fund have contributed staff time and tive analysis. The baseline data are being analyzed, and funding for the research. follow-up data collection and analysis are under way. All Completion date: June 1998. these tasks have been undertaken with substantial par- Reports: ticipation by government staff and local consultants. Alderman, Harold, Peter Orazem, and Elizabeth Patemo. "School The study has produced two main preliminary find- Quality, School Cost, and the Public/Private School Choices of ings. First, school autonomy reforms of the type being Low-Income Households in Pakistan." Working Paper Series on implemented by El Salvador and Nicaragua, which shift Impact Evaluation of Education Reforms 2. World Bank, Policy the locus of decisionmaking in the public education sys- Research Department, Washington, DC. tem to schools, are transforming the management of pub- King, Elizabeth, and others. "Impact Evaluation of Education Projects lic schools. But this shift does not necessarily translate Involving Decentralization and Privatization." Working Paper into a more equal distribution of power among a school's Series on Impact Evaluation of Education Reforms 0. World Bank, director, teachers, and parents or into better student per- Policy Research Department, Washington, DC. formance. Data suggest that the changes may have King, Elizabeth, Laura Rawlings, Berk Ozler, P. Callejas, N. Gordon, increased internal tensions and conflicts within schools. and N. Caldera. 1997. "Is School-Based Management Really How these changes affect the quality of instruction is ChangingSchools?TheCaseofNicaragua'sReforminProgress." yet to be examined. Very preliminary findings for World Bank, Policy Research Department, Washington, DC. 28 Labor Markets and Education "Nicaragua's School Autonomy Reform: A First Look." Responsibility: East Asia and Pacific Regional Office, Working Paper Series on Impact Evaluation of Education Reforms Office of the Regional Vice President-Michael Walton 1. World Bank, Policy Research Department, Washington, DC. (mwalton@worldbank.org); and Policy Research (Also published in Spanish.) Department, Poverty and Human Resources Division- Emmanuel Jimenez. With Anat Levy, Bank of Israel; Zvi Hercowitz, Tel Aviv University; Flora Tsui, Johns Hopkins Dynamic Implications of "Return Migration" University; Sumana Dhar; and Karnit Flug. for Labor Markets Completion date: October 1996. Reports: Ref no. 679-21C Flug, Karnit, Zvi Hercowitz, and Anat Levy. 1994. "'Return' This research analyzed the dynamic adjustment process Migration: The Influx from the Former Soviet Union to Israel." generated by return migration. It emphasized unem- World Bank, Policy Research Department, Washington, DC. ployment, real wages, and investment in the home, or Hercowitz, Zvi, and Anat Levy. 1995. "Mass Immigration and the receiving, country. It also considered policies that can be Dynamics of Unemployment." World Bank, Policy Research helpful during the adjustment process by encouraging Department, Washington, DC. investment and job creation-for example, expanding . 1995. "Mass Immigration-The Potential Case of Russia." public infrastructure and subsidizing private investment World Bank, Policy Research Department, Washington, DC. and new employment. The research integrated lessons from past episodes of return migration and assessed the extent of potential National and International Wage return migration. The study produced an analytical paper Differentials: Effects of Trade, and two case studies. One case study addressed the effects Growth, and Education of the immigration of Soviet Jews on the Israeli economy, which represents almost a laboratory experiment of return Ref. no. 679-26C migration. The other looked at Russia. Because of data lim- The relationship between patterns of development, inter- itations, the Russian case received less in-depth analysis. national interactions, and wage differentials has prompted Theory suggests that if the return migration is not rising interest and concern. This relationship has been too large, the economy converges over time to a low- intensively analyzed and debated for the OECD coun- unemployment steady state. A large shock may destabi- tries. Most observers agree that there has been a demand lize the economy, however, and the unemployment rate shift against unskilled labor in these countries and that may then continue to increase. this explains the rising wage inequality in the United The Israel case study provides an analysis of the largely States and the persistent, high unemployment dispro- successful absorption of a massive influx of immigrants portionately affecting the unskilled in Europe. Most also from the former Soviet Union in 1990-93. The study agree that changes in wages and employment reflect the focused on the policies adopted-subsidizing employ- joint effects of three factors: changes in the relative sup- ment expansion and undertaking a massive infrastruc- ply of skilled labor, the effects of international trade, ture investment program-and their effect on and the effects of the growth process, including techno- employment and unemployment. The study found that logical change. But differences remain about the impor- the employment subsidy and infrastructure construction tance of each of these factors. program together accounted for more than half the Until recently little attention had been paid to the rela- employment expansion. Further, it found that the cost tionship between trade, technological change, and wage of the subsidy is higher when it is accompanied by other differentials in low- and middle-income countries. (effective) policy measures-suggesting a need to eval- Conventional wisdom suggests that opening to trade uate policy programs by considering not only their direct would narrow the wage gap between skilled and effect but also the relationships between them. unskilled workers in developing countries, a result con- The risk of a destabilizing shock is potentially more sistent with the relative abundance of unskilled labor. relevant for Russia, which faces at least the possibility of But the experience of such countries has varied, with a large return migration. For Russia then, the policy impli- narrowing of wage differentials in some, such as the cations of return migration relate mostly to the scope and Republic of Korea, but, more recently, a widening of dif- speed of the restructuring of state enterprises. In design- ferentials in others, especially in Latin America (includ- ing policy reform, it would be helpful to consider the ing Argentina, Chile, and Mexico). The aim of this study relationship between immigration (in its effects on unem- was to expand the empirical and analytical basis for inter- ployment dynamics) and restructuring. preting these developments in selected countries. 29 Labor Markets and Education The project carried out country studies of changes in Wood, Adrian. "Openness and Wage Inequality in Developing wage differentials using microeconomic data sets from Countries: The Latin American Challenge to East Asian household surveys in Argentina, Colombia, Costa Rica, Conventional Wisdom." World Bank, Washington, DC, and and Malaysia and an enterprise survey in Mexico. The Institute of Development Studies, Sussex, U.K. household survey analysis was designed to differenti- ate between supply and demand determinants of changes in differentials, using data on the educational character- Public Sector Retrenchment and Efficient istics of workers. The enterprise survey analysis used Compensation Schemes information on technology spending by firms to distin- guish between trade and technology influences as causes Ref no. 679-51C of widening differentials. This work was complemented Economic reforms often include shrinking the public sec- by a compilation of data on wages by skill category from tor, which in turn sometimes requires massive layoffs. a multicountry source (the International Labour But what are the best mechanisms for shedding redun- Organisation's October survey) and by a survey of the dant public sector workers? If severance pay packages theoretical and empirical work. are offered to induce voluntary departures, how should Initial results of the research confirm that there has they be designed to minimize the total cost? And are there been a widening of wage differentials in the countries ways to prevent the most valuable workers from leav- studied and that this widening has resulted from demand ing the public sector, and the least productive from stay- shifts. Supply shifts have favored unskilled workers ing? These questions became even more pressing for the because educational expansion has increased the relative World Bank after February 1996, when the Operations abundance of skilled workers. Policy Committee authorized lending for severance pay. The empirical work on the sources of demand shift This study investigated the optimal design of down- represents a first round of analysis in this complex area. sizing operations, combining three approaches. The pub- Within the scope of this project it was not feasible to lic economics perspective was used to assess the financial fully resolve the sources of shifts. But there is at least sug- and economic returns to downsizing. With overstaffing gestive evidence that trade is a source of widening dif- only one of several distortions and imperfections in the ferentials in Chile and perhaps in Colombia, while public sector, redundancy must be estimated on the basis technological change may have played a part in Mexico. of a shadow price of labor rather than actual labor costs. The broader review of the theory and evidence docu- The labor economics perspective was used to predict ments the various channels of change in differentials and the losses public sector workers may experience as a result shows how increasing inequality in middle-income coun- of displacement. The link between these losses and the tries can be consistent with increasing international inte- workers' observable characteristics (age, education, and gration through trade. the like) can be used to tailor compensation for individ- Responsibility: East Asia and Pacific Regional Office, ual workers, reducing the cost of downsizing. Finally, the Office of the Regional Vice President-Michael Walton principal-agent approach was used to identify the self- (mwalton@worldbank.org). With Richard Freeman and selection mechanisms appropriate when individual pro- Donald Robbins, Harvard University; Adrian Wood, ductivity is not observable in the public sector. Unlike University of Sussex; and Gordon Hanson, University severance pay offers, these mechanisms can create an of Texas. incentive for the best workers to remain in the public Completion date: September 1996. sector. Reports: Data on individual earnings, expenditures, and other, Gindling, T.H., and Donald Robbins. "Earnings Inequality, Structural related variables were used to evaluate the losses from Adjustment, and Trade Liberalization in Costa Rica." World displacement in several country case studies. For Bank, Washington, DC. Argentina these data referred to public sector workers Hanson, Gordon, and Ann Harrison. "Trade, Technology, and who had received a severance pay offer and either Wage Inequality: Evidence from Mexico." World Bank, accepted or rejected it. For Ecuador and Turkey they Washington, DC. referred to workers separated from their public sector Robbins, Donald. "Summary of Preliminary Analysis of Malaysia's job. For Egypt and Kazakhstan they related to the entire Wage Structure and Its Causes, 1973-89." World Bank, labor force. The welfare losses from displacement were Washington, DC. estimated on the basis of these data by comparing two . "Wage Dispersion and Trade in Colombia: An Analysis states (staying and leaving, before and after, in and out). of Greater Bogoti, 1976-89." World Bank, Washington, A cross-country analysis of experience with retrench- DC. ment used data on 41 downsizing operations supported 30 Labor Markets and Education by the World Bank. These data, assembled from opera- Haltiwanger, John, and Manisha Singh. "Cross-Country Evidence tional reports and meetings with Bank task managers, on Public Sector Retrenchment." cover program characteristics, such as the shares of vol- Levy, Anat, and Richard McLean. "Optimal and Sub-Optimal untary and involuntary job separations, the amounts of Retrenchment Schemes: An Analytical Framework." severance offered, and the use of training and other sup- Rama, Martin. "Efficient Public Sector Downsizing." port mechanisms. The analysis related the financial and eco- Rama, Martin, and Donna MacIsaac. "Earnings and Welfare after nomic returns of these programs to their characteristics. Retrenchment: Central Bank Employees in Ecuador." The project has had a significant operational impact, Rama, Martin, and KinnonScott. "TheOne-Company Town Problem: providing input and materials for downsizing operations The Case of Kazakhstan." in Brazil (two operations), India (Andhra Pradesh), Jordan, Robbins, Donald. "Public Sector Retrenchment: A Case Study of Madagascar, Mongolia (an operation managed by the Argentina." Asian Development Bank), Pakistan, Peru (an operation Ruppert, Elizabeth. "A Financial and Economic Assessment of managed by the Inter-American Development Bank), Sri Unemployment Insurance in Algeria." Lanka, Yemen, and Zambia. Because of the operational Schwarz, Anita. "Early Retirement: Downsizing Solution or interest in this research, a follow-up project will be pre- Downsizing Disaster?" pared in fiscal 1998 to test some of its recommendations Tansel, Aysit. "Workers Displaced Due to Privatization in Turkey: in selected downsizing operations. Before versus After Displacement." The main findings of the project and the papers it has produced are available at the Website http://www. worldbank.org/html/prdph/downsize/home.htm. New fea- The Impact of Child Health and Nutrition tures will be added to this Website, including a database on Education Outcomes in Cebu, Philippines of downsizing operations, references, and a mail system to facilitate correspondence. Ref no. 679-57 Two presentations on public sector downsizing were Episodes of malnutrition during early childhood are often held in June 1997 in Africa, in Lom6 and Abidjan, and thought to have serious implications for a child's school presentations have also been made in World Bank train- performance later in life. But research on this issue has ing seminars. In addition, a two-day conference for been ambiguous, in part because of a lack of high- researchers involved in the project and about 100 Bank quality data with which to address the issue. This research operational staff was held in Washington, DC, in project is using new data collected in Cebu, Philippines, November 1996. The May 1998 issue of World Bank to assess the impact of early childhood nutrition on sub- Economic Review will be devoted to this project and will sequent school attendance and performance. The data, contain several of the papers it has produced. which cover 3,000 children, were collected initially in the Responsibility: Policy Research Department, Poverty 1980s, during the first two years of life, and then again and Human Resources Division-Martin Rama in 1991. In 1994-95 this research collected supplemental (mrama@worldbank.org). With RaguiAssaad, University data on current school enrollment and performance for of Minnesota; Kaushik Basu and Gary Fields, Cornell these children, almost all of whom were enrolled in pri- University; Jos6 Manuel Campa, New York University; mary school. The research is assessing schooling out- Julia Gonzalez, Central Bank of Ecuador; John comes on the basis of such indicators as enrollment, Haltiwanger and Manisha Singh, University of Maryland; attainment, attendance, and cognitive skills (mathemat- Anat Levy, Bank of Israel; Richard McLean, Rutgers ics, English, and Cebuano). It also examines other deter- University; Donald Robbins, Harvard University; and minants of school progress, such as family background Aysit Tansel, Middle East Technical University. and school and teacher characteristics. Completion date: June 1997. The findings so far indicate that children who are mal- Reports: nourished do perform relatively poorly in school. In par- Assaad, Ragui. "An Analysis of Compensation Programs for ticular, they are more likely to enroll late, to repeat grades, Redundant Workers in Egyptian Public Enterprise." and to learn less per year of schooling. An obvious impli- Basu, Kaushik, Gary Fields, and Shub Debgupta. "Retrenchment, cation is that health and nutrition programs aimed at very Labor Laws, and Government Policy: An Analysis with Special young children can lead to improved school performance Reference to India." in later years. Campa, Jose Manuel. "Public Sector Retrenchment: Spain in the A draft paper on the study's findings was presented 1980s." at a World Bank lunch seminar in December 1996 and at Carneiro, Francisco, and Indermit Gill. "Public Sector Downsizing the American Economic Association annual meeting in in Brazil: An Evaluation of Ten Severance Schemes." New Orleans in January 1997. 31 Labor Markets and Education Responsibility: Policy Research Department, Poverty bers, and dropout, completion, and success rates. Other and Human Resources Division-Paul Glewwe data sources were staff of MITEP, Action Aid, the Ministry (pglewwe@worldbank.org) and Elizabeth King. With of Education and Sports, and conventional colleges, and Hanan Jacoby, University of Rochester and International classroom observations of MITEP and conventional col- Food Policy Research Institute; Linda Adair, University lege students. Cost data were drawn from government of North Carolina, Chapel Hill; and Azot Derecho, Office budget documents, records of conventional colleges, and of Population Studies, University of San Carlos, Cebu, MITEP accounts, and data on student and teacher achieve- Philippines. The Asian Development Bank is contribut- ment were obtained from the Ugandan National ing funding for the research. Examinations Board. Completion date: October 1997. The study's findings were discussed through a video- Report: conference among staff of the Open University, the Glewwe, Paul, Hanan Jacoby, and Elizabeth King. 1996. "An University of East Anglia, the International Extension Econometric Model of Nutrition and Learning: Evidence from College, and the World Bank. They were also presented Longitudinal Data." World Bank, Policy Research Department, at the Global Knowledge Conference in Toronto in 1997. Washington, DC. Responsibility: Economic Development Institute, Human Resources and Poverty Division-Paud Murphy (pmurphy@worldbank.org). With Bernadette Robinson Costs and Effectiveness of In-Service and Jason Pennells, International Extension College, Primary Teacher Education at a Distance: Uganda; and James Hough, Loughborough University. A Comparative Study Completion date: September 1996. Report: Ref no. 679-93C Robinson, Bernadette, and Paud Murphy. 1997. "The Costs and The low direct and opportunity costs of nonresident, in- Effectiveness of In-Service Primary Teacher Education at a service training programs for teachers have encouraged Distance in Uganda." World Bank, Economic Development support for such programs since the 1960s. Evaluations Institute, Washington, DC. of the approach have generally shown that it works and is cost-effective. But studies have not investigated what methods have been effective in achieving specific objec- An Institutional Approach to the Promotion tives in specific environments. This study compared the of Education Services in Brazil cost and effectiveness of a distance education mode of teacher training in Uganda with those of the conventional Ref. no. 680-38C alternative, a teachers college. The study also provides Economists have long recognized human capital as an a model for the cost and effectiveness analysis of a planned important factor in development. So expenditures for cross-country study of distance education programs. education have figured prominently in the budgets of The Mubende Integrated Teacher Education Project developing countries and have been an important focus (MITEP) was established in 1992 to provide training for of Bank assistance. Education outcomes, however, vary 1,000 underqualified teachers in two districts. MITEP inconsistently with expenditures, prompting some to sug- used a combination of self-study materials, residential gest a restructuring of priorities to increase the efficiency courses, and supervision to upgrade teachers' skills. of resource use. Completed in 1995, MITEP offered a rare opportunity to This research hypothesized that resource efficiency is examine the methods, outcomes, and costs of a distance highly correlated with local cultural and institutional education program and to compare them with those of factors. It was based on the notion that institutional the conventional teachers colleges in the same districts. factors-trust, social norms, modes of behavior, and the The research addressed two main questions: Did like-explain much of the variation in students' educa- MITEP produce teachers who are as effective as those tional performance across regions. The nexus of informal trained in conventional ways? And did it produce trained rules, civic-minded attitudes, and relationships of trust teachers as cost-effectively as the conventional colleges? forms a region's stock of social capital. Social capital The research also looked at how MITEP operated, iden- increases the efficiency of society by facilitating tified which components worked well, and assessed coordinated activity. By instilling in children a sense whether it is sustainable and replicable. of the importance of education and by fostering The principal data source was an evaluation of MITEP family and community involvement, social capital by the International Extension College and Action Aid. enhances the productivity of public expenditures for The results provided student characteristics and num- education. 32 Labor Markets and Education The research incorporated social capital in a model of remaining cells using a perpetual inventory technique the educational performance of primary school age chil- and data on gross enrollment ratios. dren in Brazil. Using data on cultural and institutional This method is more accurate than the approaches oth- factors, it constructed an index of the stock of social cap- ers have used. In particular, the measures are not subject ital for several municipalities. The study used econo- to problems related to mortality, migration, and bound- metric techniques to estimate education production ary changes. In addition, the method does not require a functions, with social capital as a technological shift. long history of enrollment data to construct benchmark The literature on educational achievement has estab- stocks of schooling. And because the resulting data set lished that simply increasing expenditures is not an effi- provides a breakdown between male and female school cient way to improve outcomes. By providing insight into attainment, it allows estimation and testing of such key the role of social capital in student achievement, this study hypotheses about development as the importance of contributes to the design of institution-building inter- female schooling in determining fertility, infant mortal- ventions. And its examination of institutional issues pre- ity, and the schooling of children. viously overlooked in project analysis could contribute This study built on that data set, adding census infor- to future education projects in Brazil and elsewhere that mation for 1985 and 1990 and updating the estimates of are more effective in delivering good primary education. educational attainment to 1990. It also added estimates The study's findings will be discussed with members of for a few countries, notably China, that had previously the Brazilian academic community. been omitted because of missing data. Responsibility: Latin America and the Caribbean, In connection with the study, a seminar, New and Country Department I, Country Operations Unit 2- Improved Measures of EducationalAttainment, was given Danny Leipziger (dleipziger@worldbank.org), Country on March 21,1997. The data set is available on the Bank's Department I, Country Operations Unit 1-Homi Kharas, Growth Research Website (http://www.worldbank.org/html/ and Brazil Resident Mission-Robin Horn. With Vijay prdmg/grthweb/datasets.htm). Gupta, Georgetown University; John Frost, Brown Responsibility: Policy Research Department, Macro- University; and 0. B. de Lima, M. L. de Oliveira Barbasa, economics and Growth Division-William Easterly and L. da Veiga, Instituto Jodo Pinheiro. The Instituto (weasterly@worldbank.org). With Robert Barro, Harvard Joio Pinheiro contributed data for the research. University; and Jong-Wha Lee, University of Korea. Completion date: June 1997. Completion date: February 1997. International Measures of Schooling Years The Informal Sector in Mexico and Schooling Quality Ref no. 680-59C Ref. no. 680-54C The informal sector is often considered the disadvan- This project updated and extended the widely used data taged sector of a dualistic labor market segmented by compiled on educational attainment. The most impor- excessive formal sector remuneration, benefits, and reg- tant recent efforts in constructing cross-country data on ulation. Departing from that view, this study found that educational attainment had been that by Robert Barro and the informal sector may be the unregulated analogue to Jong-Wha Lee ("International Comparisons of Educational the industrial country small-firm sector and therefore Attainment," Journal ofMonetary Economics 32[December]: may represent desirable employment for many workers. 363-94, 1993) and that by Vikram Nehru, Eric Swanson, The study analyzed patterns of transition between for- and Ashutosh Dubey ("A New Database on Human Capital mal and informal sectors across the business cycle and Stock," Policy Research Working Paper 1124, World Bank, during a period of trade liberalization in Mexico. It drew International Economics Department, Washington, DC, on data from the Mexican National Urban Unemployment 1995). Both studies, however, have gaps in data construc- Survey (1987-93), which allows the construction of five- tion and coverage, gaps that this study addressed. quarter panels that make it possible to track workers' In the study cited above, Barro and Lee constructed movements among sectors. The research used multino- estimates of educational attainment by sex for persons mial logit and partially observed probit models to identify aged 25 and over. The values applied to 129 countries determinants of mobility, and relative wage and wage dif- over five-year intervals from 1960 to 1985. The authors ferential series to compare remuneration among sectors. used census and survey data to obtain benchmark stocks The analysis showed that, contrary to the traditional of schooling for various years, filling more than 40 per- view, the size of the informal sector and movements into cent of the quinquennial cells. They then estimated the it are strongly procyclical. This suggests that entrepre- 33 Labor Markets and Education neurs may choose to start a firm or take on additional work- . 1996. "Labor Market Structure in Mexico: Time-Series ers in good times and that the informal sector is not the Evidence on Competing Views." University of Illinois Working employer of last resort. But there is evidence of queuing Paper Series. to enter formal employment, suggesting that some frac- tion of informal sector employment is involuntary. There is also evidence of increased subcontracting during the Child Labor: What Role period of trade liberalization, but whether workers are bet- for Demand-Side Interventions? ter or worse off as a result cannot yet be ascertained. The study applied factor and cluster analysis to data Ref. no. 680-64C from the 1992 microenterprise survey to identify sub- Child labor is pervasive throughout the world, especially sectors and stratification within the microenterprise sec- in developing countries, with Asia and Africa account- tor. It also looked for multiple distributions within factors, ing for more than 90 percent of child employment. and compared earnings equations as evidence of dual- Children work for a variety of reasons, the most impor- ism arising from distortions in the labor market. The tant being poverty. Though they are not well paid, they analysis found that the sector does consist of multiple still contribute a major share-as much as a quarter-of subsectors distinguished by such factors as prosperity, family income in developing countries. Laws have been plans for expansion, capital-labor ratios, and education able to control child labor in the formal sector to some level. But fewer than a quarter of microenterprises appear degree-but as a result, child labor is most prevalent in to be involuntarily informal, and other divisions seem the largely unmonitored informal and rural sectors. to correspond to those predicted by mainstream models The intuitive solution would be to immediately abol- of firm dynamics. The earnings distributions appear to ish child labor. But there are problems with this strategy. reflect endowments of human and physical capital rather There is no international agreement on the definition of than labor market distortions. child labor. And many children may have to work to Overall, the study found little evidence of segmenta- attend school, so abolishing child labor would only hin- tion. Most informal employment probably reflects an effi- der their education. cient allocation of labor. It may be more appropriate to This research analyzed the determinants of different view most informal sector workers as voluntarily self- forms of child labor in Bolivia, Colombia, C8te d'Ivoire, employed rather than as rationed out of the workforce. and the Philippines, using household and labor force sur- The findings suggest that the proper unit of analysis of vey data. The study used a simple household production the informal sector is the small-scale firm not the disad- model in which the supply of child labor is a function of vantaged worker, that labor market reform should focus the economic and demographic characteristics of the more on raising the productivity of the formal sector than household, the age and sex of the children, and the costs on eliminating segmentation, and that policies to address and benefits of alternative uses of children's time. The income distribution are probably best focused on edu- analysis was based on children who are out of school and cation rather than on labor market segmentation. did not model the demand for education by the house- The study's findings have been presented at a large hold. It assumed that children are involved in one of three number of seminars and conferences, including the activities: household work (caring for infants, assisting American Economic Association meetings in San parents), working for wages, or working for the home Francisco in January 1996, the Latin American Meetings enterprise. The analysis focused on the labor supply deci- of the Econometric Society in Rio de Janeiro, Brazil, in sion by the household. August 1996 and in Santiago, Chile, in August 1997, a In general, the results are consistent across the four World Bank seminar in May 1997, and a seminar at countries. The study found that the age and sex of the Mexico's Ministry of Labor in August 1997. child are important determinants of child labor. Among Responsibility: Mexico Country Department-Zia household characteristics the education and employment Qureshi (mqureshi@worldbank.org); and Europe and of the parents are the most important factors. The Central Asia, Country Department I, Office of the presence of siblings generally matters, but the effect varies Director-Frank Lysy. With William Maloney, University among the countries. The presence of a household enter- of Illinois, Champaign-Urbana. prise or farm is the most important household economic Completion date: March 1997. attribute in determining child labor. And poverty status Reports: exerts an influence over and above the other household Maloney, William. 1996. "Heterogeneity in Small-Scale LDC characteristics controlled for, suggesting that the Enterprises: The Mexican Case." University of Illinois Working constraints of poverty increase the likelihood of child Paper Series. labor. 34 Labor Markets and Education Responsibility: Human Development Department, efits and costs of the programs and the factors needed to Education Team-Harry Anthony Patrinos (hpatrinos sustain them? To address these questions, richly quali- @worldbank.org); and Environment Department, Social tative data were collected through attitude surveys and Policy and Resettlement Division-Christiaan Grootaert in-depth classroom and school observations in six and Gi-Taik Oh. With Kimberly Cartwright; Christos technology-using schools in Chile and five in Costa Rica Sakellariou, Nanyang Technological University, Singa- -schools selected because of their reputed success with pore; and Felicia Knaul. technology. Completion date: December 1996. The research was launched in April 1996 at a work- Reports: shop in San Jos6, Costa Rica, where the research team Cartwright, Kimberly. 1996. "Child and Youth Labor Force refined the goals, methodology, and work program for Participation in Colombia." World Bank, Human Development the investigation. A second workshop, held in June 1996 Department, Washington, DC. in Washington, DC, reviewed the results of the first school - 1997. "Child Labor in Urban Bolivia." World Bank, Human visit, confirmed the effectiveness of the methodology, Development Department, Washington, DC. and revised the evaluation instruments. A final work- Grootaert, Christiaan. 1997. "Child Labor in C6te d'Ivoire: Incidence shop was held in May 1997 to review the results of the and Determinants." World Bank, Environment Department, fieldwork in each country and present the country reports. Washington, DC. The research team is now drafting the final research report Sakellariou, Christos, and Ashish Lail. 1997. "Child Labor in the comparing the main findings from the Chilean and Costa Philippines." Rican cases and drawing lessons from the research to guide policy and project formulation in other countries contemplating introducing computers in their education Technology and Basic Education Reform: systems. A Comparative Analysis in Chile The principal findings of the country reports point to and Costa Rica lessons on the design, implementation, and effects of introducing technology in primary schools. Among the Ref. no. 680-68 lessons being explored more fully are those relating to Revolutionary advances in information technology and the role of nongovernmental institutions in developing, communications are transforming the world economy introducing, and sustaining a technology program; the and presenting new challenges to all countries. One such role of technology in changing the learning environ- challenge is the need to compete in the emerging infor- ment in the classroom and laboratory; and the effect of mation economy, a challenge in which education must technology on the role and status of teachers. play a central part by preparing new generations to par- Responsibility: Human Development Department, ticipate effectively in this dynamic environment. Education Team-Michael Potashnik (mpotashnik This research undertook case studies of the experi- @worldbank.org); and Policy Research Department, ences of two developing countries, Chile and Costa Rica, Poverty and Human Resources Division-Laura which have undertaken major programs to introduce Rawlings. With Barbara Means, Stanford Research computers in their education systems. Chile's program, International; Jeanina Umafia, Jackeline Garcia, Magaly which began as a pilot program in 1993, has placed Zuftiga, and Marica C. Dobles, Omar Dengo Foundation, computers in more than 200 primary and secondary Costa Rica; and Maria Ines Alvarez and Francisca Roman, schools and established a wide area network that elec- ENLACES, Chile. tronically links students and teachers throughout the Completion date: November 1997. country. Costa Rica's program-launched in the 1980s by a nongovernmental organization, the Omar Dengo Foundation-has installed computers in about 150 pri- Technology, Education Costs, mary schools, covering 40 percent of the primary school and Distance Education population. The case studies sought answers to these questions: Ref no. 680-70C What factors support-and what factors impede-the Accelerating change in technology means that workers integration of technology into curriculum and practice? need to pursue education throughout their working lives What factors contribute to effective teacher training, sup- to remain competitive in the labor market. But conven- port services, and maintenance systems? What are the tional means of education will not suffice to meet the characteristics of the schools perceived as the most effec- needs of large populations for lifelong learning or, in poor tive educators in each program? And what are the ben- countries, even to provide primary education for all. 35 Labor Markets and Education With the growing demand for education-and the ris- distribution of student achievement and school inputs at ing relative cost of conventional education-the prospect these two points in time. In addition, in a small sample of electronic distance education becomes increasingly of municipalities researchers conducted in-depth inter- important. The digital revolution is steadily and dra- views with school and municipal officials on changes matically reducing the cost of storing, manipulating, and related to recent decentralization initiatives. The study's transmitting information. And the convergence of the findings need to be interpreted with care because of the once-distinct media of image, sound, books, and com- small sample size and the difficulty in evaluating the puter networks into digital multimedia is making the many variables relating to student achievement. world's knowledge base accessible anywhere on the One of the findings is that academic performance in planet. What part could such technology play in expand- Hungary has been declining in recent years, with grow- ing education in developing countries? ing differences in performance among different types of This study reviewed distance education technologies communities. The greatest difference in performance was and their use, effectiveness, and cost in developing coun- noted between villages and small towns, but differences tries to find out what technologies, under what conditions, are increasing even between larger towns and the capi- can provide cost-effective alternatives to conventional edu- tal, Budapest. cation. It focused on computer-based electronic com- The study postulates that worsening economic and munications that integrate text, audio, and video media, social conditions, together with uncertainty in the edu- transmitted by Internet and similar electronic data dis- cation system due to the long transition process, have tribution systems. The study gathered quantitative, contributed to this decline. In an analysis of the causes descriptive data on the provision and availability of elec- of deterioration at municipal and institutional levels, tronic distance education in postschool continuing edu- the study found that academic performance was influ- cation and carried out case studies of electronic distance enced by spending per student, the type of community, education in Brazil, Egypt, Estonia, Russia, and South and the resources of the community. In many cases, how- Africa. ever, the results depended largely on the personal attrib- Responsibility: Human Development Department, utes of local education personnel, such as head teachers. Office of the Director-Jacques van der Gaag The absence of quality control mechanisms at the local (jvandergaag@worldbank.org) and Michael Potashnik; level also contributes to declining quality. and External Affairs Department, Electronic Media Actions that could reverse this decline are linked to Center-Peter Knight. With Michael Moore. creating a better balance between local autonomy and Completion date: December 1996. central policy guidance. Central finance could be used to support improved self-evaluation and reporting mech- anisms and better dialogue and consensus building on The Effect of Education Decentralization desired school outcomes. In addition, government mon- Reforms on Resource Allocation, Quality, itoring and supportive financing for deprived areas could and Equity in Hungarian Schools be considered. The findings have been disseminated through pre- Ref. no. 680-78C sentations at the Bank's annual Human Development Decentralization of administration and finance has Week and the Annual Comparative and International become a common reform in education. In Hungary Education Society Meeting in Mexico City, through dis- responsibility for public education through the secondary cussion with Bank operational staff, and through meet- level now lies with municipalities, which spend more ings with municipal and central government personnel than 35 percent of their budgets on education. Yet little in Hungary. is known about how municipalities make funding deci- Responsibility: Human Development Department, sions, what criteria they use in allocating funds among Education Team-Marlaine Lockheed (mlockheed schools, and how decentralization has affected school @worldbank.org) and Eluned Schweitzer; and Europe quality and equity. and Central Asia, Country Department II, Human This study used both qualitative and quantitative data Resources Operations Division-Christine Allison. With collection and analysis to address these research ques- Gabor Halasz, Gyorgy Martonfe, Eva Balazs, Anna Imre, tions. It utilized archival data from national school-based Maria Nagy, and Peter Vari. The National Institute of surveys of student achievement and school inputs that Public Education, Hungarian Institute for Educational were conducted in 1991 and 1995. Using a variety of Research, and Statistics Institute of Hungary participated simple descriptive techniques, the study looked at dif- in the research. ferences among types of municipalities in the level and Completion date: September 1996. 36 Labor Markets and Education Reports: of early child development programs and their effect on Gabor, Halasz. 1997. As Oktatas Minosege es as Onkormanyzati child survival and schooling. Oktatasiranyitas (Quality of Education and Local Governmental Responsibility: Human Development Department, School Administration). Budapest: OKKER Kiado. Office of the Director-Jacques van der Gaag National Institute of Public Education Research Center. 1997. "The (jvandergaag@worldbank.org), and Education Team- Quality of Education and Local Educational Administration in Jee-Peng Tan. With Husein Abdul-Hamid. Hungary." Budapest. Completion date: September 1996. Report: van der Gaag, Jacques. 1996. "Early Child Development: Investing The Economics of Early Child Development in the Future." Paper presented at conference on early child Programs development, Carter Presidential Center, Atlanta, Georgia, April 8-9. Ref. no. 680-87C Abundant literature documents the positive effects of early child development programs on children's health Gender and the Rural Economy: and nutritional status and their preparedness for and Evidence from Mexico progress in primary school. Many developing country governments have been expanding their investments in Ref. no. 680-95 such programs, often with financial assistance from the Little gender-disaggregated information exists for Mexico, World Bank. Yet little assessment has been made of the particularly in the rural sector. Studies have typically col- economic returns to such investments, making it diffi- lected and analyzed household data based on the house- cult to evaluate alternative interventions for improving hold as a single unit, without considering the conditions, child welfare. preferences, and roles of individual members. The 1994-95 This research aimed to provide a systematic cost- Mexico Rural Financial Markets Study (RFMS) is an excep- benefit framework for evaluating investments in early tion. In each of the nearly 2,000 households surveyed, the child development programs. It produced easy-to-use RFMS interviewed all male and female members engaged computer software to aid such evaluations and a survey in entrepreneurial activity. Because it interviewed indi- of the literature on the costs and benefits of existing viduals rather than the conventional household head, the programs. RFMS captured important gender-disaggregated infor- The research used standard cost-benefit analysis. It mation on credit and entrepreneurship patterns, prop- started with what is by now widely accepted evidence erty and land ownership, household characteristics, from the economics of education literature that workers educational attainment, and employment patterns with schooling earn more (are more productive) than (including gender roles in agricultural production). The workers without schooling. The monetary benefits of RFMS also conducted case studies of nonbank lenders early child development programs can thus be estimated in selected rural areas in the states of Guanajuato, Puebla, on the basis of the programs' effect on the number of chil- and Veracruz, focusing on lending technologies, mech- dren who survive to primary school age, their probabil- anisms used to monitor borrowers, and lending instru- ity for enrolling in school, and their probability for ments used to enforce credit contracts. progressing through the school system. Given the bene- Using the RFMS data, this research is examining the fits, it is then possible to ascertain the maximum cost con- influence of gender on rural economic activities in Mexico. sistent with an economic investment in an early child Preliminary analysis of the data shows that there are development program (that is, one that yields an eco- differences in the types of enterprises formed by men and nomic return of, say, at least 10 percent a year). women. Although there is little difference in the partic- The computer software sets up the calculation to allow ipation rates of men and women in credit markets, there users to enter country-specific data on child survival and are differences in their access to credit services and lenders. schooling and earnings profiles of people with and with- For example, male rural entrepreneurs are more likely out schooling. This approach gives users a tool that is to receive cash loans and to use financial savings instru- easily manipulated to assess the cost parameters for effi- ments than their female counterparts. The analysis also cient investments in early child development programs, shows that women's enterprises earn about half as much which typically lack a standard format and vary widely as men's. And it has found that educational attainment, in cost according to their content and design. number of children, and characteristics of the locality The project tested the utility of the software in specific affect the labor force participation rates of both men and country settings and consolidated information on the cost women. 37 Labor Markets and Education The research is evaluating three explanations of gen- considered, a couple of studies are carried out, focusing der differences in labor and credit markets: measured dif- on countries where the distortion is thought to be par- ferences between male and female entrepreneurs, gender ticularly acute. The cross-country analysis is made pos- differences in preferences, and pure discrimination. sible by the construction of a cross-country, time-series Differences by gender in earnings and interest rates are database of labor indicators. This database includes infor- being analyzed using the Oaxaca decomposition method. mation on employment and wage structures, the extent The study is also assessing the policy implications of these of government intervention in the labor market, the degree gender differences. of unionization, and other variables. The data are col- The research has influenced the way the Bank con- lected from existing cross-country sources and a variety ducts studies on financial markets. Following on the of country-specific sources. The database is used to extend Mexican research, the Guatemala Rural Finance Study the now standard growth regression analysis so as to take included gender-disaggregated data. A database the Bank labor market policies and institutions into account. Other plans to establish on financial markets and entrepreneur- cross-country studies focus on short-run adjustment and ship for Central America will also include gender as a on the determinants of public sector employment. The key variable. And in the Bank-financed Mexico Rural theoretical work deals with the political economy of labor Financial Markets Loan recommendations from the study market distortions and its implications for the design of will be used in designing financial services so that they economic reforms. meet the different needs of male and female entrepreneurs. Findings have been disseminated through workshops, Preliminary discussions with policymakers in Mexico training, and seminars, including a presentation on indicate that the study has had an impact on their think- poverty and the labor market for 50 South African ing about the relevance of gender in financial services. researchers in Johannesburg in August 1996 and a pre- Mexican officials have requested Bank guidance in identi- sentation on trade unions in Latin America and East Asia fying gender-differentiated needs in urban credit markets. for 40 researchers at the Pacific Council on International Findings were disseminated in a workshop held in Policy in Los Angeles in April 1997. As part of a course Mexico City in July 1997 for Mexican policymakers and on techniques of financial analysis and programming, a bankers and financial intermediaries involved in rural lecture on labor market policies was given to 45 gov- credit. ernment officials from Africa and Latin America at the Responsibility: Latin America and the Caribbean Region, International Monetary Fund in March 1997. A presen- Sector Leadership Group-Maria Correia (mcorreia tation on labor law reform was given to 30 trade union @worldbank.org) and Rodrigo Chaves. With Susana leaders from French-speaking countries inAfrica in Lom6 Sanchez. in June 1997, and a presentation on minimum wages Completion date: August 1997. and pay issues was made in Abidjan in June 1997. At the end of the project the cross-country database will be made available at its marginal cost to researchers The Impact of Labor Market Policies and interested in labor market issues in developing countries. Institutions on Economic Performance Responsibility: Policy Research Department, Poverty and Human Resources Division-Martin Rama (mrama Ref no. 680-96 @worldbank.org) and Raquel Artecona. With Jean-Paul This is the second phase of a broader study whose main Azam, Universit6 d'Auvergne; Ann Bartel and Ann goal is to assess the effect of labor market interventions Harrison, Columbia University; Kristin Butcher, Boston on wages, employment, and economic growth. A related College; Alex Cukierman, Tel Aviv University; Francesco objective of this research is to understand how the reform Daveri, Universita di Brescia; lyabode Fahm; Alvaro of those interventions should be approached. Rather than Forteza, Universidad de la Repilblica, Uruguay; Anna discussing the consequences of labor market rigidity in Fruttero and Guido Tabellini, Bocconi University; Donna general, the study focuses on a series of well-defined MacIsaac, Inter-American Development Bank; Dani departures from the undistorted, partial equilibrium Rodrik, Harvard University; Cecilia Rouse, Princeton model of the labor market: minimum wages, mandated University; and Manisha Singh, University of Maryland. benefits (or nonwage costs), payroll taxation (including Completion date: December 1997. social security contributions), public sector employment, Reports: job security, and unionization. Bell, Linda. 1995. "The Impact of Minimum Wages in Mexico and The research combines detailed case studies using Colombia." Policy Research Working Paper 1514. World Bank, household- and plant-level data, cross-country analysis, Policy Research Department, Washington, DC. (Also forthcoming and theoretical work. For each labor market distortion in Journal of Labor Economics.) 38 Labor Markets and Education Currie, Janet, and Ann Harrison. Forthcoming. "Trade Reform and Department, Washington, DC. (Also forthcoming in Journal of Labor MarketAdjustment in Morocco." Journal ofLabor Economics. Labor Economics.) Freeman, Richard. 1994. "A Global Labor Market? Differences in Weiss, Yoram. 1994. "Growth and Labor Mobility." World Bank, Wages among Countries in the 1980s." World Bank, Policy Policy Research Department, Washington, DC. Research Department, Washington, DC. Gruber, Jonathan. 1995. "The Incidence of Payroll Taxation: Evidence from Chile." National Bureau of Economic Research Working Understanding the Rationale for Paper 5053. Cambridge, Mass. (Also forthcoming in Journal of Education Reform: Parents as Labor Economics.) Principals and Teachers as Agents MacIsaac, Donna, and Martin Rama. 1997. "Do Labor Market RegulationsAffectLaborEarningsinEcuador?" Policy Research Ref. no. 681-12C Working Paper 1717. World Bank, Policy Research Department, This research tried to answer the question, Why are pub- Washington, DC. (Also forthcoming in Journal of Labor licly provided education services not technically efficient, Economics.) and what can be done about it? Studies have consistently Rama, Martin. 1994. "Flexibility inSri Lanka's Labor Market." Policy found that education expenditures in the public sector Research Working Paper 1262. World Bank, Policy Research are allocated across inputs in such a way that the pro- Department, Washington, DC. ductivity of teaching inputs is much lower than the pro- - 1995. "D6termination des salaires au paradis: une analyse ductivity of nonteaching inputs. This research contrasted du march6 du travail A l'lle Maurice." Revue d'Economie du two behavioral approaches to understanding this mis- D&eloppement 2:3-27. allocation. In the first, policymakers attempt to maximize . 1995. "Do Labor Market Policies and Institutions Matter? schooling output but choose the wrong allocation of TheAdjustment Experience in LatinAmerica and the Caribbean." expenditures through ignorance. In this case, which is Labour, pp. S243-69. the general implicit assumption of researchers, solving . 1995. "Unions and Employment Growth: Evidence from the problem requires more (or more convincing) research Jamaica." World Bank, Policy ResearchDepartment, Washington, about the technical aspects of the education production DC. function. . 1996. "The Consequences of Doubling the Minimum Wage: The second approach models the behavior of the pub- The Case of Indonesia." Policy Research Working Paper 1643. lic sector to reflect that it is not an impassive technocrat World Bank, Policy Research Department, Washington, DC. and that expenditures are also income streams. So the . Forthcoming. "How Bad Is Tunisian Unemployment? size of teachers' salaries matters to teachers, and the Assessing Labor Market Efficiency in a Developing Country." employment of teachers matters to a patronage-seeking World Bank Research Observer politician-that is, money matters. In this case the allo- . Forthcoming. "Imperfect Rent Dissipation with Unionized cation of the budget is determined not just by technical Labor." Public Choice. considerations about the education process but also by . Forthcoming. "Labor Market Institutions and the Second- politics. The study's review of the empirical literature Best Tariff." Scandinavian Journal of Economics. found that only a political model of expenditure alloca- . Forthcoming. "Organized Labor and the Political Economy tion can explain the existing findings. of Product Market Distortions." World Bank Economic Review. The adoption of a political model of expenditure allo- . Trade Unions and Economic Performance: East Asia and cation would have strong implications for Bank recom- Latin America." World Bank, Policy Research Department, mendations on education reform and for policymakers Washington, DC. because the model changes how one views education "Wage Misalignment in CFA Countries: Are Labor Market reform. It shifts the debate from a technocratic one about Policies to Blame?" World Bank, Policy Research Department, appropriate pedagogy to one about the allocation of Washington, DC. power and accountability among the stakeholders in edu- Rama, Martin, and Guido Tabellini. 1995. "Endogenous Distortions cation. If inefficient allocation of expenditures is the result in Product and Labor Markets." Policy Research Working Paper of a misalignment of political incentives, then only reforms 1413. World Bank, Policy Research Department, Washington, that change the underlying incentives can achieve sus- DC. (Also published as Centre for Economic Policy Research tained changes in performance. So education reforms that Working Paper 1143, London, 1995; and forthcoming in European change incentives-such as those promoting decentral- Economic Review.) ization, local community schools, and greater competi- Revenga, Ana. 1995. "Employment and Wage Effects of Trade tion among suppliers-may be more likely to produce Liberalization: The Case of Mexican Manufacturing." Policy changes in the allocation of expenditures than programs Research Working Paper 1524. World Bank, Policy Research that attempt to operate directly on spending. 39 Labor Markets and Education The study's findings willbe presented at an Asia Pacific In future work results of the interventions will be com- Economic Cooperation meeting in November 1997. They pared with findings based on standard econometric tech- have also contributed to Bank country dialogues in Brazil niques to see whether those techniques yield biased and Estonia. results. Responsibility: Policy Research Department, Poverty Findings have been presented at Cornell, Harvard, and Human Resources Division-Lant Pritchett (lpritchett and Yale Universities, at the MacArthur Foundation, and @worldbank.org) and Deon Filmer. With Jonah Gelbach, at the International Food Policy Research Institute. Massachusetts Institute of Technology. Responsibility: Policy Research Department, Poverty Completion date: June 1997. and Human Resources Division-Paul Glewwe Report: (pglewwe@worldbank.org). With Michael Kremer, Pritchett, Lant, and Deon Filmer. 1997. "What Educational Massachusetts Institute of Technology; Dan Levy, Production Functions Really Show: A Positive Theory of Northwestern University; and Sylvie Moulin. The Education Spending." Policy Research Working Paper 1795. International Christian Humanitarian Services, the World Bank, Policy Research Department, Washington, DC. Netherlands; and the National Science Foundation, United States, are contributing funding for the research. Completion date: October 1999. Improving Primary Education in Kenya: Reports: A Randomized Evaluation of Different Glewwe, Paul, Michael Kremer, and Sylvie Moulin. "Textbooks and Policy Options Test Scores: Evidence from a Prospective Evaluation in Kenya." Draft. Ref no. 681-14 Kremer, Michael, Sylvie Moulin, David Myatt, and RobertNamunyu. Many econometric studies have tried to estimate the effect "The Quantity-Quality Tradeoff in Education: Evidence from a of education policies on school performance in industrial Prospective Evaluation in Kenya." Draft. countries. But even the most sophisticated econometric techniques may yield biased estimates if schools with dif- ferent levels of inputs also differ systematically in other, Explaining Gender Disparity in South Asia: unobserved ways. Randomized experiments overcome A Cross-Sectional Approach many of the statistical problems inherent in these econo- metric studies, but they are rarely done because of their Ref. no. 681-29 high costs and because of public officials' reluctance to That gender disparity is a large problem in South Asia vary the level of inputs among schools. This research is well known. But understanding the root causes of gen- takes advantage of an opportunity to perform random- der disparity across countries, particularly within coun- ized evaluations of several different education policy tries in South Asia, so that programs and policies can be options in collaboration with an international non- designed to address it is more problematic. governmental organization. This research takes a small step forward by creating The study began with a small number of schools in a new database that allows consistent comparisons 1995. Out of 14 schools, 7 were randomly chosen to receive of a range of indicators of gender disparity both across the nongovernmental organization's standard package countries and within the large countries of South Asia of assistance. Pretests were administered at the begin- (India and Pakistan). Outcomes for states of India, ning of 1995, and posttests in the fall of 1995. The results for example, can be directly compared with those for are now being analyzed. other states of India, provinces of Pakistan, and other The project expanded in 1996. Out of 50 schools, 25 countries. were randomly chosen to receive a large number of text- The database has led to three initial findings. First, cer- books. Pretests were administered in early 1996, and tain regions of South Asia, particularly a crescent run- posttests near the end of that year. The children will be ning through Pakistan and northern India, consistently followed for at least two more years to assess whether have among the worst indicators of gender disparity in the initial effects endure for several years. Two other the world. Second, the variations in gender disparity policy interventions will be tried in 1997 and 1998. within India are as large as those across countries. Third, Preliminary results indicate that the impact of text- there is no correlation between average income and gen- books is not as strong as some previous studies have indi- der disparity in the sample, either across nations or within cated. Of particular interest is the finding that only better India. These findings suggest that while gender dispar- students, as identified by the scores on the 1996 pretests, ity is pervasive, its worst manifestations are regionally benefited from the provision of textbooks. concentrated and that efforts therefore need to focus first 40 Labor Markets and Education on understanding and eliminating its adverse conse- Child Labor and Schooling in Latin America quences in those places. This research has already influenced the Bank's dia- Ref. no. 681-79 loguewith India through its contribution topoverty assess- Child labor is recognized as a serious problem in many ment in the country. It is expected that the database will developing countries. But little information is available be made available electronically once it is finalized. on how many children are working, what types of activ- Responsibility: Policy Research Department, Poverty ities they are involved in, where they work and under and Human Resources Division-Lant Pritchett (pritchett what conditions, and how child labor affects educational @worldbank.org), Elizabeth King, and Deon Filmer; and attainment. And there is scant information on the labor Asia Technical Department, Human Resources and Social force participation of primary school age children (aged Development Division-Benu Bidani. 6-12). Completion date: December 1997. This study looks at child labor in Latin America, where Report: it is important to examine child labor issues for several Filmer, Deon, Elizabeth King, and Lant Pritchett. "Gender Disparity reasons. First, the problem of child labor is quite severe. in South Asia: Comparisons between and within Countries." Although children's participation rate in the labor mar- World Bank, Policy Research Department, Washington, DC. ket is about 10 percent in the region as a whole, it varies widely across countries. In Brazil it is as high as 16 per- cent, and in Nicaragua it is 14 percent. Second, the low Child Diet and Academic Achievement quality and high inefficiency of education in the region in Cebu, Philippines may be related to the prevalence of child labor. Third, age heterogeneity in the classrooms, which is often associ- Ref. no. 681-78 ated with repetition and dropout, is high. Fourth, the School-based nutrition interventions, such as school lunch quality of education in the region is poor. Only 50 per- programs, are widely viewed as a cost-effective approach cent of graduates are capable of written communication to improving academic achievement in developing coun- at the level required by modem society. So understand- tries. Yet there is little evidence to support this view. ing child labor is important not only because of the sig- This study will examine the impact of current diet on aca- nificance of the issue, but also because of its potential demic achievement using an unusually rich data set from impact on educational attainment and its implications Cebu, Philippines. for the design of education policies for the region. Another World Bank research project has drawn on Four countries-Brazil, Ecuador, Nicaragua, and the Cebu data to examine the cumulative impact of chronic Peru-were selected for this study. Living Standards malnutrition on learning (The Impact of Child Health Measurement Study surveys conducted in these coun- and Nutrition on Education Outcomes in Cebu, tries in the early 1990s provide comparable information Philippines, ref. no. 679-57). Much of this malnutrition in such areas as employment, education, household con- occurs before children reach school age. To examine the sumption, and household characteristics. The informa- impact of school-based nutrition programs requires data tion covers nationally representative household samples. on changes in the academic performance of children while The study will be undertaken in two stages. In the first they are in school. This project has therefore collected stage the study will draw on the household surveys to new data in Cebu so that the data set includes achieve- describe the labor market activity of children, including ment test scores one to two years apart for the same chil- their rate of participation in the labor market, the hours dren. Some of these children participate in school-based they work, the earnings they receive, and the sectors in nutrition programs; others do not. Some of the programs which they work. The description will be disaggregated are based on grade in school, providing a credible instru- as much as possible by age, gender, poverty level, enroll- mental variable to control for the endogeneity of school- ment status, and area (urban and rural). based nutrition programs. In the second stage the study will examine the deter- The data for this project were collected in the first minants of children's participation in the labor market half of 1997. Analysis will begin in the fall of 1997 and and of their school enrollment. Two approaches will be finish in early 1998. used. The first is the traditional approach that assumes Responsibility: Policy Research Department, Poverty that the decision to work and the decision to attend school and Human Resources Division-Paul Glewwe are made separately. For this approach the univariate pro- (pglewwe@worldbank.org) and Elizabeth King. With bit model will be the econometric technique used. The Hanan Jacoby, University of Rochester. second approach assumes that the two decisions are made Completion date: March 1998. jointly, and the bivariate probit model will be used. Both 41 Labor Markets and Education approaches will take into account characteristics of chil- dren's labor market participation-should be useful in dren, their parents, their households, and their commu- designing education policies and in targeting vulnerable nity and consider the effects of the direct costs of schooling children through Bank-financed projects. and the distance to school in labor market and school- Responsibility: Latin America and the Caribbean Region, ing decisions. Human and Social Development Group-Donald The study's results-on the reasons for children's labor Winkler (dwinkler@worldbank.org); and Human market activities, the relationship between labor market Development Department, Office of the Director-Hailu activity and school enrollment, and the types of incen- Mekonnen. tives that work in favor of education and against chil- Completion date: December 1997. 42 ENVIRONMENTALLY SUSTAINABLE DEVELOPMENT Land Tenure Insecurity in Honduras intertemporal variation in the land tenure status of the and Paraguay surveyed households to allow the study to apply the first- differences econometric method of analysis. The results Ref. no. 678-74C suggest that titling had a positive and significant effect This research studied the efficiency implications of land on the demand for attached capital and on access to credit, tenure insecurity and other institutional restrictions affect- especially for larger farmers. The estimated effect of titling ing rural land markets in Honduras and Paraguay. on household income is $40. Although earlier Bank studies had analyzed the con- The results of these analyses show that land titling is straints arising from insecure property rights in Africa a good investment in Latin America. But several issues and Asia, there had been no studies of similar scope for remain to be addressed. First, much more than land titling Latin America. is needed to realize the potential benefits. An appropri- This study developed an econometric model to rig- ate legal framework for land tenure, cadastral surveys, orously quantify the effects of several factors related to a registry of liens on land to allow the use of land as col- land tenure security that contribute directly to agricul- lateral and facilitate efficient land transactions, and imple- tural productivity and to identify the effect of titling on mentation and enforcement mechanisms, including a the demand for land. The study considered three factors functional judicial system, are all necessary conditions. affecting agricultural productivity: an efficiency effect, And the collateral effect will be realized only if there are an input demand effect, and a credit supply effect. The well-developed financial markets. efficiency effect of land tenure security captures market Second, mounting large-scale, regionally focused land mechanisms that allocate land among farmers with dif- titling programs that are proactive in supplying titles is ferent management efficiencies. The input demand effect likely to be more efficient and equitable than is provid- reflects incentives to invest, especially in capital goods ing titling on demand. In regionally focused programs that are attached to the land. And the credit supply effect cadastral surveys can be mounted more efficiently, and reflects credit constraints that untitled farmers frequently the costs in legal and other fees and payments for indi- face in formal credit markets. vidual titling can be reduced, especially for small Data from household surveys in Honduras and farmers. Paraguay were analyzed to provide panel data sets over Third, regional land titling programs represent a sig- a period in which land titling was implemented. The sur- nificant investment and an area in which development vey in Honduras used a baseline study of 1,500 farm banks and donors could help support rural development households that had been surveyed in 1983-85 and again efforts. in 1987-88 as part of a land titling project funded by the The results of this study have prompted the World U.S. Agency for International Development. In 1994, Bank to intensify its dialogue on land issues in the region. 437 of these households were resurveyed to obtain com- The main results were disseminated and discussed at a prehensive data on farm income, investments, assets, two-day seminar in June 1996. land transactions, and use of credit. The analysis of these Responsibility: Agriculture and Natural Resources data indicates that titling is strongly associated with higher Department, Agriculture and Forestry Systems Division- yields and farm incomes (which are in turn closely asso- Derek Byerlee (dbyerlee@worldbank.org), and Office of ciated with greater use of credit and inputs) and with the Director-Hans Binswanger; East Asia and Pacific, increased investment on titled land, especially invest- Country Department III, Agriculture Operations ments attached to that land, such as coffee plantations. Division-Gershon Feder; and Latin America and the The total benefit of land titling in Honduras is about $100 Caribbean Technical Department-Alberto Vald6s. With per household, which provides a return of 17 percent on Ram6n L6pez, Claudia Sepulveda, and Isidro Soloaga, the estimated cost of titling. University of Maryland; Alexander Coles; Michael Carter For Paraguay the data set covered 286 farming house- and Pedro Olinto, University of Wisconsin; Atenec de la holds interviewed in a 1991 survey. Of these households, Agro-Industria, Honduras; and Centro Paraguayo de 120 had some titled land in 1991. This number increased Estudios Social, Paraguay. to 137 in 1994. The Paraguay data reflected enough Completion date: August 1996. 43 Environmentally Sustainable Development The Determinants of Agricultural Growth: both industrial and developing countries. Further, for Country and Cross-Country Analysis agriculture there is evidence of a convergence in total fac- tor productivity levels. For most countries agriculture Ref. no. 679-03C has not proved stagnant but has been a source of pro- Interest in why and how agricultural sectors grow stems ductivity gains, arguing against policies that discrimi- primarily from concern about adequate food supplies. nate against agriculture as an instrument for economic But agriculture remains an important sector in many growth. Policies that foster the generation and dissemi- developing economies and the primary source of income nation of agricultural technology and knowledge are for many rural poor. The purpose of this research was to important to development. quantify the sources of growth in agriculture by draw- The study also estimated a production function for ing on a large panel of data-including a newly assem- agriculture using a panel of data covering 20 years and bled panel of investment data for agriculture and 37 countries. The panel makes it possible to distinguish manufacturing. between explaining differences across countries at any The study found that in 1967-92, 81 percent of the point in time and explaining differences in agricultural world's population lived in countries where agricultural production through time. A comparison of the results growth exceeded population growth. Further, this growth with those of earlier studies showed that methods that occurred as agricultural prices declined. Productivity fail to account for country effects and differences in state gains are a dominant characteristic of agriculture for the variables can lead to unstable and spurious results. It also period, with average productivity increasing for land and yielded several empirical results: labor. Moreover, agricultural labor productivity gains * Changes in capital accumulation account for a large exceeded average productivity gains for the economy in part of agricultural growth. 80 percent of the countries covered by the study. * Decomposing the capital stock into fixed capital- Consequently, measuring the effects of technology choice structures and equipment-and livestock and orchards on productivity is crucial to understanding the determi- reveals that fixed capital explains much of the differ- nants of growth for agriculture. Investments in technol- ence in agricultural growth. ogy have yielded large gains for agriculture, and the * Unlike cross-country studies, this analysis found no benefits of these gains have been passed on to consumers evidence of increasing returns to scale and cannot reject through lower prices. the hypothesis of constant returns to scale. Growth in agriculture is partly determined by the * Applied technology is an important determinant of migration of labor. Almost all countries have experienced agricultural production. off-farm migration. The study found that average income * Relative prices contribute little empirically to explain- differences between agriculture and the rest of the econ- ing agricultural production, but that does not mean that omy, education levels, and the age of the labor force are relative prices are unimportant; rather, prices are impor- all significant determinants of off-farm migration. It tant in directing the use of productive resources. reviewed several theories that suggest that migration From the empirical results come several policy impli- between sectors would stop at a point where average cations. First, policy changes that lead to changes in rel- incomes were not fully equalized, but found no empiri- ative prices will affect agricultural production in a cal evidence to support this. Historically, average incomes cumulative way that sometimes takes time. Production show a strong trend of equalizing as countries develop, is explained primarily by land, labor, and accumulated but in many countries the pace of migration only mar- capital stock. Total land use varies little over time, labor ginally exceeds the rate of natural increase in the agri- decisions are based on a lifetime perspective, and invest- cultural labor force. These findings have several policy ment (or depreciation) will affect capital stocks slowly. implications. First, policies that encourage education will Second, the returns to investment in fixed capital are encourage out-migration from agriculture. Second, likely to be high. Thus projects that facilitate the devel- removing policies that artificially tax (subsidize) agri- opment of fixed capital as well as those that facilitate the cultural incomes will slow (accelerate) out-migration. application of existing technology are likely to improve Finally, migration out of agriculture is generally consis- agricultural output and productivity. tent with increases in agricultural productivity and devel- Responsibility: International Economics Department, opment. But the adjustment takes time and is likely to Commodity Policy and Analysis Unit-Donald Larson span generations. (dlarson@worldbank.org), and International Trade The study examined and compared productivity gains Division-Will Martin. With Yair Mundlak, University in agriculture and manufacturing and concluded that of Chicago and Hebrew University; Al Crego, University productivity growth has been higher in agriculture for of Maryland; Julie Coronado, University of Texas; Rita 44 Environmentally Sustainable Development Butzer, University of Chicago; Nanae Yabuki, Yale purpose. For countries for which detailed time-series data University; and Devashish Mitra, Columbia University. were not available, the research relied on cross-section Completion date: December 1996. estimates based on long averages. The estimated elas- Reports: ticities were incorporated into the model to project Larson, Donald, and Yair Mundlak. 1997. "On the Intersectoral demand. Migration of Agricultural Labor." Economic Development and The study produced two sets of forecasts of energy Cultural Change 45(2). demand in Asia. The first used individual country esti- Martin, Will, and Devashish Mitra. 1996. "Productivity Growth in mates. The second used pooled mean group estimates Agriculture and Manufacturing." World Bank, International that impose common long-run elasticities but allow short- Economics Department, Washington, DC. Draft. run coefficients, intercepts, and disturbance variances Mundlak, Yair, Donald Larson, and Rita Butzer. 1997. "The to differ across countries. The forecasts suggest that, on Determinants of Agricultural Production: A Cross-Country plausible assumptions about growth, average per capita Analysis." World Bank, International Economics Department, energy consumption in the region will double between Washington, DC. Draft. 1990 and 2000 and double again between 2000 and 2010. Mundlak, Yair, Donald Larson, and Al Crego. Forthcoming. The policy implications of the study are stark. Detailed "Agricultural Development: Issues, Evidence and Conse- examination of the evidence suggests that the average quences." In International Economics Association Proceedings. GDP elasticity for the region is over unity, around 1.2, and the average price elasticity is quite small, around -0.3. Given the high growth rates in these countries, these Energy Demand in Asian estimates suggest that energy demand will grow rapidly Developing Economies and that restraining that growth to any significant extent would require implausible increases in national energy Ref. no. 679-19C prices. While the estimates for individual countries are Energy demand in developing countries merits research more uncertain, what matters for the global energy mar- attention for two main reasons. First, developing coun- ket and the global environment is the average for the tries play an increasingly important role in world energy region as a whole. markets, with their consumption of commercial energy Responsibility: International Economics Department, increasing substantially over the past two decades. The Commodity Policy and Analysis Unit-Takamasa increase has been particularly pronounced among the Akiyama (takiyama@worldbank.org) and Shane Streifel. developing countries of East and Southeast Asia and is With H. Pesaran, Cambridge University; R. Smith, Birbeck expected to continue into the next century. Second, the College; and J. Mitchell. growing concern about the environment and the global Completion date: December 1996. nature of environmental problems have focused atten- Report: tion on the pattern and trend of energy demand in devel- Pesaran, H., R. Smith, and Takamasa Akiyama. Forthcoming. Energy oping economies. More than half the world's carbon Demand in Asian Economies. dioxide emissions originate in the energy sector, and a large and increasing share of the emissions will be from lower-middle-income countries. A detailed analysis of Pollution Control by Electric Utilities energy demand and the possibilities of interfuel substi- tution in Asian developing economies is therefore of great Ref no. 679-94C importance to a better understanding of global environ- When advising governments on pollution control, econ- mental problems and the energy needs of these economies. omists have traditionally argued in favor of using eco- This research reviewed recent patterns of energy con- nomic incentives-especially effluent taxes and sumption in Asian developing countries, modeled energy marketable pollution permits-as an alternative to demand using econometric and end-use approaches, pro- command-and-control regulation. The most significant jected the energy demand of the major Asian countries experiment in the use of economic incentives is the mar- to 2010, and analyzed the effects of energy-related poli- ket for sulfur dioxide allowances (pollution permits) in cies on energy demand. the United States. This research examined the gains from The study used an econometric approach to obtain the trading of these allowances among electric power estimates of income and price elasticities of sectoral energy plants. Specifically, it asked how large the potential cost demand disaggregated by fuel type. For most sectors it savings from the allowance trading are and how much paid special attention to adjustment dynamics, devel- of these gains were realized during the first year of the oping and using dynamic fuel share equations for this allowance market's operation. 45 Environmentally Sustainable Development To answer these questions requires estimates of the Completion date: December 1996. marginal cost of abating sulfur dioxide emissions for all Report: electricity-generating units. To provide econometric esti- Cropper, Maureen, Dallas Burtraw, Curtis Carlson, and Karen mates of marginal abatement costs and the potential gains Palmer. 1996. "SO2 Control by Electric Utilities: What Are the from trade, the study assembled a database covering more Gains from Trade?" Paper presented at the National Bureau for than 800 coal-fired generating units for 1985-94. For each Economic Research Summer Institute, Cambridge, Mass., July. generating unit the database included annual observations on labor, generating capital, abatement capital, and inputs of high- and low-sulfur coal. It also included information Measuring the Health Effects of Air Pollution on the emissions standard each generator faced, its output, in Developing Countries its mean annual emissions rate, and its input prices. The study used these data to answer two questions: Ref no. 679-96C How large are the potential gains from allowance trad- In evaluating the health damage from air pollution, pol- ing that stem from the difference between abatement costs icymakers in developing countries often must extrapo- at current emissions levels and the least-cost solution late results from studies in industrial countries. These for achieving these emissions levels? Are these gains being extrapolations may be misleading, for two reasons. First, realized? Of particular interest was how the scope of trad- pollution levels, especially for particulates, are often three ing affects the potential gains from trade. According to to four times higher in developing countries than in indus- the Clean Air Act Amendments of 1990, reductions in sul- trial ones. Second, people in developing countries die fur dioxide emissions are to be achieved in two phases. earlier and from different causes than do people in indus- In the first phase, which began in 1995, the 110 dirtiest trial countries. power plants (referred to as phase 1 plants) were to reduce This study related levels of particulate matter to daily their average emissions. Beginning in 2000 all fossil fuel deaths in Delhi, India, between 1991 and 1994 and com- power plants larger than 25 megawatts must reduce their pared the results with those from U.S. studies. A well- average emissions. (Those plants affected only by the sec- known study of the effects of total suspended particulates ond phase of emissions reductions are usually termed (TSP) on daily deaths in Philadelphia found that an phase 2 plants.) increase in TSP of 100 micrograms per cubic meter The study's most important finding is that the gains increased nontrauma deaths by 6.7 percent (Joel Schwartz from trades among phase 1 firms are modest, especially and Douglas Dockery, "Increased Mortality in relative to the gains when both phase l and phase 2 plants Philadelphia Associated with Daily Air Pollution participate in the market. One reason that phase 1 gains Concentrations," American Review of Respiratory Disease are so modest, especially in comparison with earlier pre- 145:600-04, 1992). In Delhi the same change in TSP dictions, is the fall in low-sulfur coal prices. If plants can increases deaths by only 2.3 percent. The reason is that attain the phase 1 emissions target by substituting low- people in Delhi die from causes less susceptible to the for high-sulfur coal, the marginal cost of abating a ton of effects of air pollution. The main effects of acute expo- sulfur dioxide is a function of the price difference between sure to air pollution on daily deaths occur through impacts low- and high-sulfur coal. As this difference declines, so on cardiovascular and respiratory disease. While 47 per- does the marginal cost of abatement. As locational price cent of deaths in Philadelphia are attributable to cardio- differences disappear, marginal abatement costs tend to vascular disease, only 23 percent of deaths in Delhi are. be equalized, lowering the potential gains from trade. Although the effect of an increase in air pollution on This phenomenon becomes less important in phase 2, nontrauma deaths is smaller in Delhi than in Philadelphia, when more units must rely on abatement capital to meet the same increase causes more life-years to be lost in Delhi. the still tighter emissions target. This is because more deaths occur at younger ages in Preliminary results suggest that initial allowance prices Delhi than in Philadelphia and because the effect of air compare favorably with the estimate of the marginal cost pollution on deaths is greater at younger ages in Delhi. of abatement in the least-cost solution, suggesting that To illustrate, a 100-microgram reduction in daily TSP lev- gains from trade are being realized. els should reduce nontrauma deaths by 1,383 in Delhi Responsibility: Policy Research Department, Environ- (1991 data) and by 3,438 in Philadelphia (1989 data). But ment, Infrastructure, and Agriculture Division-Maureen the total number of life-years saved is higher in Delhi L. Cropper (mcropper@worldbank.org). With Curtis (51,344) than in Philadelphia (47,331). Carlson, Charles Griffiths, and Nathalie B. Simon, The study leads to two conclusions. First, estimating University of Maryland; and Santosh Makhijani, Central the number of nontrauma deaths associated with air pol- Pollution Control Board, India. lution in a developing country city on the basis of U.S. 46 Environmentally Sustainable Development studies may yield misleading results. In Delhi calcula- The project conducted field surveys of floral and fau- tions based on U.S. studies would overestimate the num- nal biodiversity at sites selected to include a variety of ber of nontrauma deaths associated with air pollution. existing plantations of different ages and species com- Second, the effects of air pollution on deaths by age group positions in tropical Asia and the Pacific (Australia, may be very different in developing countries than in the Hawaii, and Sri Lanka), Africa (Congo, Malawi, and South United States. In the Philadelphia study the peak effects Africa), and Latin America (Brazil and Costa Rica). The occur among people aged 65 and older. In Delhi peak data from the surveys were used to test the hypotheses effects occur in the age group 15-44, implying that a death at both local and pantropical levels and to identify the associated with air pollution causes more life-years to geographical and biophysical conditions, landscape types, be lost. and plantation management options that can lead to Responsibility: Policy Research Department, Environ- significant improvements in biodiversity. ment, Infrastructure, and Agriculture Division-Maureen In June 1996 an international symposium, Accelerating L. Cropper (mcropper@worldbank.org) and Nathalie B. Native Forest Regeneration on Degraded Tropical Lands, Simon. With P. K. Sharma, New Delhi Municipal was organized in collaboration with the U.S. Department Committee; and Santosh Makhijani, Central Pollution of Agriculture Forest Service and the International Union Control Board, India. of Forestry Research Organizations to evaluate the results Completion date: April 1997. of this research. The meeting was attended by 80 research Reports: scientists, forest resource managers, and policymakers Cropper, Maureen L., Nathalie B. Simon, Anna Alberini, Seema from 21 countries. Workshops yielded a general consen- Arora, and PK. Sharma. Forthcoming. "The Health Benefits of sus on the validity of the hypotheses and recommenda- Air Pollution Control in Delhi." American Journal ofAgricultural tions on plantation species and management practices Economics. for effective rehabilitation of native forest biodiversity Cropper, Maureen L., Nathalie B. Simon, Anna Alberini, and P.K. under a range of conditions. Discussions suggested a Sharma. 1997. "Measuring the Impact of Air Pollution on Health: broad array of uses for this rehabilitation approach, rang- The Case of Delhi." Paper presented at the Eastern Economic ing from short-rotation commercial forestry to commu- Association Meetings, Washington, DC, April 4. nity-based forest management and restoration of forest ecosystems. While the general principles derived from the research hold for all these applications, the manage- The Catalytic Effect of Tree Plantings ment objectives at any site will have to be dictated by on the Rehabilitation of Native Forest stakeholders' needs and priorities. Biodiversity on Degraded Tropical Responsibility: Agriculture and Natural Resources Land: An Exploratory Analysis Department, Agriculture and Forestry Systems Division- Jim Douglas (jdouglas@worldbank.org). With John A. Ref. no. 680-05C Parrotta, U.S. Department of Agriculture Forest Service. Many indigenous forest species are becoming endan- The USDA Forest Service, the Center for International gered because of inappropriate and unsustainable land Forestry Research, and the Overseas Development use and fragmentation of natural forest ecosystems. Administration (United Kingdom) contributed funding Preliminary research in Puerto Rico and in several tropical for the research. Additional financial support and staff countries showed that tree plantings (exotic or native) on time were provided by research institutions and inter- degraded tropical land can dramatically increase the oth- national organizations collaborating in the field studies. erwise slow rate of recolonization of native forest species. Completion date: September 1996. The plantations seem to catalyze natural forest succession. Validation of such observations in other regions and a better understanding of the underlying ecological Cost-Effectiveness Analysis of Coral Reef processes are needed. The principal goal of this 18-month Management and Protection: A Least-Cost pilot project was to provide a strong scientific founda- Model for the Developing Tropics tion on plantation-catalyzed native forest rehabilitation. The research examined a series of hypotheses relating to Ref. no. 680-08 the importance of environmental and management fac- The primary research question asked by this project is, tors that influence native forest regeneration. It compared What is the most cost-effective means for achieving a biodiversity development on tree plantations and on given level of coral reef health? A supplementary unplanted control sites on moderately to highly degraded question that recognizes the realities of analyzing this land in several tropical settings. question in the developing tropics is, How can the 47 Environmentally Sustainable Development limited ecological data available in developing countries tions involved in coastal zone management. It be used most efficiently in identifying least-cost also includes activities to foster cooperation among solutions? countries on coordinated environmental policies, There are many practical issues in devising cost- strategies, and action plans in the coastal zone and to pro- effective policy interventions to manage and protect coral vide a consultation mechanism for formulating, reefs under pressure from human and economic activi- strengthening, harmonizing, and enforcing environmental ties. There is also a key conceptual barrier: a lack of quan- laws and regulations. Workshops have been held titative models for comprehensive economic and in Montego Bay, Jamaica, in November 1995 and March ecological analysis of the effects of economic activity on 1997, and in Curaqao, in November 1995 and April coral reefs. This lack has made it difficult to rank policy 1996. interventions and investments by cost-effectiveness and This study is complemented by another research thus to develop least-cost plans to manage and protect project, Marine System Valuation: An Application to Coral coral reefs. Reefs in the Developing Tropics (ref. no. 681-05). That The central focus of this research is to develop a least- project is deriving improved estimates of the benefits of cost model of coral reef management and protection. A coral reefs to be used in conjunction with the cost key output of this model will be an optimized cost func- function. tion relating marginal costs of reef conservation to coral Responsibility: Latin America and the Caribbean, reef quality. The cost function can be used to identify a Country Department III, Environment and Urban set of least-cost interventions for a given target of coral Development Division-Richard M. Huber (rhuber reef quality. @worldbank.org) and Carlo Rietveld, and Office of the The project has developed a prototype model that is Director, Norman Hicks; and Environment Department, capable of measuring the cost-effectiveness of single pol- Land, Water, and Natural Habitats Division-Jan Post. icy interventions, though it is not yet capable of devel- With H. Jack Ruitenbeek, H. J. Ruitenbeek Resource oping an optimized set of interventions. In the prototype Consulting Limited; Frank Rijsberman, Rolf P. M. Bak, J. model cost-effectiveness is derived in three steps. First, Peter M. Kouwenhoven, R. Susie Westmacott, and a baseline is established by developing annual forecasts Danielle Hirsch, Resource Analysis Consulting; and of economic activity and implied pollutant levels for 60 Steven Dollar and Mark Ridgely, University of Hawaii. years and, on the basis of the pollutant levels and oceano- The Netherlands Environment Consultant Trust Fund, graphic and biotic conditions, annual forecasts of coral the Norway Consultant Trust Fund, the Swedish reef health. The measure of coral reef health is coral reef Consultant Trust Fund, and the Canadian Consultant abundance, the percentage of the reef covered by live Trust Fund are contributing funding for the research. coral. Second, the total cost (as a present value) of a pol- Various organizations in Jamaica and Curaqao are con- icy intervention is derived, along with annual pollutant tributing staff time. levels and coral reef abundance after the policy inter- Completion date: June 1998. vention is in place. Finally, the cost-effectiveness is esti- Reports: mated on an annual basis, taking into account Huber, Richard, Jack Ruitenbeek, Steve Dollar, Mark Ridgely, improvements in reef health over the entire period but Frank Rijsberman, and Subodh Mathur. 1996. "A Least-Cost giving greater weight to early effects. The measure of Model for Coral Reef Management and Protection, Phase I: cost-effectiveness is the unit cost of the impact of the inter- A Prototype Model." World Bank, Latin America and the vention (the cost of a 1 percent increase in coral reef Caribbean, Country Department III, Washington, DC. health). Resource Analysis. 1995. "Costs Model for Waste Water Treatment, Preliminary estimates of unit costs have been prepared CORAL." World Bank, Latin America and the Caribbean, for 10 policy interventions, using data loosely based Country Department III, Washington, DC. on Montego Bay, Jamaica. In this case the key factors Rijsberman, Frank, Richard Huber, Susie Westmacott, and Danielle believed to be responsible for deterioration of the reef are Hirsch. 1995. "Cost-Effectiveness Analysis of Coral Reef sediment and nutrient loads, and the most cost-effective Management and Protection: A Case Study of Curaqao." World intervention is a sewage outfall and pump station that Bank, Latin America and the Caribbean, Country Department takes the sediment beyond the reef edge. Other case stud- m, Washington, DC. ies include the southern coast of Curaqao and the Westmacott, Susie, Frank Rijsberman, and Richard Huber. 1996. Maldives. "Cost-Effectiveness Analysis of Coral Reef Management and The dissemination strategy centers on in-country work- Protection: A Case Study of the Maldives." World Bank, Latin shops and seminars for user groups and stakeholders, America and the Caribbean, Country Department III, government agencies, and nongovernmental organiza- Washington, DC. 48 Environmentally Sustainable Development The Economics of Industrial Pollution China, India, Indonesia, Mexico, the Philippines, and Control in Developing Countries South Africa. Research results have been widely disseminated out- Ref. no. 680-20 side the Bank through traditional print sources, through Industrial pollution has become a serious problem in a Website (http://www.worldbank.org/NIPR), and through many developing countries during the past two decades. several seminars at environmental agencies in Mexico But support for regulation of industrial pollution has and the United States and at universities in Singapore remained lukewarm from many policymakers, despite and the United States. research suggesting large benefits from pollution reduc- Responsibility: Policy Research Department, Environ- tion even in very poor countries. There is widespread ment, Infrastructure, and Agriculture Division-David concern about diverting resources to pollution control Wheeler (dwheelerl@worldbank.org), Sheoli Pargal, when poverty, illiteracy, and infant mortality are still Mead Over, Hemamala Hettige, Susmita Dasgupta, Benoit major problems. The resistance stems in part from uncer- Laplante, Mainul Huq, Shakeb Afsah, David Witzel, tainty about which pollution control instruments will David Gray, Muthukumara Mani, Raymond Hartman, actually work under developing country conditions. and David Shaman. Equally important is concern about how costly pollu- Completion date: June 1999. tion reduction may be. This research project is designed Reports: to address both of these critical issues. Afsah, Shakeb, Hemamala Hettige, and David Witzel. 1996. How much does pollution control cost? Until recently, "Implementation of the Pilot Program for Pollution Release and empirical analysis of abatement costs in developing coun- Transfer Registry: An Action Plan." Paper presented at the tries had been almost nonexistent. This research project Institute de Nacional Ecologia, Mexico City, July. will provide a comprehensive assessment of abatement Afsah, Shakeb, Benoit Laplante, and Nabiel Makarim. 1996. costs at the plant level, contributing to cost-benefit analy- "Program-Based Pollution Control Management: The Indonesian ses of pollution control options in China in fiscal 1998. PROKASIH Program." Policy Research Working Paper 1602. What works in practice? Many developing countries World Bank, Policy Research Department, Washington, have adopted regulations to improve environmental qual- DC. ity. The strictness of monitoring and enforcement has var- Dasgupta, Susmita, Mainul Huq, and David Wheeler. 1997. "Bending ied widely across countries, however, and often even the Rules: Discretionary Pollution Control in China." Policy across regions within a country. Some jurisdictions have Research Working Paper 1761. World Bank, Policy Research comprehensive systems of plant-level emissions report- Department, Washington, DC. ing and inspection; others have limited systems or none. Dasgupta, Susmita, and David Wheeler. 1997. "Citizen Complaints Some jurisdictions have imposed significant penalties on as Environmental Indicators: Evidence from China." Policy noncompliant firms; others have been reluctant to impose Research Working Paper 1704. World Bank, Policy Research any penalties. Where formal regulation is absent, local Department, Washington, DC. communities with sufficient interest and power have Dion,Catherine,PaulLanoie,andBenoitLaplante. 1997. "Monitoring sometimes pursued informal regulation, negotiating pol- Pollution Regulation: Do Local Conditions Matter?" Policy lution reduction agreements with neighboring factories. Research Working Paper 1701. World Bank, Policy Research Whatever the degree of formal or informal pressure Department, Washington, DC. to reduce pollution, industrial facilities exhibit widely Hartman,RaymondS.,MainulHuq, andDavid Wheeler. 1997. "Why varying responsiveness. This research examines the effect Paper Mills Clean Up: Determinants of Pollution Abatement in of different policies on plant-level pollution and the cir- Four Asian Countries." Policy Research Working Paper cumstances under which local communities have 1710. World Bank, Policy Research Department, Washington, improved environmental quality despite the absence of DC. formal environmental standards. The results have Hartman, Raymond S., Manjula Singh, and David Wheeler. improved the understanding of how effective different Forthcoming. "The Cost of Air Pollution Abatement." Applied policies and institutional arrangements have been in Economics. reducing pollution. Hartman, Raymond S., and David Wheeler. Forthcoming. "The The findings of this research should help new regu- Microeconomic Analysis of Pollution Abatement Regulation." latory agencies in developing countries develop pollu- Resource and Energy Economics. tion control systems that are both cost-effective and Hettige, Hemamala, Mainul Huq, Sheoli Pargal, and David Wheeler. appropriate for conditions in those countries. The pro- 1996. "Determinants of Pollution Abatement in Developing ject focuses on seven countries, in collaboration with the Countries: Evidence from South and Southeast Asia." World World Bank regional vice presidencies concerned: Brazil, Development 24(12):1891-1904. 49 Environmentally Sustainable Development Hettige, Hemamala, and David Wheeler. 1996. "An Environmental The project assembled comprehensive and up-to-date Performance Analysis System for Industrial Plants in Mexico." district-level data sets for Pakistan and India. It then esti- Sector Report. World Bank, Latin America and the Caribbean, mated total factor productivity using the Tornquist-Theil Country Department I, Washington, DC. index, with careful attention to system definition, the Hettige, Hemamala, and David Witzel. 1996. "Setting Pollution range of inputs and outputs and their valuation, and Control with IPPS: Mexico Industrial Pollution Project." Sector indexing methods. To aid comparisons for relatively Report. World Bank, Latin America and the Caribbean, Country homogeneous ecological regions and help determine Department II, Washington, DC. whether productivity slowdown or environmental degra- Pargal, Sheoli, and David Wheeler. Forthcoming. "Informal dation (or both) is associated with particular cropping Regulation in Developing Countries: Evidence from Indonesia." systems and ecologies, estimation of total factor pro- Journal of Political Economy. ductivity was disaggregated to the level of districts, Wheeler, David. 1996. "Equilibrium Pollution and Provincial grouped on the basis of production system and technol- Development in China: An Analysis of the Levy System." Paper ogy level. presented at the New England Universities Development The results confirm that there has been a slowdown Consortium Conference, Boston University, November. in productivity growth in these irrigated systems, with Wheeler, David, and others. 1996. "New Models of Pollution Control the largest slowdown in rice-wheat systems. In Pakistan and Priority Setting." Paper presented at the U.S. Environmental total factor productivity growth was negative in the ProtectionAgency, Office of InternationalActivities, Washington, rice-wheat systems of both the Punjab and the Sindh. DC. The research provides hypotheses on reasons for differ- ences in total factor productivity trends according to crop- ping system, country, and time period. Resource Total Factor Productivity Growth degradation appears to be an important factor, especially in the Post-Green Revolution Agriculture in Pakistan. of Pakistan and Northwest India The research findings underline the importance of increasing support to technology generation and dis- Ref. no. 680-34C semination in the region, with an emphasis on promot- This research aimed to develop and apply appropriate ing the long-term sustainability of major irrigated methods to measure recent trends in total factor production systems. They strongly support World productivity in irrigated agriculture in northwest India Bank-supported efforts to understand and arrest resource and Pakistan. In recent years there has been much degradation in the rice-wheat systems of the region, as concern about productivity growth and sustainability well as Bank lending strategies to strengthen research in these irrigated agricultural systems. These systems are on natural resource management in specific production critical to the food security and livelihoods of some 500 systems. million people. Accumulating micro-level evidence The results of the research will be discussed widely suggests that intensification of cropping is resulting in seminars at the Bank and in the participating coun- in degradation of the land and water resource base tries, where senior policymakers have expressed keen and negating the effects of technologically induced interest in the study productivity growth. Responsibility: Agriculture and Natural Resources But there is much controversy about the aggregate Department, Agriculture and Forestry Systems Division- performance of the agricultural sector. Although growth Derek Byerlee (dbyerlee@worldbank.org); and South in crop yields-especially for the two main crops, wheat Asia, Country Department II, Agriculture and Water and rice-has slowed sharply in the past decade, the Operations Division-Benoit Blarel, and Country evidence on overall performance as measured by growth Department I, Agriculture and Natural Resources in total factor productivity is inconclusive. In Pakistan Division-Rashid Faruqee. With Mubarik Ali, AVRDC, especially, recent estimates of total factor productivity Taiwan (China); Rinku Murgai, University of California show conflicting trends in the post-green revolution at Berkeley; and Greg Traxler, University of Alabama. period, ranging from significantly positive to negative Completion date: December 1996. growth over the past two decades. Given the general Reports: weaknesses in the methods and data used to measure Ali, Mubarik. "Technological Change and Resource Productivity in total factor productivity, there is an urgent need to mea- Pakistan's Agriculture." sure it and to interpret trends in terms of indicators of Murgai, Rinku. "Diversity in Economic Growth and Technical technological progress, changes in cropping patterns, and Change: A District-wise Disaggregation of the Punjab and land degradation. Haryana Growth Experiences." 50 Environmentally Sustainable Development Improving the Quality of Teak Germination: Measuring the Impact of Climate Change A Study of Seed Dormancy and Germination on Indian Agriculture Ref. no. 680-56C Ref no. 680-63C Although teak has been cultivated on plantations for In recent years there has been growing concern that more than a century, the methods for raising its planting changes in climate will lead to significant damage to both stock have changed little in that time. Foresters have paid market and nonmarket sectors. This project examined scant attention to what is required for optimal growth, how climate change will affect agriculture in develop- in part because teak, ideally suited to plantation culti- ing countries by exploring the case of India. That coun- vation, will grow regardless of the quality of planting try is well suited for this research for three reasons. First, stock. But that does not mean that all seedlings planted India encompasses a large land mass with a range of cli- will produce well: only about a quarter will attain 100 mates. By examining how farmers have adapted to the percent of their growth potential. With teak one of the climates, the research could begin to understand how world's most valuable timbers, the poor planting stock they might adapt to climate change. Second, India has leads to an enormous loss of resources. detailed agricultural, climatological, and hydrological The main problem is poor germination in nurseries. statistics. Third, the country has a mix of modern and Only 3 percent of seeds result in a plantable seedling, subsistence farms, so the study could examine how both and because of irregular dormancy cycles, germination systems adapt to climate change. is spread over a long period, making comparison of The study relied on two independent methods-an seedlings for culling difficult. To produce uniform, empirical production function approach and a Ricardian high-quality planting stock, germination needs to be model-to measure climate effects. The empirical pro- rapid, complete, and synchronized. To help make this duction function approach estimated the effects of soil, possible, this study investigated cycles of dormancy water, climate, and other major factors of production on and studied the response of nondormant seeds to satu- yields farmers receive for specific crops. A second model ration and temperature variation to induce germina- could then be estimated to determine crop mixes for each tion. Greater understanding of the nature of dormancy climate and location. Combining these two estimates may eventually help in identifying artificial ways to yielded estimates of farm net revenue as a function of cli- break it. mate, from which welfare estimates could be made for The study collected seed from a range of important different climate outcomes. The Ricardian model, a sources, confirmed the germination protocol for non- reduced form estimation of this process, estimated the dormant seed, and tested seeds during a year's storage relationship between net revenue and climate directly to detect any possible annual cycle in seed dormancy. from the data. Both models thus yielded a relationship Nine samples of seed from seven sources were included between net revenue and climate variables that could be in the initial investigations: five from India, one from used to forecast the impact of any specific climate change. Malaysia, and three from Central America. Results were The research found that, overall, climate change will encouraging, with three of the samples showing 30-50 have a negative effect on Indian agriculture, though vary- percent germination after only 10 days. During ing by season and region. But farmers' adaptation to cli- February-May 1996 no obvious change in the dormancy mate change-through changes in farming practices, of any sample in storage was detected. cropping patterns, and use of new technologies-will An important and unexpected issue was raised dur- help to ease the impact. These findings suggest a need ing a visit and discussions with DANIDA scientists in to consider crop price support and subsidies to major March 1996 concerning the character of fruits and seeds agricultural inputs; programs to promote technology of dry-zone teak from India. Compared with moist-zone development, including breeding of heat-tolerant plant teak, fruits of the dry-zone teak have a more restricted species; and ways to address locational and resource water uptake when moistened and seeds do not readily scarcity issues. germinate when removed from the fruit. Investigations The study also found that subsistence farmers adapt were undertaken to determine the nature and scale of less to climate change than do commercial farmers. This these differences. may necessitate appropriate mitigation strategies, includ- Responsibility: Agriculture and Natural Resources ing financial and technical support. Department, Agriculture and Forestry Systems Division- The study's findings were disseminated at a work- Jim Douglas (jdouglas@worldbank.org). With J. A. shop, the Impact of Climate Change on Indian and Mackenzie. Brazilian Agriculture, held in May 1997 at the World Bank Completion date: September 1996. for staff of the Bank and U.S. government agencies. 51 Environmentally Sustainable Development Responsibility: Agriculture and Natural Resources It was based mainly on a desk study in Washington, DC. Department, Sector Policy and Water Resources In addition, case studies of India and Indonesia were Division-Ariel Dinar (adinar@worldbarA.org). With carried out by local consultants based on existing Jyoti Parikh and Kavi Kumar, Indira Gandhi Institute of information. Development Research; Robert Evenson and Robert The study found that Asian countries import signifi- Mendelsohn, Yale University; Stephen Lonergan, cant amounts of secondary raw material from OECD University of Victoria, Canada; and Apurva Sanghi, countries. China and Indonesia are among the biggest University of Chicago. importers of waste paper, followed by India and Thailand. Completion date: May 1997. India is the largest importer of both ferrous and nonfer- Reports: rous metal scrap. Imports of waste plastic have met with Dinar, Ariel, and H. Beach. Forthcoming. Measuring the Impact of much controversy, and Indonesia banned all such imports the Adaptation to Climate Change in Agriculture and Other Sectors: in 1993. Literature Review. World Bank Technical Paper. Washington, DC. The Bank has been promoting recycling as part of its Evenson, Robert, and J. McKinsey. Forthcoming. Technology-Climate urban projects in borrower countries. But knowledge Interactions in India: Was the Green Revolution Climate-Friendly? about the magnitude of trade in secondary raw materi- World Bank Technical Paper. Washington, DC. als and the effect of this trade on domestic recycling activ- Kumar, Kavi, and 1yoti Parikh. Forthcoming. Climate Change Impacts ities is limited. The findings from this scoping study on Indian Agriculture: The Ricardian Approach. World Bank enhance the Bank's understanding of the issues involved Technical Paper. Washington, DC. and provide a basis for an in-depth study and for initi- Lonergan, Stephen. Forthcoming. Climate Warming in India. World ating discussions with policymakers in borrower coun- Bank Technical Paper. Washington, DC. tries. The study has implications for policies and Sanghi,Apurva, Robert Mendelsohn, andArielDinar. Forthcoming. decisionmaking in solid waste management in develop- The Climate Sensitivity ofIndian Agriculture. World Bank Technical ing countries and for the large informal sector involved Paper. Washington, DC. in waste recycling. Highlights from the study will be incorporated into sector work on solid waste manage- ment in Indonesia. Waste Imports for Recycling Responsibility: Asia Technical Department, Environ- ment and Natural Resources Division-Maritta Ref no. 680-71C Koch-Weser (mkochweser@worldbank.org) and Uma Resource recovery and recycling have gained momen- Subramanian. With Steffen Beerbaum, University of tum in many countries as a result of environmental con- Stuttgart-Hohenheim; Isono Sadoko; V. K. Sharma, Indira cerns worldwide. An emerging but important aspect of Gandhi Institute of Development Research; and Alok this economic activity is the import of secondary raw Srivatsav, University of Maryland. materials (paper, pulp, plastics) from OECD countries by Completion date: August 1996. recycling industries in developing countries. This trade has important economic and environmental implications, both positive and negative. It raises two broad questions. Incentives for Pollution Control First, what are the economic incentives driving these in Developing Countries: international flows of waste? And second, what are the The Role of Capital Markets economic, environmental, and social externalities asso- ciated with waste trade from the perspective of a devel- Ref no. 680-76C oping country? It is often argued that firms in developing countries lack Before addressing these questions, however, it is impor- incentives to invest in pollution control efforts because tant to understand the dimensions of waste trade, the of weak monitoring and enforcement of environmental kind of resources being shipped for recycling in devel- regulations. But this assumes that the regulator is the only oping countries, the principal sources and destinations, agent that can penalize a firm for poor environmental the transport costs, and the markets for the recycled prod- performance or reward it for good performance. Another ucts. This project was designed as a scoping study to gen- possible source of incentive is capital markets, which may erate this baseline information and provide the framework react negatively to the announcement of an adverse envi- for a larger, in-depth study. The project assessed the mag- ronmental incident involving a firm (such as a spill or a nitude and composition of the trade in waste material, permit violation) or positively to the announcement of the direction of flows, and the related international and greater pollution control effort (such as the adoption of national regulations, policies, technologies, and practices. cleaner technologies). To the extent that capital markets 52 Environmentally Sustainable Development react to environmental news, the inability of regulatory ing the benefits: direct use valuation, contingent valua- institutions in developing countries to provide incentives tion, and marine system biodiversity valuation. The for pollution control efforts may not be as serious a mat- study will apply and refine each of these valuation meth- ter as is generally believed. ods and then develop a synthesized benefits function. This research set out to determine whether capital mar- It will also identify appropriate policy and institutional kets in developing countries do react to the announce- reforms for improving the capture of resource values ment of firm-specific environmental news. It used associated with coral reefs in developing countries and event-study analysis to review the experience of publicly outline a potential role for the World Bank and other traded companies in Argentina, Chile, Mexico, and the development assistance agencies in helping to effect these Philippines in 1990-94. The study drew on two data reforms. sources: daily stock market data from each study coun- The study applies direct use valuation to provide a try and environmental news involving publicly traded baseline analysis of the direct use benefits accruing to the companies collected from the principal newspapers read coral reefs at Curaqao and Montego Bay, Jamaica. Well- by the financial community in each study country. established techniques are available for estimating eas- The evidence from these countries reveals that capi- ily quantifiable values associated with direct consumptive tal markets do react to environmental news and that and nonconsumptive uses of reefs (such as tourism, dem- certain sectors are affected more than others. Preliminary ersal fisheries, and mariculture). The study will use con- findings also indicate that market reactions, whether pos- tingent valuation to monetize amenity and other itive or negative, follow a sectoral pattern. noninstrumental uses of the coral reef site in Montego Responsibility: Policy Research Department, Environ- Bay. ment, Infrastructure, and Agriculture Division-Susmita The project's work on marine system biodiversity val- Dasgupta (sdasgupta@worldbank.org) and Benoit uation will be more involved. It will require identifying Laplante. With Nlandu Mamingi, University of West appropriate physical or biophysical indicators in marine Indies, Barbados; Maria Teresa Correa; and Deric Miodrag. systems to which economic values might be attached, Completion date: June 1997. and appropriate, quantifiable indicators of biodiversity. Reports: It also will require identifying appropriate methods for Dasgupta, Susmita, Benoit Laplante, and Nlandu Mamingi. 1997. marine system valuation-based on methods used for "The Role of Capital Markets for Pollution Control in Developing terrestrial systems-and for imputing values to natural Countries: Evidence from Argentina, Chile, Mexico, and the products. Once the study has identified potential meth- Philippines." World Bank, Policy Research Department, ods for marine biodiversity valuation, it will evaluate Washington, DC. them for policy relevance, methodological soundness, Lanoie, Paul, Benoit Laplante, and Mait6 Roy. 1997. "Can Capital operational tractability, and data availability. Up to three Markets CreateIncentives forPollutionControl?" PolicyResearch of the methods will then be subjected to a preliminary Working Paper 1753. World Bank, Policy Research Department, field test. Washington, DC. The dissemination strategy will focus on in-country workshops and seminars targeting those involved in coastal zone management. The workshops will provide Marine System Valuation: An Application training in conducting the contingent valuation survey to Coral Reefs in the Developing Tropics and in analyzing and collecting data. Responsibility: Latin America and the Caribbean, Ref. no. 681-05 Country Department III, Environment and Urban This project is developing improved methods for deriv- Development Division-Richard M. Huber (rhuber ing estimates of coral reef benefits. Such estimates can @worldbank.org) and Carlo Rietveld, and Office of the be used in conjunction with the cost function being devel- Director-Norman Hicks; Policy Research Department, oped in a related study (Cost-Effectiveness Analysis of Environment, Infrastructure, and Agriculture Division- Coral Reef Management and Protection, ref. no. 680-08) Kenneth Chomitz; Global Environment Facility- to help in identifying an optimal set of interventions for Raffaello Cervigni; and Environment Department, Land, improving coral reef health. Water, and Natural Habitats Division-Jan Post. With The project adapts and refines existing valuation meth- H. Jack Ruitenbeek, H. J. Ruitenbeek Resource Consulting ods so that they take account of the key characteristics Limited; Daniel M. Putterman, Biodiversity Technology of coral reefs and derive more accurate estimates of coral Transfer Center; Clive Spash, Cambridge University; Nick reef benefits for selected sites. To keep the analysis Hanley, British University of Stirling, Scotland; Frank R. tractable, the study focuses on three methods for valu- Rijsberman, J. Peter M. Kouwenhoven, R. Susie 53 Environmentally Sustainable Development Westmacott, and Danielle Hirsch, Resource Analysis James Fry, Gill Lavers, Martin Todd, and Andy Duff, LMC Consulting. The Netherlands Consultant Trust Fund is International. contributing funding for the research. Various organiza- Completion date: January 1997. tions in Jamaica and Curagao are contributing staff time. Completion date: December 1999. Report: Spatial Environmental Processes Huber, Richard M., H. Jack Ruitenbeek, and Daniel M. Putterman. 1997. "Marine Resource Valuation: An Application to Coral Reefs Ref. no. 681-35 in the Developing Tropics." World Bank, Latin America and the This project is undertaking two studies of land use in Caribbean, Country Department III, Washington, DC. the north of Thailand using spatially disaggregated data. The first study focuses on areas-watersheds near the cities of Chiang Mai and Chiang Rai-that are typical of An Evaluation of Cane Payment Systems montane watersheds in mainland Asia. The results are in Selected Sugar Industries therefore likely to be relevant to agricultural practices and areawide developments in similar environments in Ref no. 681-30C the Lao People's Democratic Republic, Myanmar, and Sugar cane is milled soon after cutting in order to pro- Vietnam. The study will quantify the effect of changes duce raw sugar. The amount of raw sugar produced in population, roads, and agricultural prices on five broad depends on the quality and quantity of sugar cane deliv- types of land use: primary forest (virgin forest), secondary ered by the farmers and on the recovery of sugar from forest (regrowth), tree crops (plantations), paddy rice the cane in the milling process. The cane growers and the (subsistence agriculture), and upland crops (cash crops). mills share in the revenue from the sale of raw sugar The second study will examine the effect of levels of the according to a variety of payment arrangements. The same variables on spatial variation in land use across all cane payment system is the linchpin of the sugar indus- the northern provinces of Thailand in 1986. try. Since it determines the financial incentives for pro- The analysis should help answer such questions as ducers and millers, it influences the sugar content of the these: If the prices of rice and other agricultural com- cane delivered to the mills, which depends on many fac- modities change, what would be the quantitative effect tors that farmers can control, and the quantity of raw on land use in these watersheds? At what prices would sugar that can be recovered from the sugar cane, which land be converted to agricultural uses? At what prices depends on the operation, maintenance, and technical would farmers shift from subsistence crops to field or capabilities of the mill. tree crops? What would be the environmental conse- This research surveyed the cane payment system in quences of these changes in terms of soil erosion and sil- 12 industrial and developing countries. The survey iden- tation of rivers? What would be the quantitative effects tified factors associated with the sugar cane industry in on land use of population increases in the region? Does each country, such as the number and size of growers, the cost of land conversion increase steeply with declin- the historical performance of the sugar cane industry, and ing soil quality and inaccessible topography? If rural the agroclimatic conditions. It described the cane pay- development is predicated on improving or extending ment systems and made a subjective evaluation of the physical access (roads), how would rural development incentives they provide for the growers and millers. The programs change cropping patterns quantitatively? What research also included an extensive literature survey on would be the environmental implications of these cane payment systems and the performance of sugar cane changes? industries over the past 30 years. The research was presented at the Association of This research, the most comprehensive survey of cane Environmental and Resource Economists invited session payment systems ever done, provides an easy compari- Deforestation: Underlying Causes and Policy Implica- son of the systems in use around the world. The results tions, in San Francisco in January 1996. are useful for Bank staff and for industry officials in coun- Responsibility: Policy Research Department, Environ- tries involved in the sugar cane industry. The research ment, Infrastructure, and Agriculture Division-Maureen has proved to be of strong interest to Bank and L. Cropper (mcropper@worldbank.org), Charles Griffiths, International Finance Corporation staff working on coun- and Muthukumara Mani. tries with large sugar industries. Completion date: December 1997. Responsibility: International Economics Department, Report: Commodity Policy and Analysis Unit-Donald Mitchell Cropper, Maureen L., Charles Griffiths, and Muthukumara Mani. (dmitchell@worldbank.org) and Donald Larson. With 1997. "Roads, Population Pressures, and Deforestation in 54 Environmentally Sustainable Development Thailand, 1976-89." Policy Research Working Paper 1726. World Findings show that the nature and efficacy of citizen Bank, Policy Research Department, Washington, DC. (Also forth- and community efforts in regulating industrial pollution coming in Land Economics.) depend on: * The nature of the polluting industries (for example, whether old or new, multinational or nationally owned, Public Involvement in Industrial Pollution state or recently privatized). Control in Argentina and Brazil * The history, socioeconomic characteristics, and occupational structure of the communities in which the Ref. no. 681-46 industries are located (rural or urban, single employer A growing body of empirical and historical research or diverse employment, fishermen and farmers or indus- shows that conventional command-and-control and mar- trial workers). ket instruments are insufficient by themselves to prevent * The role of intermediaries in voicing the complaints and control pollution in rapidly industrializing countries. of citizens and communities and supporting their efforts. When formal government standards are lacking or mon- * The nature and strength of government environ- itoring and enforcement are weak, citizen or commu- mental agencies and their interaction with local munic- nity groups often serve as informal regulators of industrial ipal authorities and citizen and community groups. pollution. * The existence of effective consultative or delibera- This research project is an attempt to understand the tive forums where local citizens can voice their concerns social causes, dynamics, and consequences of informal and seek redress outside the formal court system. regulation in Argentina and Brazil. It poses several ques- The research shows that the design and efficiency of tions: How do local communities and citizen groups per- participatory or multistakeholder approaches to indus- ceive industrial pollution risks and control problems? Do trial pollution control can be greatly improved with bet- perceptions vary by type of industry and by the socio- ter understanding of the dynamics of informal regulation economic, occupational, and educational characteristics in the local area. Targeted assistance-capacity strength- of individuals and communities? How effective is citi- ening, technical support, and dissemination of informa- zen and community activism in industrial pollution tion to local community groups, municipal authorities, control? What part do intermediary institutions (non- intermediary organizations, and state agencies-may governmental organizations, labor unions, professional be less costly and more sustainable than conventional associations, public defenders' offices) play in voicing top-down or technocratic approaches to pollution and supporting citizen concerns about pollution? How control. effective are government agencies-federal, state, and The research is being conducted in close collaboration local-in responding to citizen and community concerns? with Argentine and Brazilian social science research insti- What part does dissemination of information play in gen- tutions and is expected to contribute to the national dia- erating and sustaining citizen involvement in industrial logue on how to strengthen public involvement in pollution control activities? Would formalized agree- environmental decisionmaking and management in the ments or partnerships among citizen and community two countries. groups, government agencies, and private industry The first of several workshops on the findings will be improve the effectiveness of pollution control? held in Rio de Janeiro in October 1997. The workshop The study's analytical approach draws on several con- will bring together all researchers working on the pro- cepts in the contemporary social science literature. These ject in Argentina and Brazil, Brazilian state environmental include the idea of informal regulation as developed in authorities, and Bank staff involved in the research or in the economic literature on industrial pollution perfor- the preparation of industrial pollution control projects in mance; the social and cultural construction of risk as stud- the two countries. It will be followed by other workshops ied by anthropologists and sociologists; and the growing with state and municipal environmental authorities, com- political science literature on civil society. Based on these munity groups, nongovernmental organizations, scien- concepts, the study has developed a set of hypotheses to tists, and parliamentarians involved in industrial explain the social causes, dynamics, and consequences pollution control issues. Presentations on the study's ana- of citizen and community response to industrial pollu- lytical framework, methodology, and results will be peri- tion issues in different local and national contexts. It tests odically made to Bank research and operational staff. these hypotheses using an array of sociological tech- Responsibility: Environment Department, Social Policy niques---community case studies, questionnaire surveys, and Resettlement Division-Shelton H. Davis (sdavis citizen complaint analysis, and cross-state and cross- @worldbank.org), and Pollution and Environmental national comparisons. Economics Division-Sergio Margulis and David 55 Environmentally Sustainable Development Hanrahan. With Jose Sergio Leite Lopes, Federal along with less structured interviews, are expected to University of Rio de Janeiro; Rosane M. Prado, State lead to changes in the preliminary models and to mod- University of Rio de Janeiro; and Glaucia Oliveira da ifications in the initial survey instruments. Silva, Federal University of Fluminense. The Federal Responsibility: Poverty and Social Policy Department- University of Rio de Janeiro is contributing funding for Shahidur R. Khandker (skhandker@worldbank.org) and the research. Andrew D. Mason. With Christopher Udry, Northwestern Completion date: October 1998. University. Completion date: September 1998. Gender, Property Rights, and Resource Management in Ghana Water Management in Irrigation Ref. no. 681-47 Ref. no. 681-50 This research focuses on individual property rights and The fundamental question this research addresses is individual decisions regarding use of land resources in whether modernization of irrigation projects-such as Ghana. The study will test the hypothesis that cultiva- through improvements in canal operating rules or in the tion decisions are influenced by individual (as well as design of water control structures-can effectively household) access to credit and provide an estimate of improve their performance. If the answer is yes, the sec- the extent to which women's farm productivity can be ond task is to determine what types of modernization are influenced by credit market interventions. In addition, most beneficial. A third task is to identify the surround- it will document the extent of participation in contract ing circumstances (economic, legal, labor) that might help farming by both men and women, explore the links determine the success or failure of modernization efforts. between contract farming and financial transactions, and Another important task in this research is to identify inter- examine the implications for farming practices of involve- nal and external performance indicators that can be used ment in contract schemes. to classify irrigation projects. Data collection is being carried out near Nsawam, in The study is looking at irrigation projects in nine the Eastern Region of Ghana, where the farming system developing countries in different regions. Each irrigation has changed from an established system of maize and project is visited for about a week, during which a cassava intercropping to intensive vegetable production. rapid diagnostic survey is completed. Information is The primary challenge in this transition is to find tech- collected using a detailed form that requires data from niques that will maintain soil fertility under the new crop- project reports and from interviews with project man- ping system. agers and engineers, canal operators at all levels of the Three central economic issues arise. First, the devel- distribution system, and farmers. An important aspect opment of innovative methods of maintaining soil fer- of the study is the quality of perceptions and observa- tility is characterized by social learning (farmers know tions by the research staff. To provide consistency in about one another's experiments) and thus by external- observations, all projects are visited by the same two ities. Second, there is a close relationship between prop- experienced individuals. The data collected are used to erty rights (vested, critically, in the individuals in the compute numerical performance indicators. For each household) and incentives to apply techniques to main- project there is also a narrative description of observa- tain soil fertility. Finally, decisionmaking with respect to tions and comments. Once data have been collected for soil fertility maintenance depends critically on charac- all the projects, the results will be compiled and teristics of the markets, particularly the capital markets, analyzed to search for common factors that influence available to farmers. performance. The study's methodology is based on a simultaneous Four projects have been visited, but the analysis has and interactive process of detailed observation, theory been completed for only one, Khon Kaen in Thailand. In construction, and statistical testing. On the basis of pre- that project, the analysis has found, external economic liminary fieldwork, models have been developed on the factors are affecting agricultural production. The per- three core economic issues. The goal is to model indi- formance of the irrigation distribution system could be vidual incentives in the context of a given set of institu- markedly improved if the operating rules were modified tions rather than to model the evolution of the institutions and simple water control structures were installed. A themselves. The preliminary modeling has informed major constraint to efficient operation appears to be a the development of the initial set of survey instruments. misunderstanding of canal operation by upper-level staff Preliminary results from the initial rounds of the survey, and trainers. 56 Environmentally Sustainable Development This study is the first attempt to systematically ana- Research results for Belize, Brazil, Mexico, and Central lyze a large group of irrigation projects using a common Africa emphasize the important effects of road networks set of performance indicators. It will provide valuable but show that these effects are highly sensitive to soil information on whether modernization can be effective characteristics and market proximity. This suggests that and under what circumstances (including training, eco- well-informed regional planning can enhance rural devel- nomics, and employment conditions). opment while preserving the environment. Analysis of Responsibility: Agriculture and Natural Resources village-level data for Indonesia suggests that high-value Department, Sector Policy and Water Resources tree crop cultivation, not subsistence-oriented food pro- Division-Herv6 Plusquellec (hplusquellec@worldbank. duction, plays a major part in smallholder conversion of org) and Randall Purcell. With Charles Burt, Stuart Styles, forest in that country. and Linda Fidell, California Institute of Technology; Responsibility: Policy Research Department, Environ- M. G. Bos; and Chris Perry, International Irrigation ment, Infrastructure, and Agriculture Division-Kenneth Management Institute (IIMI). The IIMI, Sri Lanka; the M. Chomitz (kchonitz@worldbank.org), Klaus Deininger, Food and Agriculture Organization; and the International David A. Gray, Charles Griffiths, Nlandu Mamingi, and Program on Technology Research in Irrigation and Bart Minten. With Vivi Alatas, Princeton University; Upik Drainage, United States, have contributed funding to the Rosalina Wasrin, SEAMEO/ Biotrop; and Xiaowen research. Huang. The International Center for Research in Completion date: June 1998. Agroforestry, Bogor, Indonesia, is participating in the research. The Swedish and U.K. Trust Funds for the Social and Environmental Consequences of Growth-Oriented Causes and Consequences Policies are contributing funding for the research. of Tropical Deforestation Completion date: March 1998. Reports: Ref. no. 681-56 Chomitz, Kenneth M., and David A. Gray. 1996. "Roads, Land Use, Although tropical deforestation is a major global envi- and Deforestation: A Spatial Model Applied to Belize." World ronmental concern, its causes remain poorly understood. Bank Economic Review 10(3):487-512. In connection with a larger project looking at links among Chomitz, Kenneth M., and Charles Griffiths. 1996. "Deforestation, growth, poverty, and the environment (Social and Shifting Cultivation, and Tree Crops in Indonesia: Nationwide Environmental Consequences of Growth-Oriented Patterns of Smallholder Agriculture at the Forest Frontier." Policies), this study examines the causes, correlates, Poverty, Environment, and Growth Working Paper 4. World and consequences of forest conversion in the tropics. Bank, Policy Research Department, Washington, DC. A particular focus is the economic and environmental _. 1997. "An Economic Analysis of Woodfuel Management in effects of road building, since roads are thought to help the Sahel: The Case of Chad." Policy Research Working Paper the rural poor but also to lead to deforestation. The 1788. World Bank, Policy Research Department, Washington, research also seeks to elucidate the nature of smallholder DC. activities at the forest margin and the degree to which Chomitz, Kenneth M., and Kanta Kumari. 1996. "The Domestic these activities are affected by macroeconomic and Benefits of Tropical Forests: A Critical Review Emphasizing sectoral policies. Hydrological Functions." Policy Research Working Paper 1601. The research strategy emphasizes spatial analysis of World Bank, Policy Research Department, Washington, DC. deforestation patterns for two reasons. Important for ana- (Also forthcoming in World Bank Research Obseroer.) lytical purposes is that spatial variation in the causes of Deininger, Klaus, and Bart Minten. 1996. "Poverty, Policies, and deforestation makes it possible to determine the relative Deforestation: The Case of Mexico." Poverty, Environment, importance of these causes. And important for policy is and Growth Working Paper 5. World Bank, Policy Research that the impact of change in land cover on both bio- Department, Washington, DC. diversity and poverty depends strongly on where the Mamingi, Nlandu, Kenneth M. Chomitz, David A. Gray, and Eric change takes place. Accordingly, the research has pio- Lambin. 1996. "Spatial Patterns of Deforestation in Cameroon neered in the statistical analysis of geographic informa- and Zaire." Poverty, Environment, and Growth Working tion systems (GIS) data. These data include remote sensing Paper 8. World Bank, Policy Research Department, Washington, data on land cover and topography, data from soil sur- DC. veys, and geo-referenced socioeconomic data from cen- Pfaff, Alexander S.P. 1997. "What Drives Deforestation in the suses and household surveys. Study areas include Belize, Brazilian Amazon? Evidence from Satellite and Socioeconomic Brazil, Chad, Indonesia, Mexico, and the tropical belt of Data." Policy ResearchWorkingPaper 1722. World Bank, Policy Africa. Research Department, Washington, DC. 57 Environmentally Sustainable Development Land Tenure, Land Markets, and Land with policymakers and researchers at a conference in Productivity in Rural China October 1997. Responsibility: Agriculture and Natural Resources Ref. no. 681-76 Department, Sector Policy and Water Resources This project will construct a panel data set on households Division-Shem Migot-Adholla (smigotadholla and villages in China to study three questions of key @worldbank.org) and Anning Wei; East Asia and Pacific, policy relevance not only for China but also for a wide Country Department II, Rural and Social Development range of other developing countries. First, how large is Division-Jiirgen V6gele; and Policy Research the output-reducing effect of administrative restrictions Department, Office of the Director-Klaus Deininger. on land ownership and transferability? How much of this With Michael Carter, University of Wisconsin-Madison; effect is due to disincentives to invest and how much to Charles Krusekopf; Shouying Liu, Development Research inefficient allocation of labor? By implication, what would Council, China; Yang Yao, Beijing University; and Min be the expected effect of improved transferability of land Zhu, People's Bank, China. rights within the existing tenure arrangements (that is, Completion date: April 1998. long-term leases) compared with measures specifically aimed at increasing tenure security? Second, to what degree can the informal land rental Ash Management, Disposal, arrangements used in the study villages be relied on to and Utilization in India bring about efficiency-enhancing reallocation of land? Is the amount of land rental constrained by restrictions India relies heavily on thermal generation of electricity on land transferability that are inherent in the current (for 65 percent of the total supply) and is likely to con- tenure systems or by village-level factors unrelated to tinue to do so. Most Indian coal is of poor quality, with land tenure, such as limited off-farm employment and ash content of more than 40 percent and low calorific val- failure by local enterprises to sufficiently differentiate ues. It is estimated that thermal power plants in India wages by skill level? produce about 45 million tons of ash a year. With decreas- Third, to what degree can outside intervention ing coal quality and increasing power generation, coal contribute to (or prevent) a smooth evolution of land ash production is projected to reach 90-100 million tons a tenure arrangements toward enhanced productivity? year by the turn of the century. Only 2 percent of the ash Can insights on how fast and how efficiently land produced is used; the rest is disposed as waste material. tenure has adjusted in the past to changing economic This research had two objectives: to develop guidance conditions be used to design productivity-enhancing on engineering practices and environmental impact mit- interventions? igation strategies for use in supervising the planning and The panel data set will contain information on 600-800 management of ash disposal systems in coal-fired power farm households and 80 villages and will be made pub- projects funded by the World Bank, and to report on the licly available. The household data include a detailed current status and economics of ash utilization in India assessment of agricultural production, household char- through a detailed review of available literature. acteristics, assets, and land-related agricultural invest- To gather information, site visits were made to nine ments. The village data include a detailed characterization thermal power plants across India, including ash pond of land tenure arrangements (number of intravillage redis- reclaimed sites of the National Thermal Power tributions, freedom of use and transfer rights), financ- Corporation and state-owned plants. The information ing of local public goods (education, health) and was used to determine the potential environmental communally owned assets, taxes in kind and cash, and impacts of current ash management, disposal, and uti- the economic structure of the village. lization practices and the mitigation strategies that would The study will explore the scope for conducting a third be effective with improved engineering and management survey. A survey covering the same households and vil- practices. Alternative ash disposal technologies consis- lages in 1998 would make it possible to trace the effects tent with state-of-the-art international practice and with of changes in land arrangements for the same households Indian conditions were analyzed. The current status of over a period of 10 years and thus to establish a unique ash utilization in India was determined through a detailed data set. review of reports from the government and other sources. The study's results are expected to feed into the Bank's The plant visits found that most stations had little or current policy dialogue with China. The possible gains no planned strategy for ash management, such as site in production and efficiency associated with specific closure or reclamation practices. Environmental stan- changes in land tenure arrangements will be discussed dards were not observed because of lack of resources. 58 Environmentally Sustainable Development The plants emphasized coal ash utilization, though needs into the existing theoretical constructs and recog- unsuccessfully. nized methodologies. Although the System of National The study provides guidance useful to future coal- Accounts provides an accepted theoretical model and fired power projects on the best engineering practices for an established methodology that permits consistent impu- cost-effective mitigation of undesirable environmental tations, partial imputations and shadow values are dif- impacts. The guidance it provides on the status and eco- ficult to define and measure reliably in this framework. nomics of ash utilization will be useful in the planning Use of this framework would require arbitrary adjust- and management of ash disposal systems. ments to existing market prices and observed values. Responsibility: Asia Technical Department, Environ- In the end, determining an environmentally adjusted ment and Natural Resources Division-Yaacov Ziv national income measure-an estimate of the output (at (yziv@worldbank.org) and Suhashini DeFazio. With the sectoral level) that a national economy can achieve Derek Smith, David Harding, and B. R. Ravishankar, while maintaining environmental quality and steward- Water and Earth Science Associates. ing resources-becomes less important than seeing how Completion date: December 1996. development projects and monetary and fiscal strategies Reports: affect different parts of the economy. A "green GNP" is Water and Earth Science Associates and World Bank. 1996. "Coal a "counterfactual" statistical certificate representing the Ash Management in Thermal Power Plants." World Bank, Asia sum of what could be feasible if an attempt were made Technical Department, Washington, DC. to observe environmental principles and maintain exist- . 1996. "Review of Coal Ash Utilization." World Bank, Asia ing conditions. Technical Department, Washington, DC. Responsibility: International Economics Department, Development Data Group-Michael Ward (mward @worldbank.org), Mohammad H. Ordoubadi, and Yi Environmental Accounting Chen. Completion date: June 1997. This project was an experiment to investigate how, using a conventional national accounts framework, the deple- tion of natural resources and degradation of the envi- Industrial Emissions and Abatement Costs ronment by pollution could be incorporated in a system designed to measure economic performance. An impor- Many of the Bank's client countries are now committed tant objective was to develop a framework for deciding to industrial pollution control, and rapid development on long-term strategic development goals with an under- of supporting information and analysis systems has lying concern to ensure sustainable economic progress. become a priority. Cost-effective regulatory strategy The project examined the theoretical issues relating to requires detailed information about the location and the valuation of nonpriced environmental goods and ser- severity of emissions and the cost of abatement. But most vices in an essentially market-based system predicated developing countries lack such data. For the foreseeable on an assumption that the price structure is determined future, environmental planners, researchers, and inter- by a consideration of marginal costs and revenues in their national agencies will have to base much of their analy- broadest sense, sufficient to clear the market. A major sis on estimated pollution loads and abatement costs. problem with this approach, however, is the need to To meet the need for such estimates, the Policy Research take into account a time horizon perspective and recon- Department's Environment, Infrastructure, and cile the potential imbalances arising from short-term Agriculture Division has developed the Industrial issues of demand and supply and long-term concerns of Pollution Projection System (IPPS), which is built around resource scarcity. emissions and abatement cost parameters estimated from The study reviewed what constitutes environmental large samples of plant-level data. These parameters can services and identified environmental indicators that sig- be combined with commonly available data from man- nal important changes in environmental conditions and ufacturing surveys to provide comprehensive estimates thus help inform policy aimed at minimizing the impact of industrial emissions and abatement costs for all major of environmental degradation and depletion arising from sectors and industrial areas in client countries. a certain pattern of economic growth. But in trying to This project involved statistical estimation of com- unravel the uncertainties about future resource avail- prehensive parameters for a large number of industrial ability, particularly within a current price accounting sys- sectors and pollutants from a massive U.S. database that tem, the research encountered difficulty in mapping the division constructed in collaboration with the U.S. established statistical practices and related empirical data Census Bureau and U.S. Environmental Protection 59 Environmentally Sustainable Development Agency. In work now under way revised estimates will Common Property Resource Management be developed from large samples of plant-level data in Issues in World Bank Projects developing and newly industrializing countries. The research has focused on three countries-Brazil, The concept of common property resource management China, and Mexico. During fiscal 1997 the division, in originated in resource economics and political economy collaboration with environmental agencies in each of and has been expanded on by anthropologists. The com- these countries, gathered and analyzed large plant-level mon property resource management approach integrates databases. In fiscal 1998 it expects to finalize pollution perspectives, data, and ways of working from the envi- intensities for China (water and air), Mexico (air), and ronmental sciences, economics, and anthropology. From Brazil (water) at the four-digit level of the International the point of view of the overriding goals of the Bank's Standard Industrial Classification (ISIC). The fiscal 1998 work-poverty reduction and sustainable development- agenda also includes plans to publish estimates of abate- it represents a broad and holistic approach. Common ment costs in China. property resource management complements the empha- The IPPS has been widely used in Bank operations, sis on private property, eases analysis and understand- client countries' environmental protection agencies, and ing of the interaction of different resource management international policy research institutes. As the most com- systems on various levels, allows a more culturally sen- prehensive system of its kind, the IPPS is helping to estab- sitive approach to project preparation and implementa- lish a new standard of quality for estimation of emissions tion, and contributes to increasing environmental and and costs. social sustainability. Responsibility: Policy Research Department, Environ- This research looks at common property resource man- ment, Infrastructure, and Agriculture Division-David agement issues in World Bank projects. Its analytical Wheeler (dwheelerl@worldbank.org), Susmita Dasgupta, approach includes general participation methods, social Sheoli Pargal, Hemamala Hettige, Keta Ruiz, Shakeb assessment, and interviews. It has gathered information Afsah, Kenneth Chomitz, Mainul Huq, and Hua Wang. from people affected by projects, traditional leaders, pro- With Keith Florig, Resources for the Future; Ray Hartman, ject documents, and the social science literature (includ- Charles River Associates Inc.; Jan Peter Kooiman, Free ing sociology, anthropology, history and political science). University, Amsterdam; Manjula Singh; and Dave Witzel. Data collection, along with preliminary analysis and dis- Completion date: June 1997. semination, was completed in June 1997. A final report Reports: is being prepared. Dasgupta, Susmita, Mainul Huq, David Wheeler, and C.H. Zhang. The research has found that all natural resources that 1996. "Water Pollution Abatement by Chinese Industry: Costs are managed in a traditional way, or in a way that com- and Policy Implications." Policy Research Working Paper 1630. bines traditional and more modern approaches, are World Bank, Policy Research Department, Washington, DC. affected by Bank projects. The recognition of traditional Dasgupta, Susmita, Hua Wang, and David Wheeler. 1997. "Surviving property rights in Bank projects varies enormously across Success: Policy Reform and the Future of Industrial Pollution sectors, countries, and regions. In some sectors, such as in China." In World Bank, "Clear Water, Blue Skies-China's rangeland management in Africa, traditional resource Environment in the 21st Century" Sector Report 16481-CHA. management is commonly emphasized in Bank projects. East Asia and Pacific, Country Department II, Washington, DC. In others, such as fisheries, it has received little atten- Hartman, Ray, Manjula Singh, and David Wheeler. Forthcoming. tion. The role of the task manager is clearly very impor- "The Cost of AirPollutionAbatement." Applied Economics. (Also tant, as is that of the borrower country. With few published as Policy Research Working Paper 1398, World Bank, exceptions, traditional property rights are not addressed Policy Research Department, Washington, DC, 1994.) in the Bank's economic and sector work and country assis- Hartman, Ray, and David Wheeler. Forthcoming. "The tance strategies. As a rule, borrowers attach little value Microeconomic Analysis of Pollution Abatement Regulation." to supporting and maintaining communally managed Resource and Energy Economics. natural resources, for many reasons. Often the explana- Hettige,Hemamala, Paul Martin, Manjula Singh, and David Wheeler tion has to do with the rural-urban dichotomy-between 1995. "The Industrial Pollution Projection System." Policy rural resource users and urban decisionmakers. Manage- Research Working Paper 1431. World Bank, Policy Research ment of traditional property rights knowledge within the Department, Washington, DC. Bank, including establishing and maintaining institu- Hettige, Hemamala, and Dave Witzel. 1996. "Setting Pollution tional memory, is difficult because this knowledge builds Control with IPPS: Mexico Industrial Pollution Project." Sector on different disciplines. Report. World Bank, Latin America and the Caribbean, Country The project's findings are being disseminated out- Department II, Washington, DC. side the Bank largely though conferences and workshops. 60 Environmentally Sustainable Development Within the Bank the Common Property Resource (hcesar@worldbank.org) and Tanvi Nagpal. With Management Network (CPRNET) was established in Vladimir Kucera and Johan Tidblad, Swedish Corrosion early 1995 partly as a vehicle for raising the awareness Institute. The Swedish Environment Consultant Trust of common property resource management among Bank Fund is contributing funding for the research. operational and legal staff. The CPRNET organized a Completion date: November 1997. number of lunch seminars in February-June 1997 that addressed -aspects of common property resource man- agement in the Bank, including both operational and World Food Situation policy-related issues. The preliminary findings of this project are particu- This research was designed to provide a review of the larly important for Bank operations involving indige- world food situation as background for the World Food nous people and involuntary resettlement. Results and Summit held by the Food and Agriculture Organization insights from the project have already had some influ- (FAO) in Rome in November 1996. The increase in world ence on several operations: the Bangladesh Third Fisheries grain prices in 1995-96 made this an especially timely Project, the Ghana Sector Work on Integrated Coastal issue. The price increase had raised concerns about the Zone Management, and the Bangladesh Fourth Fisheries adequacy of global food supplies and the prospects of a Project (under preparation). world food shortage like those that have occurred in the Responsibility: Asia Technical Department, Environ- past. ment and Natural Resources Division-Maritta Koch- Using data from the FAO, the U.S. Department of Weser (mkochweser@worldbank.org) and Lars T. Agriculture, and the World Bank, the research looked at Soeftestad; and Environment Department, Social Policy recent trends in global grain production, yields per and Resettlement Division-Gloria Davis and Narpat S. hectare, and area devoted to grain production at the global Jodha. The Norwegian Consultant Trust Fund contributed and regional level and in selected countries. It examined funding for the research. determinants of historical grain yields to better under- Completion date: October 1997. stand future yield prospects. Reports: The principal finding of the study is that world grain Soeftestad, Lars. 1996. "Voices from Below and from Within: stocks will probably be rebuilt over the next several years InstitutionsandResourceManagementinCoastalGhana." Paper because of expanding production in the major export- presented at annual conference of the International Association ing countries. The medium-term outlook is for adequate for the Study of Common Property, Berkeley, California, world food supplies, which should keep grain prices June 5-8. below the levels seen in early 1996. But slower yield . 1997. "Property Rights and Environmental and Social growth in recent years and the uncertainty affecting Sustainability." Paper presented at annual conference of the demand growth are still cause for concern for the longer Society for Applied Anthropology, Seattle, March 4-9. term. Developing countries can expect the world mar- ket to supply grain near historical levels at prices that will probably be lower than those in early 1996. But over Estimating the Extent of Corrosion Damage the longer term continued investments in agriculture will Caused by Acid Rain in China be required to keep prices from rising in real terms. And large imports by a single country such as China or by a This study will estimate the extent of corrosion damage group of smaller countries would likely lead to higher caused by acid rain in China and its cost to that country. prices. Data will be gathered on materials and stock at risk of The report produced by the study was disseminated damage by acid rain. Available dose response equations to World Bank staff involved in agriculture and to par- will be reconciled to Chinese conditions. The costs of ticipants in the World Food Summit. It has been used by materials replacement and repair will be estimated for Bank operational staff in preparing food security papers different acid rain scenarios. for individual countries, including China. The analysis will draw on secondary data on popula- Responsibility: International Economics Department, tion distribution in polluted areas, a completed analysis of Commodity Policy and Analysis Unit-Donald stock at risk in the Guangzhou region, corrosion data from Mitchell (dmitchell@worldbank.org), and Office of the the Central Iron and Steel Research Institute in Beijing, Director-Merlinda Ingco; and Agriculture and Natural and dose response equations available for Europe. Resources Department, Office of the Director-Alex Responsibility: Asia Technical Department, Environ- McCalla. ment and Natural Resources Division-Herman Cesar Completion date: November 1997. 61 Environmentally Sustainable Development Report: Analysis of Critical Loads Ingco, Merlinda D., Donald 0. Mitchell, and Alex F. McCalla. 1996. for Acid Rain in Asia Global Food Supply Prospects. World Bank Technical Paper 353. Washington, DC. The concentration of air pollution above which damage can occur is known as the critical level. The highest depo- sition of compounds that will not cause chemical changes Survey of the Impact of Acid Rain in China leading to harmful effects on an ecosystem's structure and function is defined as the critical load. While these This research project will identify ways to strengthen and values are known for Europe, they are less well defined deepen the participation of national and local institutions for Asia. This research will consider critical loads specific in RAINS-ASIA, China. RAINS-ASIA is a program that to Asia, especially China. is developing and implementing a model to assist Asian The study will provide detailed information on areas policymakers and researchers in anticipating the effects in Asia, especially in China, that have been most criti- of acid deposition due to sulfur dioxide emissions cally affected by acid deposition. It will produce data and in identifying cost-effective controls in the energy for calculating critical loads in Asia, and a framework for sector. critical load uncertainty analysis. Critical loads will be The research project will survey relevant Chinese computed and compared with data on the sensitivity of research and academic institutions for links and infor- ecosystems in China to test their reliability. mation to strengthen ongoing research on acidification Responsibility: Asia Technical Department, Environ- in China. It will also conduct a socioeconomic survey of ment and Natural Resources Division-Ramesh selected sites to gain an understanding of the magni- Ramankutty (rramankutty@worldbank.org) and Tanvi tude of potential economic losses stemming from acidi- Nagpal. With Jean-Paul Hettelingh, National Institute fication and air pollution. A primary source of data is of Public Health and Environmental Protection, the the International Rice Research Institute. Netherlands. The Netherlands Environment Consultant Responsibility: Asia Technical Department, Environ- Trust Fund is contributing funding for the research. ment and Natural Resources Division-Ramesh Completion date: June 1998. Ramankutty (rramankutty@worldbank.org). With Valter Angell, Norwegian Institute for International Affairs. The Norway Environment Consultant Trust Fund is con- Social and Environmental Consequences tributing funding for the research. of Growth-Oriented Policies Completion date: December 1997. The World Bank has long maintained that economic growth is good for people and good for the environment. Air Quality Measurement in Asia Yet skepticism persists aboutwhether this "win-win-win" Using Passive Samplers scenario applies in all places at all times. In some cases there are tradeoffs that clearly have to be considered: A This research will test the suitability of passive samplers new factory that brings higher incomes may also foul the for air quality measurement in Asian cities. Sulfur diox- air and water. Expansion of smallholder farming may ide measurements will be taken in four countries--China, result in the loss of natural habitats. How significant India, Pakistan, and Thailand. Seven samplers will be and widespread are these tradeoffs? Do win-win-win tested in 11 urban areas on three occasions, and the sam- solutions become fewer as an economy becomes more pling procedure will also be evaluated. Volatile organic efficient? Are there instances in which economic growth compounds, nitrogen oxide, sulfur dioxide, organic acids, is at odds with improved human and ecological wel- and other emissions will be measured at two sites out- fare, or in which poverty can be reduced only by harm- side each urban area. The measurement is projected to ing the environment? begin in fiscal 1998. This project addresses these and other questions Responsibility: Asia Technical Department, Environ- about the relationships between poverty, growth, and ment and Natural Resources Division-Ramesh the environment. It uses a systematic, quantitative Ramankutty (rramankutty@worldbank.org) and Tanvi approach and draws on extensive data reflecting a wide Nagpal. With Martin Ferm, Swedish Environment range of country experience that have recently become Research Institute. The Swedish Trust Fund is contributing available. The study seeks to derive lessons from this funding to the research. experience to guide future policy, using three analytical Completion date: June 1998. methods. 62 Environmentally Sustainable Development The first of the three parts of this research project con- to which economic growth reduces poverty. Enforcement sists of cross-national analysis. This analysis is intended of pollution regulations increases with income and edu- to set the stage by examining the relation, across coun- cation in China and Indonesia, and informal pressures tries and over time, between macroeconomic policy indi- play an important part in determining pollution levels. cators and indicators of growth, environmental conditions, On communal lands in Mexico poverty increases defor- and poverty or equality. estation, while liberalized agricultural prices had the The second part, centered on structural models, is opposite effect. In Indonesia deforestation is sensitive to the heart of the project. The research attempts to model macroeconomic policies such as exchange rates, and in three sets of issues in which tradeoffs between growth, tropical Africa the location of infrastructure plays an poverty reduction, and environmental protection are important part in deforestation. In Pakistan the relation thought to be especially acute. The first set of issues relates between fertility and environmental degradation varies to industrial pollution and the behavior of industrial among regions, and in Nepal environmental degrada- firms. The research analyzes regional and firm-level data tion adversely affects schooling. In Ecuador and Indonesia on industrial output, employment, and emissions. Policy investments in sanitation are found to increase with more levers examined include macroeconomic policies affect- secure tenure. ing the sectoral composition of industry, such as trade, A workshop was held on May 1-2, 1997, at the World industrial, and energy policies, and pollution regulation Bank to discuss the results. There were 35 participants, policies. Study sites include Brazil, China, Ecuador, India, including discussants from academic institutions as well Indonesia, and Pakistan. as the Bank. The second set of issues relates to land use conflicts Responsibility: Policy Research Department, Poverty between agricultural expansion and natural habitat and Human Resources Division-Emmanuel Jimenez preservation. The research analyzes the incentives to con- (ejimenez@worldbank.org), Martin Ravallion, Lant vert tropical forests and other habitats to agriculture, Pritchett, Peter Lanjouw, Deon Filmer, Annika Haksar, the ecological consequences, the magnitude and persis- and Quentin Wodon, Environment, Infrastructure, and tence of economic gains, and the distribution of those Agriculture Division-David Wheeler, Charles Griffiths, gains. Policies investigated include agricultural pricing Muthukumara Mani, Hua Wang, Ayo Heinegg, Xiawen (including exchange rates) and regional development Huang, Binayak Sen, Rebecca Grey, and William strategies, especially the siting of infrastructure. Study Hawthorne, Macroeconomics and Growth Division- sites include Belize, Indonesia, Mexico, and tropical Africa. William Easterly and Giuseppe larossi, and Office of the The third set of issues centers on poverty, fertility, Director-Bart Minten; Environment Department, Land, and household use of environmental resources. Because Water, and Natural Habitats Division-David Gray, and of the diversity of households and their environmental Social Policy and Resettlement Division-Gi-Taik Oh; problems, the set of models used in this research is also and Asia Technical Department, Environment and diverse. One line of research studies the links between Natural Resources Division-Chonghua Zhang. With poverty, fertility, education, technology, and use of fuel- David Coady; Jean Lanjouw, Yale University; Jorge wood and other environmental resources in Nepal and Eguiguren; Jan Gunning, Free University, the Netherlands; Pakistan, and the relationship between tenure and poverty David Loughran; Javier Poggi; Angus Deaton, Princeton in Uganda. Another line of research concentrates on the University; Robert Lucas, Boston University; Mark Heil; responsiveness of decisionmaking and urban sanitation Qingying Kong; Jean-Philippe Platteau, University of to changes in tenure conditions in Ecuador and Indonesia. Namur; and Thomas Tietenberg, Colby College. The In the third part of the project, case studies build on Swedish Trust Fund; the Overseas Development the structural models, placing them in a historical, envi- Administration, United Kingdom; and the Netherlands ronmental, and policy context and exploring cross- Ministry of Foreign Affairs Trust Fund are contributing sectoral links. Case studies include economic liberaliza- funding for the research. tion in China, trade reform in Mexico, and exchange Completion date: June 1998. rate reform in Nigeria and may also include electricity Reports: pricing in India. Chomitz, Kenneth M., and David A. Gray. 1996. "Roads, Land Use, Most of the data used in the project come from exist- and Deforestation: ASpatial ModelApplied to Belize." Poverty, ing sources. The project has also merged databases, and Environment, and Growth Working Paper 3. World Bank, Policy has collected data for some of the studies. Research Department, Washington, DC. (Also forthcoming in The research done to date suggests the following con- World Bank Economic Review.) clusions: A more even income distribution is more impor- Chomitz, Kenneth M., and Charles Griffiths. 1996. "Deforestation, tant than initial income levels in determining the extent Shifting Cultivation, and Tree Crops in Indonesia: Nationwide 63 Environmentally Sustainable Development Patterns of Smallholder Agriculture at the Forest Frontier." 1960-95." Poverty, Environment, and Growth Working Paper Poverty, Environment, and Growth Working Paper 4. World 16. World Bank, Policy Research Department, Washington, DC. Bank, Policy Research Department, Washington, DC. Ravallion, Martin. 1996. "Can High-InequalityDeveloping Countries Dasgupta, Susmita, Hua Wang, and David Wheeler. 1997. "Surviving Escape Absolute Poverty?" Poverty, Environment, and Growth Success: Policy Reform and Industrial Pollution in China." Working Paper 11. World Bank, Policy Research Department, Poverty, Environment, and Growth Working Paper 12. World Washington, DC. Bank, Policy Research Department, Washington, DC. Ravallion, Martin, and Shaohua Chen. 1996. "What Can New Survey Dasgupta, Susmita, and David Wheeler. 1996. "Environmental Data Tell Us about Recent Changes in Living Standards in Regulation via Citizen Protest in Developing Countries: Evidence Developing and Transitional Economies?" Poverty, Environment, from China." Poverty, Environment, and Growth Working and Growth Working Paper 1. World Bank, Policy Research Paper 7. World Bank, Policy Research Department, Washington, Department, Washington, DC. (Also published as Policy Research DC. Working Paper 1694, World Bank, Policy Research Department, Deininger, Klaus, and Bart Minten. 1996. "Determinants of Forest Washington, DC, 1996.) Cover and the Economics of Protection: An Application to Ravallion, Martin, Mark Heil, and Jyotsna Jalan. 1997. "A Less Mexico." Poverty, Environment, and Growth Working Paper 10. Poor World, But a Hotter One?" Poverty, Environment, and World Bank, Policy Research Department, Washington, DC. Growth Working Paper 13. World Bank, Policy Research - 1996. "Poverty, Policies, and Deforestation: The Case of Department, Washington, DC. Mexico." Poverty, Environment, and Growth Working Paper 5. Wang, Hua, and David Wheeler. 1996. "Pollution Control and World Bank, Policy Research Department, Washington, DC. Provincial Development in China: An Analysis of the Levy Easterly, William. 1997. "Life during Growth: A Compendium of System." Poverty, Environment, and Growth Working Paper 6. Social, Political, and Environmental Indicators of What Gets World Bank, Policy Research Department, Washington, DC. Better and What Gets Worse from Low to HighIncome." Poverty, Environment, and Growth Working Paper 17. World Bank, Policy Research Department, Washington, DC. Integrated Acidification Study in China Filmer, Deon, and Lant Pritchett. 1996. "Environmental Degradation and the Demand for Children: Searching for the Vicious Circle." This project addresses several questions relating to acid Poverty, Environment, and Growth Working Paper 2. World rain in China: Is ecological damage occurring due to Bank, Policy Research Department, Washington, DC. (Also pub- acidification? What is the extent of the damage, and which lished as Policy Research Working Paper 1623, World Bank, ecosystems have been most affected? Is it possible Policy Research Department, Washington, DC, 1996.) to establish provisional site-specific dose response Hoy, Michael, and Emmanuel Jimenez. 1997. "The Impact on the equations? Urban Environment of Incomplete Property Rights." Poverty, In addition to analysis of data gathered by Chinese Environment, and Growth Working Paper 14. World Bank, Policy researchers, the research project includes field visits by Research Department, Washington, DC. Norwegian and Chinese researchers to estimate the extent Lanjouw, Peter. 1997. "Small-Scale Industry, Poverty, and the of damage. Soil and other samples will be analyzed in Environment:A Case Study of Ecuador." Poverty, Environment, Chinese and Norwegian laboratories. The results of the and Growth Working Paper 18. World Bank, Policy Research analysis will be used in developing dose response Department, Washington, DC. equations. Lucas,Robert. 1996. "PollutionLevies and the Demand forIndustrial Responsibility: Asia Technical Department, Environ- Labor: Panel Estimates for China's Provinces." Poverty, ment and Natural Resources Division-Ramesh Environment, and Growth Working Paper 9. World Bank, Policy Ramankutty (rramankutty@worldbank.org) and Tanvi Research Department, Washington, DC. Nagpal. With Espen Lydersen, Norwegian Institute for Mamingi, Nlandu, Kenneth M. Chomitz, David A. Gray, and Eric Water Research; Hans Martin Seip, University of Oslo; Lambin. 1996. "Spatial Patterns of Deforestation in Cameroon Jan Mulder, Norwegian Forest Research Institute; Arne and Zaire." Poverty, Environment, and Growth Working Paper Semb, Norwegian Institute for Air Research; Ivar Pors 8. World Bank, Policy Research Department, Washington, DC. Muniz, Norwegian Institute for Nature Research; Xiong Mani, Muthukumara, Sheoli Pargal, and Mainul Huq. 1997. "Is Jiling, Guizhou Institute of Environmental Studies; Zhao There an Environmental 'Race to the Bottom'? Evidence on the Dawei, Chongqing Institute of Environmental Science Role of Environmental Regulation in Plant Location Decisions and Monitoring; Wen Dazhi and Yu Meng De, South in India." Poverty, Environment, and Growth Working Paper China Institute of Botany; and G. J. Lee, Institute of Social 15. World Bank, Policy Research Department, Washington, DC. Science, China. The Norway Trust Fund for Environment Mani, Muthukumara, and David Wheeler. 1997. "In Search of is contributing funding for the research. Pollution Havens: Dirty Industry in the World Economy, Completion date: September 1998. 64 Environmentally Sustainable Development Prices, Policies, and Industrial Pollution and David Shaman. With EPTRI, India; Forum One, United States; Mark Heil; Nabiel Makarim; Nlandu What pollution control strategies are the most cost- Mamingi; Craig Meisner; J. C. Rodriguez; Hua Wang; Yun effective for developing countries? Anecdotal evidence Ping; Raymond Hartman; David Witzel; C. H. Zhang; suggests that many factors play some part in determin- and Madhushree Dasgupta. ing international (and interregional) variations in indus- Completion date: June 1999. trial pollution: differences in input prices, environmental Reports: standards, regulatory instruments, enforcement strategy, Afsah, Shakeb, Hemamala Hettige, and Dave Witzel. 1996. and informal regulation (pressure from neighboring com- "Implementation of Pilot Program for Pollution Release and munities, "green consumers," and so on). But little is Transfer Registry: An Action Plan." Sector Report. World Bank, known about the relative importance of these factors in Latin America and the Caribbean, Country Department II, reducing pollution. Better pollution control strategies Washington, DC. require much more detailed quantitative analysis of Afsah, Shakeb, Benoit Laplante, and David Wheeler. 1996. outcomes. They also require the adaptation of regulatory "Controlling Industrial Pollution: A New Paradigm." Policy theory to the conditions that prevail in developing Research Working Paper 1672. World Bank, Policy Research countries. Department, Washington, DC. This research project has two parts. The first is using . 1996. "Recent Research on Industrial Pollution Control in detailed plant-level data from several countries to econo- Developing Countries." Newsletter of the Association of metrically estimate the effect of variable input prices, Environmental and Resource Economists 16(2):13-16. formal regulation, and informal regulatory pressure on _ .Forthcoming. "ControllingIndustrial Pollution: FromTheory the environmental performance of industrial facilities, to Implementation." In Environmental Administration: Enforcement The second part is working on ways to adapt OECD- of Environmental Law in Asian Countries. Tokyo: Institute of based regulatory economics to conditions in developing Developing Economies. countries. . Forthcoming. "Public Policy and Governance in the The initial empirical work has focused on gauging the Information Age: Public Information for Environmental potential of informal regulatory pressure as a low-cost Management." In Public Policy and Governance in the Information complement to formal regulation. Analyses for several Age. Singapore: National University of Singapore. Southeast Asian countries, most notably Indonesia, have Afsah, Shakeb, and David Wheeler. 1996. "Going Public on Pollution: suggested that local community pressure and national Indonesia'sNewPublic DisclosureProgram." EastAsian Executive emissions disclosure campaigns can, under at least some Reports. conditions, lead to rapid reductions in emissions. Dasgupta, Susmita, Mainul Huq, David Wheeler, and C.H. Zhang. The initial work on regulatory economics has focused 1996. "Water Pollution Abatement by Chinese Industry: Costs on adapting for developing countries incentive regula- and Policy Implications." Policy Research Working Paper tory systems that are now widely used in OECD coun- 1630. World Bank, Policy Research Department, Washington, tries. Such systems combine performance targets with DC. economic incentives for industrial facilities. Given the Dasgupta, Susmita, Hua Wang, and David Wheeler. Forthcoming. inevitability of quantitative targets in many pollution "Future Industrial Pollution Control Options for China: Benefits control programs, such incentive regulatory systems may and Costs." Sector Report. World Bank, East Asia and Pacific, contribute significantly to economic efficiency because Country Department II, Washington, DC. they can approximate the workings of tradable permit Dion, Catherine, Paul Lanoie, and Benoit Laplante. 1997. "Monitoring systems. Pollution Regulation: Do Local Conditions Matter?" Policy Findings from the study have been disseminated Research Working Paper 1701. World Bank, Policy Research through several seminars outside the Bank, through Department, Washington, DC. regular print outlets, and through a new Website Hartman, Raymond S., MainulHuq, and David Wheeler. 1997. "Why (http://www.worldbank.org/NIPR) developed for the Do Paper Mills CleanUp? Determinants of Pollution Abatement research project Economics of Industrial Pollution Control in Four Asian Countries." Policy Research Working Paper 1710. in Developing Countries (ref. no. 680-20). World Bank, Policy Research Department, Washington, DC. Responsibility: Policy Research Department, Environ- Hartman, Raymond S., Manjula Singh, and David Wheeler. ment, Infrastructure, and Agriculture Division-David Forthcoming. "The Cost of Air Pollution Abatement." Applied Wheeler (dwheelerl@worldbank.org), Hemamala Economics. Hettige, Sheoli Pargal, Shakeb Afsah, Mainul Huq, Benoit Hartman, Raymond S., and David Wheeler. Forthcoming. "The Laplante, Susmita Dasgupta, Zmarak Shalizi, Maureen Microeconomic Analysis of Pollution Abatement Regulation." Cropper, Mead Over, Kenneth Chomitz, Koshy Mathai, Resource and Energy Economics. 65 Environmentally Sustainable Development Hettige,Hemamala, Mainul Huq, Sheoli Pargal, and David Wheeler. years of sufficient water supply, a smart market for water 1996. "Determinants of Pollution Abatement in Developing allocation can be developed and tested in the laboratory Countries: Evidence from South and Southeast Asia." World under simulated drought conditions. If the results are Development 24(12):1891-1904. positive, such a market could be implemented during Hettige, Hemamala, and David Wheeler. 1996. "An Environmental years of water scarcity. Performance Analysis System for Industrial Plants in Mexico." This project is developing and testing a smart water Sector Report. World Bank, Latin America and the Caribbean, market for California, using a simplified approach. The Country Department II, Washington, DC. approach is based on several components, including a Hettige, Hemamala, and Dave Witzel. 1996. "Setting Pollution water quantity and quality production function model Control with IPPS: Mexico Indtstrial Pollution Project." Sector of major agricultural crops, estimates of a demand func- Report. World Bank, Latin America and the Caribbean, Country tion for urban centers, environmental water quantity and Department II, Washington, DC. quality requirements, and costs of conveyance between Huq, Mainul, Mani Muthukumara, and Sheoli Pargal. 1997. "Does water supply and water consumption centers. Laboratory Environmental Regulation Matter?" Policy Research Working experiments were carried out to study the efficiency and Paper 1718. World Bank, Policy Research Department, price performance characteristics of a uniform price, dou- Washington, DC. ble auction mechanism for the simultaneous allocation Laplante, Benoit. Forthcoming. Externalitis et instruments 6conomiques of water and transport capacity rights among buyers, appliquges dla gestion des d6chets. Sherbrooke, Quebec: University transporters, and sellers. A computer algorithm, Water- of Sherbrooke Press. Mart, was developed that maximizes total gains from Laplante, Benoit, and Paul Rilstone. 1996. "Environmental exchange based on the submitted bids and offers and Inspections and Emissions of the Pulp and Paper Industry in determines allocations and nondiscriminatory prices at Quebec." Journal of Environmental Economics and Management all nodes. The work draws on data from the California 31(1):19-36. Department of Water Resources, previous studies on Muthukumara, Mani. 1996. "Environmental Tariffs on Polluting water in California, and data collected through surveys Imports: An Empirical Study." Environmental and Resource and interviews. Economics 7:391-412. Preliminary findings, based on four laboratory exper- Pargal, Sheoli, and David Wheeler. 1996. "Informal Regulation of iments with reward-motivated subjects, suggest that Industrial Pollution in Developing Countries: Evidence from water networks using a computer-coordinated smart Indonesia." Journal of Political Economy 104(6):1314-27. allocation mechanism yield substantially competitive Wang, Hua, and David Wheeler. 1996. "Pricing Industrial Pollution outcomes. Several institutional assumptions are inher- in China: An Econometric Analysis of the Levy System." Policy ent in these experiments: alternative transport paths have Research Working Paper 1644. World Bank, Policy Research comparable costs, single paths have shared ownership Department, Washington, DC. or are common carriers at fixed rates (though the second Wheeler, David, and Dave Witzel. 1996. "Development and is inadequate to deliver appropriate price signals for new Regulation and the Fate of Sepetiba Bay." Sector Report. World investment), and transport capacity is adequate. Such Bank, Latin America and the Caribbean, Country Department institutions appear to uniformly discipline the behavior II, Washington, DC. of the different types of agent involved in the water market. Responsibility: Agriculture and Natural Resources Environmental Change and Adaptive Department, Sector Policy and Water Resources Resource Markets: A Computer-Assisted Division-Ariel Dinar (adinar@worldbank.org). With Market for Water Allocation Vernon Smith and Steven Rassenti, University ofArizona; the Economic Research Lab, Tucson; and Richard Howitt, Experimental economics can yield a formal and replica- University of California at Davis. The National Science ble system for analyzing alternative market structures, Foundation is funding the research through a grant to such as the "smart" market, before these market struc- the Universities of Arizona and California. tures are actually implemented. For example, during Completion date: June 2000. 66 INFRASTRUCTURE AND URBAN DEVELOPMENT Urban Transport Indicators Paper presented at City Trans Asia '95 Conference, World Trade Center, Singapore, September. Ref. no. 679-64C Barter, P., Jeff Kenworthy, Peter Newman, and C. Poboon. 1994. "The The effect of transport on the environment is an impor- Challenge of Southeast Asia's Rapid Motorization: Kuala tant concern in the rapidly growing cities of the devel- Lumpur, Jakarta, Surabaya, and Manila in an International oping world. An indicator often used to measure this Perspective." Paper presented at Asian Studies Association of effect, as well as the real resource cost of urban trans- Australia conference on Environment, State, and Society in Asia: port, is the amount of transport fuel consumed per capita. The Legacy of the Twentieth Century Murdoch University, Perth. A separate exercise established an extensive and metic- Kenworthy, Jeff. 1995. "Automobile Dependence in Bangkok: An ulous database on such variables for a set of industrial International Comparison with Implications for Planning country cities for 1971 and 1981. This project supported Policies." World Transport Policy and Practice 1(3):31-41. (Also the updating of the database to 1991 and the addition of presented at fifth annual public health forum, Health at the new indicators of public transport demand, supply, and Crossroads: Transport Policy and Urban Health, London School cost as well as data for a number of developing country of Hygiene and Tropical Medicine, London, April 1995.) megacities. .1996. "Automobile Dependence in a Global Sample of Cities: Analysis of the initial database showed that the amount Learning from the Best and Worst." Keynote address at Canadian of fuel consumed per capita depends on a complex inter- National Conference on Sustainable Transportation, Simon Fraser action between such factors as the size and structure of University, Vancouver, October 30-November 1. cities, the amount of transport demanded, the choice of Kenworthy, Jeff, P. Barter, Peter Newman, and C. Poboon. 1994. transport mode, and the technologies used. The impli- "Resisting Automobile Dependence in Booming Economies: A cation drawn from that analysis was that action to con- Case Study of Singapore, Tokyo, and Hong Kong within a Global trol urban form could reduce the resource and Sample of Cities." Paper presented at Asian Studies Association environmental costs of urban transport both through its of Australia conference on Environment, State, and Society inAsia: direct effect on the number and length of trips and through The Legacy of the Twentieth Century, Murdoch University, Perth. its effect on the choice of transport mode. Less well under- Kenworthy, Jeff, and F. Laube. 1996. "Transport and Urban Structure stood were the relationship between fuel costs and total in44 Global Cities: SomeKey PhysicalPlanningPolicy Directions transport costs (including the costs of urban public trans- for Enhanced Sustainability and Reduced Automobile port subsidies) and the applicability of conclusions drawn Dependence." Paper presented at Second United Nations from analysis of industrial countries to the developing Conference on Human Settlements (Habitat II), Istanbul, June. world. This project supported analysis of those issues. . Forthcoming. "Automobile Dependence in Cities: An The research contributed to Bank papers on the urban International Comparison of Urban Transport and Land Use environment and served as the basis for discussion of the Patterns with Implications for Sustainability." Environmental Bank transport and land use policy embodied in Impact Assessment Review (special issue). Sustainable Transport: Priorities for Policy Sector Reform Kenworthy, Jeff, Peter Newman, P. Barter, and C. Poboon. 1995. "Is (Washington, DC: World Bank, 1996). It also underpins Increasing Automobile Dependence Inevitable in Booming the arguments for establishing the multimodal, multi- Economies? Asian Cities in an International Context." IATSS functional conurbation transport authorities being encour- Research 19(2):58-67. aged in many client countries (for example, in Buenos Newman, Peter. 1995. "Transportation and Greenhouse." Paper pre- Aires). sented at ICLEI Summit on Climate Change, Saitama, Japan, Responsibility: Transportation, Water, and Urban October. Development Department, Transport Division-Kenneth . 1996. "City Life and City Death." Macroscope. Gwilliam (kgwilliam@worldbank.org). With Peter . 1996. "Reducing Automobile Dependence." Environment and Newman and Jeff Kenworthy, Murdoch University, Perth. Urbanization 8(1):67-92. (Also presented at OECD conference, Completion date: September 1996. Towards Sustainable Transportation, Vancouver, March.) Reports: . 1996. "Transportation." In D. Satterthwaite, ed., United Nations Barter, P., and Jeff Kenworthy. 1995. "Transport and Urban Form in Global Review of Human Settlements. Oxford: Oxford University ASEAN Cities: An International Comparative Perspective." Press. 67 Infrastructure and Lrban Development . 1996. "Winning Back Public Space in the City: Overcoming comes. Among the main findings: The existence of a ratio- Automobile Dependence." Paper presented at Car-Free Cities nal road network or plan is an essential precondition for Conference, Copenhagen, May. infrastructure provision. Formal rules are largely irrele- . Forthcoming. "The New Urbanism." In Encyclopedia ofPublic vant and have been replaced by a set of informal rules. Policy. And the quality of infrastructure and services in gecekon- . Forthcoming. "Sustainability and Cities: Urban Planning, dus is generally poor, and the costs are higher than in Urban Ecology, Transportation, Energy, and Land Use." In legal areas. Encyclopedia of Environmental Control Technology, vol. 10. The finding that informal rules have replaced formal . Forthcoming. "Sustainable Cities: Concepts, Indicators, and ones is significant for development policy. It highlights Plans." Australian Journal of Environmental Management. the need to shift the focus of efforts away from formal Newman, Peter, and Jeff Kenworthy. Forthcoming. "Urban Forms institutions and their regulations toward informal actors and Car Use." Les Cahiers de ITAURIF and informal rules. For Bank operations the research find- Poboon, C., and Jeff Kenworthy. 1995. "Bangkok: Towards a ings suggest that bringing benefits to poorer households Sustainable Traffic Solution." Paper presented at Urban Habitat in urban areas might involve the use of informal rules Conference, Delft, the Netherlands, February. and channels. They also suggest a logical focal point for Poboon, C., Jeff Kenworthy, Peter Newman, and P. Barter. 1994. Bank urban assistance in Turkey-road planning and "Bangkok: Anatomy of a Traffic Disaster." Paper presented at construction in squatter settlements. Asian Studies Association of Australia conference on A Bank meeting to review the research findings was Environment, State, and Society in Asia: The Legacy of the held on March 5,1997, with eight staff and managers par- Twentieth Century, Murdoch University, Perth. ticipating. Findings will also be disseminated by dis- tributing the report produced by the research to Bank staff preparing infrastructure projects. A workshop in Reaching Turkey's Spontaneous Settlements Turkey is planned to present the findings to government, academic, and private sector representatives. Ref no. 680-66C Responsibility: Europe and Central Asia, Country Gecekondus-spontaneous settlements-house half the Department I, Infrastructure Operations Division-Henry urban population in Turkey. These settlements began Boldrick (hboldrick@worldbank.org). WithJosef Leitman springing up after World War II as rural immigrants and Deniz Baharoglu. flooded Turkey's cities looking for work. Because of lim- Completion date: March 1997. ited resources and land and housing markets that failed Report: to meet their needs, these people built their own dwellings Leitman, Josef, and Deniz Baharoglu. 1997. "Reaching Turkey's on government-owned land, doing without infrastruc- Spontaneous Settlements: The Institutional Dimension of ture services or obtaining them informally for high prices. Infrastructure Provision." World Bank, Europe and Central Asia, Some of the gecekondus have been legalized and have Country Department I, Washington, DC. gained some services. In these settlements modern apart- ment blocks are rising, foretelling dramatic growth in their populations and in demand for services-even as Valuing Direct and Indirect Benefits of more gecekondus emerge. And most gecekondus still lack Water Supply and Sanitation Projects: services. Application to Project Investment Analysis What explains the lack of services in these settlements? This study explored that question within the framework Ref. no. 680-79 of institutional economics, which suggests that institu- The World Bank is executing a number of water supply tional behavior is motivated by incentives that are cre- and sanitation projects that have direct and indirect ben- ated by formal and informal rules. To establish a relational efits. Direct benefits are welfare improvements result- matrix of rules, incentives, and outcomes, the study col- ing from connection to a service. Indirect benefits stem lected data through a search of the relevant literature, a from the environmental and public health effects of the review of Turkish laws and regulations, and semistruc- projects. Project analysis commonly values such direct tured interviews conducted in a sample of 10 Turkish and indirectbenefits through willingness-to-pay surveys cities with formal and informal infrastructure providers using the contingent valuation method. and consumers. But concerns about limitations of the contingent val- The research has produced findings on the process of uation approach have led to questions about the valid- infrastructure provision in gecekondus, on the relation- ity of using it to estimate project benefits. Are the estimates ship among rules, incentives, and behavior, and on out- it yields stable over time? Are they replicable across 68 Infrastructure and Urban Development locations? Do they measure the true benefits of the disease, or having sold or purchased a property before project? Can they be reliably used to make investment or after an improvement in water supply and sanitation decisions? services. Several considerations point to a need to evaluate the Since choosing a project evaluation method involves use of the contingent valuation approach for estimating tradeoffsbetweencost and reliability of results, it is impor- the direct and indirect benefits of water and sanitation tant to compare alternative methods. This research will projects. First, little or no effort has been made to vali- provide the main elements for making such a choice for date preproject estimates by comparing them with the water and sanitation projects with environmental man- actual consumption choices people have made as a result agement components. The research will classify meth- of a project. Second, it has been observed that estimates ods by the degree to which estimated benefits are of willingness to pay vary widely across locations and consistent or biased. across income categories. It is critical to know the rea- The results of the research will be disseminated in an sons for such variations-whether real differences in pref- Institute for Applied Economic Research workshop in erences or artifacts of the methods and their assumptions. Brazil in 1997. The database developed from the research And third, the costs of data collection and estimation will be made available. using alternative methods differ-sometimes by large Responsibility: South Asia, Country Department I, amounts-mainly because of differences in sample size Infrastructure Operations Division-Frannie Humplick requirements and in the number of questions needed to (fhumplick@worldbank.org); Policy Research Depart- get to an appropriate answer. ment, Infrastructure, Environment, and Agriculture To contribute to improved project evaluation proce- Division-Maureen Cropper and Nathalie Simon; and dures for direct and indirect benefits, this research Latin America and the Caribbean, Country Department addresses these analytical gaps. It compares estimates I, Urban Infrastructure and Environment Operations of marginal willingness to pay calculated for the same Division-Alex Bakalian, Yoko Katakura, and Carlos location using different methods, including contingent Velez, and Office of the Director-Homi Kharas. With valuation, property value analysis, and an analysis of the Luiz Antonio Baltar and Marcio Tagliari, Institute for impact of incidence of diarrhea on willingness to pay. It Applied Economic Research, Brazil; and Marcia Rosado, compares values for marginal benefits estimated using University of Maryland. The water supply utilities in the contingent valuation method and based on responses Vitoria (CESAN), Fortaleza (CAGESE), and Belem from beneficiaries of similar projects in different loca- (COSAMPA) and the Institute for Applied Economic tions in Brazil. And it suggests correction factors that Research, Brazil, are participating in data collection. can be applied at the project level to conduct sensitivity Completion date: December 1997. analyses of the estimated direct and indirect benefits of water and sanitation projects. The research draws on data on willingness to pay in Resolution of River Basin Disputes anticipation of a project collected in the preinvestment on the Indian Subcontinent evaluation of World Bank-financed projects in the Brazilian cities of Vitoria, Guarapari, Belem, and Fortaleza. Ref. no. 680-85C It also uses data being gathered on postproject willing- This research project examined the potential for using ness to pay, property values before and after the project computer-based decision support systems in the analy- and in locations with differing service levels, and the inci- sis of river basin issues and options, highlighting their dence of diarrhea among children under five in areas use in transboundary conflict resolution. The project con- with different service conditions. structed nonlinear optimization models to address two Preliminary results using existing data sets show kinds of issues. This work involved the construction of that survey respondents are generally sensitive to vari- a common information system-primarily using geo- ations in the service that they will receive. Respondents graphic information systems (GIS), interactive spread- already connected to a service were willing to pay higher sheets, databases, and the Internet-and two interactive prices for better service. And the willingness to pay models: for a new connection is higher than the willingness to * MEDUSA-1 (Multiobjective Environmentally pay for improved service, showing that respondents are Sustainable Development Using Systems Analysis) is a able to evaluate the benefits of different characteristics multiple-objective optimization model that focuses on of the public good offered. Further research will test the potentials and tradeoffs in such issues as water use, whether the willingness to pay is affected by such agricultural output, hydropower, in-stream water qual- factors as having experienced illness due to a waterborne ity, groundwater recharge, floods, navigation, minimum 69 Infrastructure and Urban Development flows, and urban, domestic, and industrial water and The findings and methodology have been and will wastewater. continue to be disseminated through seminars and * MEDUSA-2 uses an innovative approach to high- demonstrations, discussion and technical papers, and light optimal combinations of "hardware" approaches workshops and meetings in Bangladesh, India, and Nepal (development of hydropower generation, transport and (workshops were held in October 1996 and April 1997 grid facilities, and the like) and "software" approaches for up to 100 participants). There are also plans to dis- (pricing, establishment of links) on both the supply and seminate the data and information to facilitate future the demand side to integrate regional resource planning research through electronic media. The most promising in the water, energy, and transport sectors. It is intended media seem to be interactive Internet access using an to help maximize regional benefits and illustrate envi- ArcView Internet server and interactive spreadsheets, ronmental tradeoffs (for example, between the environ- electronic maps, and Websites. mental effects of hydropower development and the Responsibility: Asia Technical Department, Environ- additional local, regional, and global air pollution that ment and Natural Resources Division-Maritta would result from increased fossil fuel use in the absence Koch-Weser (mkochweser@worldbank.org) and Uma of large-scale hydropower development). Subramanian. With Harshadeep Nagaraja Rao; and Peter The development of these models drew on the litera- Rogers, Harvard University. ture on such topics as Pareto frontiers, game theoretic Completion date: March 1997. approaches, multiobjective optimization, decision sup- port systems, riverbasin planning, and integrated energy and transport planning. The software used includes Performance Measures for Infrastructure Microsoft Excel, Visual Basic, Generalized Algebraic and Environmental Resources, Phase 2 Modeling System, ArcView, and Arc/Info. Data sources included traditional print sources as well as a variety of Ref no. 680-88 GIS databases on the Indian subcontinent. The deterioration of infrastructure, particularly in urban The decision support system-consisting of the infor- areas, is a pervasive constraint on economic development mation system and models-appears to be an excellent in many developing countries. In an environment of lim- tool for intersectoral and interregional conflict resolution. ited managerial and analytical capacity, utility managers Of course, as with other such approaches, it must be used face complex decisions in preserving these assets. Effective carefully so that the results are not misinterpreted. The pro- measures of asset performance would significantly ject found that there are a variety of new ways of handling improve management decisions. Most attempts to mea- data to help in the decisionmaking process. The models sure performance focus on the input side of a delivery have been run for a variety of scenarios and levels of dis- service (for example, the quantity and quality of water aggregation, and a paper will be prepared on the results. put into the system), not on the output or delivery side For Bank operations this kind of approach could be (the quantity, quality, and reliability of water delivered extremely useful in conducting spatial analysis of pro- to the consumer). Users' perspectives give a true mea- jects, resources, and options; developing a regional and sure of service. This research is developing an analytical intersectoral cost-benefit strategy; identifying key con- framework and a process for incorporating users' per- straints (such as transmission capacity), especially in spectives in performance measures and infrastructure the energy, transport, and water sectors; providing a management decisionmaking. framework for integrating environmental tradeoffs in Phase 1 of the research, a case study in Indonesia, large projects; and identifying the benefits of coopera- showed that performance measurement can improve the tion and the costs of the status quo. There has been tremen- cost-effectiveness of investment and operations and main- dous interest from a variety of potential users in the region tenance decisions and provided a model for service-level (government, academic, and nongovernmental organi- performance measurement and valuation methods. It zations) and in other regions in using the methodology also developed a framework to measure the costs and and software to address a wide range of the issues touched benefits of investment decisions based on user and on in the study. provider criteria. The study found the service-level Much remains to be done to operationalize the mod- approach particularly useful in evaluating the impact of els, however. Further work will be done in gathering more projects on low-income groups, and it showed that inex- data, generating scenarios, and refining the models. And pensive survey techniques can be used effectively in the practical use of such systems will be examined in developing models of users' responses to changes in collaboration with teams in the Bank and in the countries service. An interactive geographic information manage- on the Indian subcontinent. ment system, a database, and a beneficiary assessment 70 Infrastructure and Urban Development strategy were developed to analyze decisions that affect Infrastructure and Growth: the performance of the water sector. A Multicountry Panel Study The goal of phase 2 is to replicate the framework in case studies in Africa and to extend it to provide decision Ref. no. 680-89 support in expanding public water supply services for This study will estimate the growth effects of four types unserved and underserved communities. The framework of infrastructure-roads, rail, telephone lines, and elec- has been developed in collaboration with Umgeni Water, tricity generating and transmission capacity-over the in Pietmaritzburg, South Africa. Umgeni managers have past three decades for about 100 countries. It will model successfully incorporated user-oriented performance mea- these four types of infrastructure separately in a standard sures into an effective decision support system. They are growth framework, including private capital and human testing the system's effectiveness for utility management capital as additional explanators of output and produc- and for addressing its new mandate of supporting the tivity growth. cost-effective extension of services to the poor. In looking at how different kinds of infrastructure This pilot decision support system establishes rele- affect growth, the study will pay particular attention to vant performance measures (from the perspective of both whether private capital is crowded in or out by infra- provider and users), analyzes existing data to identify structure investments and whether the growth effect is current deficiencies, and builds a development invest- mediated through structural change of the economy and ment framework that allows managers to interpret the urbanization. The study will also address questions on effects of their decisions. It analyzes water supply invest- the speed with which growth effects occur, whether infra- ment options and the effects of operations and mainte- structure investment affects the level of GDP or the rate nance decisions on service performance, predicts users' of growth, and whether infrastructure acts as a normal responses to changes in service levels, and calculates input into production and whether as a bottleneck. net economic costs and benefits for users and providers. Responsibility: Policy Research Department, Public Based on the test of the system in South Africa, a pilot Economics Division-Shantayanan Devarajan (sdevarajan performance optimization decision support system will @worldbank.org); and Transportation, Water, and Urban be developed for a water project in Senegal. Development Department, Office of the Director- The performance optimization decision support sys- Christine Kessides. tem should provide an effective method for evaluating Completion date: October 1998. infrastructure management issues, with far-reaching pol- icy implications for public infrastructure decisionmak- ers. It should improve the Bank's capacity in designing, Infrastructure Productivity: monitoring, and evaluating infrastructure projects. And Direct and Indirect Effects it will help meet the growing demand in the Bank for user-based, "bottom-up" project evaluation. Ref. no. 681-54 The research has been disseminated at several con- Over the past decade studies have repeatedly reported ferences: the Information Technology for Africa rates of return to public capital far exceeding those to pri- Conference in November 1996 in Durban, South Africa vate capital or those emerging from cost-benefit analysis (75 participants); the GIS for Africa Conference in orprojectevaluationforinfrastructureinvestments. Inpart December 1996 in Johannesburg, South Africa (400); the to investigate these still controversial returns and to find Water Utility Partnership for Africa Conference in out whether the operation of indirect effects may help February 1997 in Abidjan, C6te d'Ivoire (250); and the explain them, this study will identify and measure the Water Utility Partnership for Africa Conference in growth and productivity effects of infrastructure in India February 1997 in Gaborone, Botswana (250). using time-series data for roughly 1960-90. Responsibility: Africa Technical Families, Water, Urban, The study will address three main questions: First, in and Energy 1 Division-David Grey (dgrey@worldbank. addition to direct effects on output and growth, does org) and Letitia Obengand, Water, Urban, and Energy 2 physical infrastructure have significant indirect effects? Division-Jan Janssens, Richard Verspyck, and Robert Second, what are the economic rates of return of differ- Roche, and Nairobi office-Jean Doyen. With Jonathan ent kinds of infrastructure investment, and how do they Stevens; Peter Cook, GIS/Trans; Brian Walford, Adrian compare with the social rates of return to other uses of Wilson, and Robert Paine, Umgeni Water; and Roman capital? Third, is infrastructure a necessary condition Pryjompko and David McPherson, GIMS. Umgeni Water for growth? is contributing funding for the research. The study will estimate growth effects separately for Completion date: September 1997. roads, rail, telephone lines, and electricity generating and 71 Infrastructure and Urban Development transmitting capacity. The growth effects will be mea- Private Financing of Toll Roads sured in manufacturing and in domestic product first at the state and then at the district level. The study will try This study assessed the international private toll road to determine at what level the effects operate and through industry by examining financed projects. It analyzed what channels-for example, urbanization or change in the public policy and financing challenges in undertak- the organization of manufacturing. ing private toll road concessions and mobilizing financ- Responsibility: Policy Research Department, Public ing for their construction and operation. It also assessed Economics Division-Shantayanan Devarajan (sdevarajan the future prospects for private toll roads and the inter- @worldbank.org) and Sethaput Suthiwart-Narueput; and national outlook for these ventures. Transportation, Water, and Urban Development Depart- The study distilled the main issues and drew conclu- ment, Office of the Director-Christine Kessides. With Esra sions on the basis of an analysis of nine toll road projects Bennathan; Subhashis Gangopadhyay; Sylaja Srinivasan; that have attracted substantial amounts of private capi- Charles Hulten; Paul Seabright; and Martin Robert Weale. tal. It analyzed several aspects of private toll road financ- Completion date: December 1998. ing, including project economics, the country and concession environment, risk sharing between the pub- lic and private sectors, financing structures and sources, Contingent Valuation of the Rehabilitation policy issues, and future developments. of Cultural Heritage The findings suggest several conclusions: Project eco- nomics for toll roads vary widely, depending on the func- Ref. no. 681-98 tion, the cost, and the volume and certainty of traffic. Estimating the rate of return of investments in cultural Governments have pursued a wide range of strategies heritage is straightforward, but it may undervalue the for sharing risk between the public and private sectors. intrinsic worth of heritage for the global, national, and Governments can support toll roads in several ways, local society. This study will test the contingent valua- but before committing themselves to particular arrange- tion method as a way to evaluate urban cultural her- ments, they should weigh the tradeoff between the value itage investments, a method that has proved valuable in of such support to the private sector and their exposure. estimating the willingness to pay for services in such Responsibility: Cofinancing and Project Finance sectors as water supply, sanitation, and environmental Department, Project Finance and Guarantees Group- services. Suman Babbar (sbabbar@ifc.org). With Greg Fishbein, The study will use contingent valuation in interviewing Mercer Management Consulting. foreign tourists in Morocco to elicit information on their Completion date: December 1996. maximum willingness to pay for the rehabilitation of Report: the Fez medina. The analysis will focus on the benefits Fishbein, Greg, and Suman Babbar. 1996. "Private Financing of accruing to the foreign tourist population. A total of 600 TollRoads:AReviewofExperience."ResourceMobilizationand randomly selected tourists will be interviewed in Fez and Cofinancing Discussion Paper. World Bank, Washington, DC. Casablanca. Some of the sample will be interviewed in Casablanca to ensure access to enough tourists and to include tourists who have never visited Fez and whose The Financing of the Hub Project in Pakistan values therefore will provide information relevant to a larger sampling frame. The Hub Power Project is a 1,292-megawatt oil-fired The study will also assess the impact of municipal power station in Balochistan Province, Pakistan, some 40 finance on the revitalization of cultural heritage and the kilometers northwest of Karachi. This private sector pro- impact of financial structure or revitalization projects ject was undertaken by a single-purpose company, listed on affordability on the Karachi and Luxembourg stock exchanges, that It is expected that the findings of the study will be has a concession to build, own, and operate the power disseminated widely, both within the Bank-to staff work- station. The project has become a landmark in infra- ing on projects with cultural heritage components-and structure finance because it demonstrated the viability to outside agencies. of private finance for a major infrastructure project in a Responsibility: Environmentally Sustainable Develop- developing country. ment, Office of the Vice President-Michael Cohen This study examined the lessons learned from the (mcohen@worldbank.org). With Richard Carson and the World Bank's participation in the Hub Power Project, Harvard University Graduate School of Design. where the Bank played a catalytic role in the financing Completion date: August 1997. of the project, in the development of the energy sector 72 Infrastructure and Urban Development and local institutions in Pakistan, and in the international tures and sources of financing. The analysis is aimed at market for private sector infrastructure. Because of its providing governments and investors insights that can pioneering nature, the project probably encountered most help them to maintain or expand the role of private power problems that are likely to face a private infrastructure in developing countries. project in a developing country during implementation, Nearly two-thirds of the capital raised for private and thus the solutions developed and the lessons learned power projects between 1994 and 1996 was provided have wide application. The study focused on the solu- under project finance, under which project cash flows, tions and lessons that generally apply to similar private rather than sponsors' balance sheets, provide lenders infrastructure projects, emphasizing the financial instru- their primary source of security. This study focuses on ments used by the Bank and its management of the pro- one part of the project-financed market-power project ject development process. finance-where privately controlled power projects sell Responsibility: Cofinancing and Project Finance power to utility off-takers for distribution to a national Department, Project Finance and Guarantees Group- power grid. The study examines trends in regulation, Suman Babbar (sbabbar@ifc.org). project structure, debt sources, and development times Completion date: July 1997. in this power project finance market. Report: The study evaluates trends in power project risk man- Gerrard,Michael. 1997. "ReviewoftheHubPowerProject."Resource agement by examining 10 power project finance deals in Mobilization and Cofinancing Discussion Paper. World Bank, Asia, Latin America, and the Middle East. The analysis Washington, DC. has shown that these power projects largely reflect a ratio- nal allocation of risks among public and private sector participants. Private Power Study Responsibility: Cofinancing and Project Finance Department, Project Finance and Guarantees Group- Private power continues to face many challenges in devel- Suman Babbar (sbabbar@ifc.org). With John Schuster, oping countries. Contract renegotiations and inadequate Hagler Bailly Consulting. risk assumption by governments may erode investor con- Completion date: June 1998. fidence and restrain private investment. Continued Report: growth may require greater private risk taking. This study Babbar, Suman, and John Schuster. 1997. "Private Power Study." analyzes the 1994-96 private power market to assess ResourceMobilizationand CofinancingDiscussionPaper. World trends in market competition, risk allocation, and struc- Bank, Washington, DC. 73 MACROECONOMICS Decentralization, Fiscal Systems, The program's dissemination efforts have included and Rural Development providing operational support to Bank projects and sec- tor work; developing ties with other international devel- Ref no. 679-68 opment agencies; presenting a workshop, seminars, and Policies and processes that encourage decentralization training courses on decentralization; and preparing are the latest in a succession of initiatives aimed at bring- papers and other publications. In addition, the research ing about rural development. Although decentralization program is preparing a database on the status of decen- efforts have a long history, much more needs to be under- tralization in 20 countries, dissemination notes aimed at stood about the different aspects of decentralization if policymakers in developing countries, and a workshop sound advice is to be given to policymakers. in Rome in partnership with the Food and Agriculture This program of research aims to add to that under- Organization, International Fund for Agricultural standing. It investigates the hypothesis that more decen- Development, and United Nations Capital Development tralized decisionmaking and resource allocation will Fund. It is also preparing training materials for a series improve the responsiveness and accountability of public of regional seminars for policymakers, a Bank policy institutions and strengthen the capacity of local govern- paper that will present a revised strategy for the Bank's ments and communities to manage development programs. rural development policies, and good-practice materi- The research program consists of six components that als for Bank operational staff. cover three main areas of investigation: democratic decen- Responsibility: Agriculture and Natural Resources tralization, fiscal decentralization, and decentralization Department, Office of the Director-Hans Binswanger of decisionmaking and responsibilities. It uses a variety (hbinswanger@worldbank.org), Graham Kerr, Suzanne of quantitative and qualitative instruments to analyze Piriou-Sall, Keith McLean, and Talib Esmail, and issues of participation, accountability, responsiveness, Agriculture and Forestry Systems Division-Willem Zijp; political economy, the capacity of local governments, and Operations Evaluation Department, Country Policy, efficient and sustainable delivery of public goods. Industry, and Finance Division-Anwar Shah; Environ- Early findings of the research show that decentral- ment Department, Social Policy and Resettlement ization holds promise for reinforcing national-level Division--Gloria Davis, and Pollution and Environmental democracy and central government commitment to rural Economics Division-Ernst Lutz; Latin America and the development, reversing "urban bias," solving the coor- Caribbean Region, Human and Social Development dination complexity of integrated rural development pro- Group-Mike Garn and Donald Winkler, and Technical jects and improving their sustainability, reducing poverty Department, Advisory Group-Thomas Weins and that arises from regional disparities and giving atten- Maurizio Guadagni; Human Development Department, tion to socioeconomic factors, facilitating the scaling-up Office of the Director-Jacques van der Gaag; and South of development efforts and promoting cooperation Asia, Country Department I, Infrastructure Division- between government and nongovernmental organiza- Frannie Humplick. With Johan van Zyl, Pretoria tions, and increasing the transparency, accountability, University; Justin Yifu Lin, Peking University; James and responsiveness of institutions. Decentralization seems Manor, University of Sussex; Dave Riper; Fernando to hold little promise for reducing poverty that arises Bernal; Tarsicio Castenda; and Wendy Ayres. The Swiss from disparities within localities, easing excessive rates Development Cooperation Consultant Trust Funds I and of agricultural taxation, ensuring macroeconomic bal- II and the Norwegian Royal Ministry of Foreign Affairs ance, and reducing overall government expenditure. Consultant Trust Fund are contributing funding for the These early findings suggest that the Bank and the rest research. of the development community should focus on maxi- Completion date: December 1998. mizing the benefits that decentralization can help bring Reports: about, monitor carefully issues that could go either way Aiyar, Swaminathan. 1995. "Decentralization: A New Strategy for and intervene through various mechanisms, and ensure Rural Development." AGR Dissemination Note 1. World Bank, an appropriate role for central government in address- Agriculture and Natural Resources Department, Washington, ing areas where decentralization offers little promise. DC. 74 Macroeconomics . 1995. "Decentralization Can Work: Experience from Saez, Felipe. 1996. "Evaluaci6n del sector descentralizado en mate- Colombia." AGR Dissemination Note 3. World Bank, Agriculture ria de adquisici6nes y gesti6n financiera." and Natural Resources Department, Washington, DC. van Zyl, Johan. 1995. "Analyzing the Capacity of Local Government: - 1995. "How Well Has Decentralization Worked for Rural A Case Study of Municipalities in North East Brazil." Development?" AGR Dissemination Note 2. World Bank, Draft. Agriculture and Natural Resources Department, Washington, van Zyl, Johan, Tulio Barbosa, Andrew Parker, and Loretta Sonn. DC. 1995. "Decentralized Rural Development and Enhanced . 1996. "Has Decentralization Aided Biodiversity Community Participation: ACase Study from Northeast Brazil." Conservation?" AGR Dissemination Note 11. World Bank, Policy Research Working Paper 1498. World Bank, Agriculture Agriculture and Natural Resources Department, Washington, and Natural Resources Department, Washington, DC. DC. Wiens, Tom, and Maurizio Guadagni. 1996. "The Design of Rules Aiyar, Swaminathan, Keith McLean, and Suzanne Piriou-Sall. 1996. for Demand-Driven Rural Investment Funds: The Latin American "The Political Economy of Democratic Decentralization." AGR Experience." LATAD Studies on Decentralization. World Bank, Dissemination Note 9. World Bank, Agriculture and Natural Latin America and the Caribbean Technical Department, Resources Department, Washington, DC. Washington, DC. Draft. Aiyar, Swaminathan, and Suzanne Piriou-Sall. 1996. "How Rules World Bank. 1995. Local Government Capacity in Colombia: Beyond and Incentives Can Improve the Working of Demand-Driven Technical Assistance. World Bank Country Study. Washington, Rural Investment Funds." AGR Dissemination Note 10. World DC. Bank, Agriculture and Natural Resources Department, Washington, DC. Bebbington, Anthony. 1996. "Local-Level Institutions and Social Total Investment, Agricultural Investment, Capital." and Investment in Manufacturing Bernal, Fernando. 1997. "Colombia: Rural Decentralization, Local Government Performance, and Its Determinants." Ref no. 680-50C Caldecott, Julian, and Ernst Lutz. 1996. "Decentralization and The accumulation of stores of physical and human cap- Biodiversity Conservation: Issues and Experiences." ital is considered essential to growth and development. Campbell, Tim. 1991. "Decentralization to Local Government in During the process of growth not only do resources accu- LAC: National Strategies and Local Response in Planning, mulate, they also flow between sectors. Still, much of Spending, and Management." the work on growth and such related areas as the mea- Humplick,Frannie,andAzadehMoini-Araghi. 1996. "Decentralized sure of productivity gains has been limited by the lack Structures for ProvidingRoads:ACross-Country Comparison." of a consistent database on sector investment. The pur- Policy Research Working Paper 1658. World Bank, Policy pose of this research was to assemble existing informa- Research Department, Washington, DC. tion on sector investments from international and national - 1996. "A Double Cost Hidden Level of Effort Approach to sources and to find an appropriate method for convert- Decentralization of Road Provision." Draft. ing the data into capital stock series. . 1996. "Is There an Optimal Structure for Decentralized The research located, recorded, and documented data Provisionof Roads?" Policy Research WorkingPaper 1657. World series on fixed investment for 57 economies along with Bank, Policy Research Department, Washington, DC. subsector investment for agriculture and manufacturing. Lin, Justin, and Funning Zhong. 1996. "Fiscal Decentralization and It adapted a method developed by Eldon Ball and oth- Rural Development in China." Draft. ers ("The Stock of Capital in European Community Lutz, Ernst, and Julian Caldecott, eds. 1996. Decentralization and Agriculture," European Review of Agricultural Economics Biodiversity Conservation: A World Bank Symposium. Washington, 20:437-50, 1993) to convert the investment series into DC: World Bank. fixed capital stock series. In addition, for agriculture it Manor, James. 1996. "The Political Economy of Decentralization." developed measures of livestock and tree stock capital. Draft. Comparisons with capital stocks calculated from the same Parker, Andrew N. 1995. "Decentralization: The Way Forward for investment data using perpetual inventory methods Rural Development?" Policy Research Working Paper 1475. revealed that the capital stock estimates are largely insen- World Bank, Agriculture and Natural Resources Department, sitive to the choice of method. Washington, DC. The results show that nearly half the countries in the Piriou-Sall, Suzanne. 1997. "Demand-Driven Rural InvestmentFund: sample experienced capital stock growth rates of more A New Generation of Social Funds." AGR Dissemination Note than 3.5 percent annually in recent decades. Agricultural 13. World Bank, Agriculture and Natural Resources Department, fixed capital makes up a small share of total fixed capi- Washington, DC. tal-less than 10 percent in most countries-and this share 75 Macroeconomics has been falling for all countries in the sample. private benefits equally. As a result, it has systematically Manufacturing capital is growing rapidly in some coun- overestimated the net benefits of many of its projects. tries, but in most the share of fixed capital in manufac- Estimates of the marginal cost of funds also provide turing is declining as well. Still, the agricultural sectors a guide for tax reform by highlighting the types of taxes of most countries are becoming more capital intensive. that generate the highest welfare costs. In principle the In nearly half the countries examined the difference marginal cost of funds should be equated across all tax between the growth rates of agricultural capital and agri- instruments to minimize distortionary losses. But in prac- cultural labor exceeded 2 percent. Similar results were tice governments do not behave optimally, and the mar- found for capital in the economy as a whole. ginal cost of funds varies among tax instruments. Generally, manufacturing and agriculture are becom- Estimates of marginal cost of funds indicate tax reforms ing more capital intensive. Related analysis showed that that would provide equal revenue at lower cost. the returns to agricultural capital are especially high. As part of the Policy Research Department's broader Policies and programs that encourage and facilitate cap- research effort on fiscal policy in developing countries, ital flows and do not discriminate against agriculture this research seeks to provide estimates of marginal cost are therefore likely to encourage economic growth. of funds for six developing countries-Bangladesh, Responsibility: International Economics Department, Cameroon, India, Indonesia, the Philippines, and South Commodity Policy and Analysis Unit-Donald Larson Africa-and use these estimates to derive guidelines for (dlarson@worldbank.org). With Yair Mundlak and Rita calculating the marginal cost of funds in other coun- Butzer, University of Chicago; and Al Crego, University tries. The project addresses the following questions: of Maryland. * What are the most important determinants of the Completion date: December 1996. marginal cost of funds? For example, do the tax rate and Report: elasticity of demand capture most of the welfare burden? Crego, Allan, Donald Larson, Rita Butzer, and Yair Mundlak. 1997. Under what conditions is the partial equilibrium calcu- "A New Data Base on Investment and Capital for Agriculture lation a good approximation? and Manufacturing." World Bank, International Economics * Are there any patterns in the marginal cost of funds Department, Washington, DC. Draft. across countries? A finding that trade taxes are consis- tently costlier than consumption taxes, for example, would provide a useful guideline for tax reform. Estimating the Marginal Cost of Public Funds * What is the effect of additional untaxed sectors on in Developing Countries the marginal cost of funds? In industrial countries the untaxed sector is typically given by leisure. But in devel- Ref. no. 680-69 oping countries entire productive sectors of the economy, Public expenditures, regardless of the benefits they con- such as small-scale agriculture, often go untaxed. How fer, impose a cost on society to the extent that they are might estimates of the marginal cost of funds for devel- financed by distortionary taxes. This cost is not just the oping countries differ from those for industrial countries? resources diverted to private use but also the deadweight * What is the sensitivity of estimates of the marginal loss associated with distortionary taxation. So to evalu- cost of funds to different uses of government revenue? ate a public expenditure, the analyst needs to know the Other studies have shown that the marginal cost of funds marginal cost of public funds-the sum of the marginal depends not only on the tax but also on the effect of the dollar raised from the private sector and the "marginal type of government spending under consideration. Some excess burden," or the change in the total welfare cost of of these considerations can be captured through differ- taxation caused by increasing tax revenue by that dollar. ent closure rules in computable general equilibrium (CGE) Estimates of the marginal cost of funds are critical for models. properly evaluating projects and conducting public The study estimates the marginal cost of funds for expenditure reviews. Reconsidering the role of the state, the six countries by modifying existing CGE models for governments and the World Bank in the 1990s have been these countries and conducting tax exercises with them. shifting their mix of projects toward health, education, The study then assesses how estimates derived from sim- and infrastructure, where there is a strong case for pub- pler methods compare with those obtained from the CGE lic sector involvement. In projects in these sectors the ben- simulations. This should provide guidance on how ana- efits are enjoyed by the private sector while the costs are lytical (partial equilibrium) formulas and simple CGE borne by the public sector. Since the World Bank has not models can be used to derive benchmark estimates of the used the marginal cost of funds in its economic appraisal marginal cost of funds in countries for which full-fledged of projects, it has implicitly treated these public costs and CGE models do not exist. 76 Macroeconomics Initial estimates indicate a wide dispersion in the mar- This has been made possible by the annual surveys of ginal cost of public funds, depending on the type of tax manufacturing initiated in Sri Lanka in 1977. If the study used to generate government revenue. The marginal cost finds that patterns that have regularly been found in other can even be negative because of second-best effects from countries after liberalization do not appear in Sri Lanka, other distortions in the economy. The findings indicate it will use the firm-level findings to examine the outcomes that policymakers can significantly lower the welfare more closely. This will allow more accurate generaliza- costs of public spending through careful selection of tax tions about the effects of economic liberalization on indus- instruments. trial structure. Responsibility: Policy Research Department, Public Responsibility: Operations Policy Department, Economics Division-Delfin Go (dgo@worldbank.org), Operations Policy Group-Sarath Rajapatirana Sethaput Suthiwart-Narueput, and Shantayanan (srajapatirana@worldbank.org). With Premachandra Devarajan. With David Wildasin, Vanderbilt University; Athukorala, Australian National University. The Institute Karen Thierfelder, U.S. Naval Academy; Michael Haney, of Policy Studies is providing data and data processing Stanford University; David Witzel, Prosody Corn- for the research. munications; and Ling Li, Towson State University Completion date: October 1997. Completion date: November 1997. Political Economy of Aid, Crises, and Growth Economic Liberalization and Industrial Restructuring: The Sri Lanka Experience Ref no. 681-31C This project studied the political economy of structural Ref. no. 681-03 reform, focusing on the relation of economic crises and Sri Lanka's economic liberalization, which began in 1977, foreign aid both to the reform process and to each other. provides an important and continuing experiment for The question of whether poor economic performance examining how trade, finance, and exchange rate reforms actually increases the probability of structural reform has affect a country's industrial structure. Research on this long been the subject of heated debate, and the debate question generally has been confined to aggregate analy- continues. Careful statistical analysis has revealed a strik- sis, examining the overall response of production, exports, ingly high correlation between high inflation and sub- imports, and productivity. This study examines the results sequent high growth. What then is the connection between of liberalization at the firm level in Sri Lanka. It also an economic crisis (such as a period of high and accel- attempts to find out how long a reform impact lasts and erating inflation) and reform leading to improved macro- where the main changes occur in industries and in pat- economic performance? terns of industrial development following a multifaceted A body of recent research has argued that if it is polit- liberalization. The postliberalization period in Sri Lanka ical constraints that are blocking the adoption of a reform is sufficiently long to distinguish the long-term resource program, a crisis may lead to a suspension of "politics allocation effects of liberalization from the short-term as usual" and thus ease the road to reform. A leading impact effects. The purpose of the research is to derive approach to the question of why crises may be benefi- lessons for other countries undertaking liberalization. cial starts with the war-of-attrition model from the sta- Using a firm-level data set, the study attempts to estab- bilization literature. In this approach interest groups agree lish changes in patterns of industrial growth, export ori- on the need to reform, but each wants the main costs of entation, factor proportions, employment potential, and reform to be borne by some other group. An alternative factor productivity following liberalization. It also approach argues that groups may find it rational to delay attempts to measure the gap between declared policy and reform even if they correctly foresee the deterioration of the policy actually implemented, in the context of the the economy and thus the costliness of waiting. The key political support for or opposition to the reforms. This to this initially puzzling finding is uncertainty about the allows the incorporation of sociopolitical and institu- postreform environment. tional factors that might explain any inconsistency Though these approaches are useful, a number of issues between stated and actual reforms. on the relation between adverse circumstances and the The study has established a set of hypotheses about impetus to reform remain to be addressed. The first is the what was expected following the liberalization and what argument that a crisis is beneficial for reform because it actually happened. The firm-level results are used to causes policymakers to focus their attention on the prob- examine changes in the level and composition of out- lem. Why would a policymaker wait until the situation put, in factor proportions, and in investment behavior. has so deteriorated that reform is quite costly? The study 77 Macroeconomics addressed this question by looking at the interactions of Standard variables and specifications have very weak uncertainty about the permanence or temporariness of explanatory power at the sectoral level, but initial sec- the economic deterioration (a signal extraction prob- toral composition seems to have a significant effect on lem) and the need to retain political support in the face aggregate growth. Economic size and the availability of of multiple interest groups with different agendas. A sec- natural resources are shown to be useful for explaining ond argument the study considered is that a crisis is growth. beneficial for reform because it acts as a "cleansing" mech- Analysis of sustained periods of high growth suggests anism, removing economic and political distortions stand- that countries that have managed to grow for a prolonged ing in the way of real reform. period at an annual rate of 7 percent have remarkably The argument that crises beget reforms has become few things in common. so widely accepted that some see it as the new conven- The current phase of the research focuses on Africa tional wisdom. The danger in such a view is that it and Latin America, studying the effects of initial condi- obscures the cases where welfare-improving policy tions, neighborhood growth, and natural resources on change is helped by good rather than bad times. growth rates and income levels. Any study of the role of crises in inducing reform must Two papers are in preparation, one on the robustness address the issue of the conditions under which the (or lack of robustness) of growth regressions and the other reverse might be true. Some have argued that the effect on the proximate sources of growth in Africa and Latin of external developments on policy choices (and on America. the credibility of the government's commitment to poli- Responsibility: Research Advisory Staff-Moshe cies) depends very much on how external circumstances Syrquin (msyrquin@worldbank.org). With Charles Kenny. affect the information that reforms convey. A policy Completion date: September 1997. change undertaken under one set of circumstances may convey little information about the government's com- mitment to reform. This study asked both when reform Impact of Intergovernmental Grants will signal future policies in such a way as to evoke an especially favorable response from investors and how Ref. no. 681-58 external developments can induce reforms (or may hin- Every attempt at fiscal decentralization involves the der them) when the information content of reform is assignment of taxes and expenditures to different levels important. of government and a system of intergovernmental grants. Responsibility: Policy Research Department, Macro- In theory these instruments should be used to improve economics and Growth Division-David Dollar (ddollar allocative efficiency, equity, and macroeconomic stabil- @worldbank.org) and William Easterly. With Allan ity. Central governments have tended to transfer more Drazen, University of Maryland at College Park; and spending responsibilities to local governments than rev- Charles Chang. enue, using intergovernmental grants to fill the result- Completion date: April 1997. ing gap. By their nature, intergovernmental grants tend to divorce local spending from local revenues and to sep- arate the benefits of providing local public services from Comparative Analysis of Growth the costs. They may also lead to inefficient and inequitable delivery of social services. These problems can become Ref. no. 681-37 more severe, the more local governments rely on inter- This study has two main objectives: to establish the lim- governmental grants and the less accountable they are itations for development policy of much of the output of to local residents. Because of the limited ability of local recent research on growth and to bring into the analysis governments in developing countries to raise revenue suggestions from the development literature largely from their own sources, however, intergovernmental ignored in Barro-type regressions. grants will continue to be a heavily used instrument of Preliminary results confirm the fragility of many of fiscal decentralization. So it is crucial to evaluate the effect the important results of growth regressions. Splitting a of intergovernmental grants on the behavior of local broad sample of countries by region, population size, governments. income, and decade produce markedly varied coefficients Through lending and nonlending advice, the World and levels of statistical significance. The fragility of sta- Bank is helping clients reform their systems of inter- tistics commonly used in growth regressions is also appar- governmental grants as part of a program to improve ent when results derived by taking out one country at a intergovernmental fiscal relations and macroeconomic time are compared. management. But the Bank's advice is based on analysis 78 Macroeconomics of primarily industrial countries' experience with inter- ous problem in some countries that have relatively low governmental grants and so may be of little relevance to inflation. developing countries. Compared with industrial coun- The data include information on each respondent's tries, developing countries tend to have a much more age, income, occupation, gender, marital status, and edu- limited set of intergovernmental grants, greater separa- cation level. Because the survey asked about class resent- tion of taxing and spending decisions, and weaker insti- ment, the data set allows testing of another hypothesis tutional capacity to carry out intergovernmental fiscal about inflation: that countries polarized by, say, income arrangements. class will be slower to stabilize because each faction will This research aims to provide a positive analytical try to make others bear the costs of stabilization. The framework more suitable for evaluating the impact of study was thus able to compare the effect of class polar- intergovernmental grants on the level and composition ization with that of high or low aversion to inflation. of local public spending in developing economies and Responsibility: Policy Research Department, Macro- to apply the framework to a cross-country panel data economics and Growth Division-William Easterly set and two country case studies, Bangladesh and China. (weasterly@worldbank.org). With Alberto Alesina, Responsibility: Policy Research Department, Public Harvard University; and Giuseppe larossi. Economics Division-Heng-fu Zou (hfzou@worldbank. Completion date: June 1997. org) and Tao Zhang. With Ling Li, Towson State University; Biyun Ha, Stanford University; and Liutang Gong, Wuhan University. Fiscal Decentralization Completion date: November 1997. and Fiscal Performance Earlier analyses of the relationship between fiscal A Unique Data Set to Test Hypotheses decentralization and the size of the government treat about Inflation and Stabilization fiscal decentralization as the decentralization of either taxing or spending powers. But decisions about taxa- Ref. no. 681-77C tion and spending are inseparable. This research corrected Why are some countries much more prone to inflation this deficiency, analyzing the effect of simultaneous than others? Is it that people in some countries are cul- decentralization of taxing and spending powers on the turally more averse to inflation? Or is this aversion an size of the public sector using cross-country data. The endogenous function of past and current inflation expe- analysis used an econometric model of government riences? There are two well-known hypotheses about behavior. inflation aversion, both of which seem commonsensical. The results show that simultaneous decentralization Yet these two commonsensical hypotheses contradict of a national government's taxing and spending powers each other. tends to reduce the size of the public sector. They also The first hypothesis is that countries with a history of indicate that revenue-sharing arrangements in which high inflation become inflation-averse. The second decisions about taxation are made by the national gov- hypothesis is that countries with high inflation "get used ernment tend to eliminate the constraining effect of the to it." These hypotheses, although frequently mentioned decentralized spending power. These findings suggest in the literature, have not been explicitly tested. The exist- that to reduce the size of the public sector, countries should ing literature on inflation aversion focuses mainly on decentralize both taxing and spending decisions. the tradeoff with unemployment or on the general pub- Responsibility: Policy Research Department, Public lic's knowledge of economics. Economics Division-Heng-fu Zou (hfzou@worldbank. Because inflation has distributional effects between org). income classes and between debtors and creditors, know- Completion date: December 1996. ing who is averse to inflation and who isn't is important in understanding when anti-inflation coalitions will form. This study analyzed these questions using a data set from Latin American Growth Puzzle a Roper Starch Worldwide Survey conducted in 1995 in 41 countries. The survey asked respondents to rank impor- After years of poor macroeconomic performance, many tant concerns, including inflation, and so allows assess- Latin American countries undertook ambitious programs ment of inflation aversion in a country. A separate analysis of macroeconomic stabilization and structural reform in of countrywide averages for several countries arrived at recent years. The policy changes created high expecta- the puzzling finding that inflation was ranked as a seri- tions for the region. But some observers question whether 79 Macroeconomics growth outcomes have measured up to expectations in * The external benefits of primary education appear several Latin American countries, to be a very large fraction of the private benefits. This study found evidence that the economic growth * Targeting public expenditures involves significant response to reforms in Latin America has not been dis- costs and does not always do better in reaching the poor appointing. Because of the significant policy changes in than self-targeted or even universal programs. Latin America by the 1990s and despite the global slow- * Variation in institutional structure can have a sig- down, the region returned to its historical per capita nificant impact on the quality of expenditure outcomes growth rate of 2 percent in 1990-93. at a national level-in the design of decentralized schemes To obtain consistent estimates of the parameters link- and in the provision of services. ing policy variables and growth, the study used a dynamic This project provided inputs to several training activ- panel methodology that both controls for unobserved ities in the Bank, including a seminar, New Directions in time- and country-specific effects and accounts for the Public Expenditure Analysis, on June 4-6,1997, with 40 likely joint endogeneity of the explanatory variables. Bank and outside participants; a course on public expen- Responsibility: Policy Research Department, Macro- diture analysis in May 1997 with 25 participants; com- economics and Growth Division-Norman Loayza ponents of courses on the economics of poverty and (nloayza@worldbank.org) and William Easterly. With project evaluation; and several seminars on aspects of Peter Montiel, Williams College. public expenditure analysis (frequently as applied to Completion date: December 1996. social sectors) in operational departments of the Bank. Report: Dissemination activities outside the Bank include a course Easterly, William, Norman Loayza, and PeterMontiel. Forthcoming. on public expenditure analysis in the former Soviet "Has Latin America's Postreform Growth Been Disappointing?" republics in Vienna in October 1996 and a course on Journal of International Economics. public expenditure analysis in Sub-Saharan Africa in Washington, DC, in February 1997. Responsibility: Policy Research Department, Public New Dimensions in Economics Division-Jeffrey Hammer (jhammer Public Expenditure Analysis @worldbank.org), Shantayanan Devarajan, Sanjay Pradhan, Sethaput Suthiwart-Narueput, Vinaya Swaroop, This project attempted to show ways to put into practice Dominique van de Walle, and Heng-fu Zou. With David a standard public economics approach to public Wildasin, Vanderbilt University. expenditure analysis. This approach tries to evaluate Completion date: June 1997. spending in different sectors on the basis of the degree Reports: to which it contributes either to improving efficiency by Devarajan, Shantayanan, and Jeffrey S. Hammer. 1997. "New alleviating a market failure or to reducing poverty. Directions in Public Expenditure Analysis." World Bank, Policy While market failure or poverty is a necessary condition Research Department, Washington, DC. for public intervention, public spending may not be the .1997. "Public Expenditures and RiskReduction." World Bank, most appropriate instrument, and since public money Policy Research Department, Washington, DC. comes at a premium, alternatives should be examined. Gertler, Paul, and Jeffrey S. Hammer. 1997. "Pricing Strategies for Potential correction of market failure must be balanced PubliclyProvided Health Services." Paperpresented at the World by limitations of public action-so-called government Bank conference Health Reform Strategies in Developing failures. Countries, Alexandria, Virginia, March. This project was partly a compendium and dissemi- Swaroop, Vinaya. 1997. "Experience with Public Expenditure nation strategy for previous studies and partly new analy- Reviews." World Bank, Policy Research Department, sis to fill in gaps in the logical structure laid out. New Washington, DC. elements included a study to measure the external ben- van de Walle, Dominique. 1997. "Broad or Narrow Targeting?" efits of primary education in Thai agriculture, using data World Bank, Policy Research Department, Washington, DC. from a repeated income and consumption survey, and theoretical work on modeling market structures, partic- ularly those in the social sectors and those relating to risk The Economics of the Informal Sector management (such as insurance). The project produced several key findings: This study started from the view that the informal econ- * Attempts at quantifying market failures and distri- omy arises when excessive taxes and regulations are butional impacts, while difficult, can usefully motivate imposed by governments that lack the capability to discussions of public expenditures. enforce compliance. The research studied the determi- 80 Macroeconomics nants and effects of the informal sector in an endogenous models, taking stock of the field and providing the nec- growth model whose production technology depends essary reference for evaluating the Bank models. The essentially on congestable public services. The model review encompassed policy-oriented analytical frame- concluded that changes-in policy parameters and the works ranging from rudimentary financial programming quality of government institutions-that promote an devices to relatively sophisticated macroeconomic mod- increase in the relative size of the informal economy will els embodying a careful treatment of expectations and also generate a reduction in the rate of economic growth. dynamics. The study then used data from Latin American coun- The second objective is to describe and document the tries in the early 1990s to test some of the implications of structure of the Bank models and their application to spe- the model and to estimate the size of the informal sector cific countries. The research is completing the applica- in these countries. The empirical approach consisted of tion of prototype versions of Bank models to the analysis relating the size of the informal sector to a latent vari- of macroeconomic policies in specific developing coun- able for which multiple causes and multiple indicators tries, comparing the outcomes of policy experiments, and exist. The size of the informal sector was found to depend relating them to the structure and features of the ana- positively on proxies for tax burden and labor market lytical frameworks. restrictions and negatively on a proxy for the quality of The third objective is to evaluate the application of government institutions. The empirical results also sug- models at the Bank from the point of view of users. For gest that an increase in the size of the informal sector neg- this purpose the study conducted a survey of model users, atively affects growth by reducing the availability of focusing on the objectives, the structure, the cost, and the public services for everyone in the economy and by performance of models. The study's fourth objective is increasing the number of activities that use some of the to draw methodological and practical lessons from the existing public services less efficiently or not at all. Bank's experience with the design and use of applied Responsibility: Policy Research Department, Macro- macroeconomic models. economics and Growth Division-Norman Loayza On the whole, users of applied models at the World (nloayza@worldbank.org). Bank report high satisfaction with them. But more com- Completion date: July 1997. plex models-those with richer behavioral content- Report: are typically found more satisfactory because of their Loayza, Norman. 1996. "The Economics of the Informal Sector: A superior ability to portray an economy's response to pol- Simple Model and Some Empirical Evidence from Latin icy changes and external shocks. They also require more America." Carnegie-Rochester Conference Series on Public Policy resources for development and maintenance. From the 45. user's point of view, there is a steep tradeoff between a model's sophistication-its behavioral content and capac- ity to trace through the impact of policy and external Applied Macroeconomic Models disturbances-and its cost. That suggests that upgrad- for Developing Countries ing to more complex policy-oriented models should be highly selective. Applied macroeconomic models are an essential tool Responsibility: Policy Research Department, Macro- for evaluating countries' policy options and growth economics and Growth Division-Luis Serv6n (1serven prospects under different scenarios. In recent years the @worldbank.org). With Klaus Schmidt-Hebbel, Banco World Bank has put significant effort into developing a Central de Chile; Peter Montiel, Williams College; Jaume family of policy-oriented macroeconomic models for use Ventura, Harvard University; Rodney Chun, Cornell in its operational work. These models range from University; and Douglas Smith, Columbia University. simple accounting frames to more complex tools with Completion date: December 1997. rich behavioral content firmly grounded in economic Reports: principles. Montiel, Peter. 1994. "Applied Macroeconomic Models for This research is reviewing and evaluating these mod- Developing Countries." World Bank, Policy Research els with the aim of producing a book on its results. It has Department, Washington, DC. four objectives. The first is to put the Bank models in a Schmidt-Hebbel, Klaus, and Luis Serv6n. 1994. "Fiscal Policy in broader perspective by comparing them with applied Classical and Keynesian Open Economies." Policy Research macroeconomic frameworks for developing countries Working Paper 1299. World Bank, Policy Research Department, used by other international institutions and the policy- Washington, DC. making community. The research has carried out a com- _ . 1995. "Dynamic Response to External Shocks in Classical parative analytical review of applied macroeconomic and Keynesian Economies." In D. Curie and D. Vines, eds., North- 82 Macroeconomics South Linkages and International Macroeconomic Policy. Cambridge: of the project, the research will use an innovative approach Cambridge University Press. to ensure that several methods of analysis-from quali- . 1995. "Fiscal Adjustment and the Exchange Rate under tative to quantitative to new participatory methods-will Rational Expectations in Chile." World Bank, Policy Research be used. The fieldwork will begin in most of the case Department, Washington, DC. study countries in the fall of 1997 and is expected to take . 1995. "Fiscal and Monetary Contraction in Chile: A Rational up to 12 months. Expectations Approach." Policy Research Working Paper 1472. The research is expected to contribute to a better under- World Bank, Policy Research Department, Washington, DC. standing of certain policies and should have a direct .- 1995. "Hacia una menor inflacion en Chile: contraccion mon- impact on the Bank's operational work. But perhaps more etaria bajo expectativas racionales." In F. Morande and A. important, it should suggest new ways of approaching Rosende, eds., Andlisis empirico de la inflaci6n en Child. Santiago: problems, given its emphasis on combining qualitative ILADES. and quantitative methods. Once the results of all the stud- -. 1996. "Adjuste fiscal y tipo de cambio bajo expectativas ies have been analyzed, compiled, and discussed in a sec- racionales en Chile." In F. Morande and R. Vergara, eds., Andlisis ond series of national public forums, a final report will empirico del tipo de cambio en Child. Santiago: Centro de Estudios be drafted and presented for discussion ata Second Global Pdblicos. Forum in Washington, DC. Ventura, Jaume. 1995. "World Bank Macroeconomic Models: Responsibility: Policy Research Department, Office of Findings and Suggestions." World Bank, Policy Research the Director-Lyn Squire (1squire@worldbank.org), and Department, Washington, DC. Poverty and Human Resources Division-Emmanuel Jimenez and Branko Milanovic; Poverty and Social Policy Department-Lionel Demery, Andrew Mason, John D. Structural Adjustment Participatory Clark, and Alex Rondos; Human Development Review Initiative Department, Office of the Director-Jacques van der Gaag; and External Affairs Department, Issues Management This project grew out of a meeting between World Bank Team-Kris Martin. With Constance Newman and Rajiv President James Wolfensohn and a group of international Kochar. The Norwegian Royal Ministry of Foreign Affairs nongovernmental organizations (NGOs) that had Trust Fund is contributing funding for the research. expressed a desire to work with the Bank in evaluating Completion date: June 1998. structural adjustment. A Bank team was assembled from different departments to work with the NGOs in design- ing an evaluation method that highlights the importance Tools for Fiscal Analysis of a participatory approach. Through a series of public forums and in-depth field investigations, the project aims The Public Economics Division has developed a simple to improve understanding about the effects of adjust- yet flexible tool for the quantitative analysis of fiscal poli- ment policies and about how broad participation of local cies. Called the 1-2-3 model, this general equilibrium civil society can improve policymaking. The initiative model of an open economy enables policy economists, will attempt to identify practical changes in economic using a popular spreadsheet format and little more than policies for both governments and the Bank. national accounts data, to calculate the likely impact of The main issues to be investigated in the study will proposed policy changes, such as the effect of trade lib- be determined by joint Bank, government, and NGO or eralization on the real exchange rate or the revenue impact civil society committees in each of the study countries. of replacing trade taxes with domestic indirect taxes. The These countries include Bangladesh, Ecuador, El Salvador, model has been adopted in several countries in Africa, Ghana, Mali, Uganda, and Zimbabwe. The project was including the CFA countries, Botswana, Swaziland, and officially launched in Washington, DC, on July 14, 1997, Zimbabwe, and in such countries as India, Latvia, and as the First Global Forum. Subsequent launches in the Morocco. participating countries will take place through public The model is being integrated into RMSM-X, the World forums at which the main issues of concern to NGOs Bank's standard accounting framework, so that it can be and civil society will be presented and discussed with used to generate policy scenarios or standard tables for Bank and government officials. Persistent areas of con- country assistance strategies and unified surveys. cern that are seen as priority issues by the joint commit- A dynamic version of the framework also has been tees will be investigated in fieldwork. developed to examine the impact of fiscal policy on The fieldwork forms the core of the project's research. investment and growth. Future development of this tool Consistent with the consultative, participatory nature will consist of econometric estimation of key parame- 82 Macroeconomics ters of the model and the linking of similar models to Euro-Mediterranean Free Trade Agreements." Paper presented household-level data to examine the interaction between at the Mediterranean Development Forum, Knowledge and macroeconomic policies and income distribution. Skills for Development in the Information Age, Marrakech, More than 250 copies of the fiscal analysis tool (on Morocco, May 12-17. computer diskette) and 450 copies of the corresponding working paper have been distributed in training semi- nars and research fairs and to individuals in governments Joint Policy Research Department- and the academic community. Africa Region Work Program Responsibility: Policy Research Department, Public on African Development Economics Division-Delfin S. Go (dgo@worldbank.org), Shantayanan Devarajan, Shankar Acharya, Sethaput Achieving accelerated economic growth and poverty Suthiwart-Narueput, and Vinaya Swaroop; and reduction in Sub-Saharan Africa may be the biggest chal- International Economics Department, Development lenge for the development economics profession and Data Group-Jos Verbeek. With Bernardin Akitoby, the World Bank. The Bank's Policy Research Department Montreal University; Tarhan Feyzioglu, Georgetown and Africa Regional Office initiated a joint effort to University; Min Zhu; Hongyi Li; Suehail Issa; and Etsuyo develop a work program on salient issues on which fur- Michida. ther analytical work could lead to improved policy out- Completion date: December 1998. comes in Africa. Preliminary work has identified seven Reports: issues: equitable rural development, trade and industrial Devarajan, Shantayanan. 1997. "Real Exchange Misalignment in the policy, finance, public resource management, private cap- CFA Zone." Journal of African Economies 6(March):35-53. ital flows, debt, and country selectivity. Devarajan, Shantayanan, and Delfin S. Go. Forthcoming. "The The work program consists of a set of research pro- Simplest Dynamic General Equilibrium Model of an Open jects on these topics carried out in 10 sample countries Economy." Journal of Policy Modeling. so that the interaction among the topics can be assessed. Devarajan, Shantayanan, Delfin S. Go, Jeffrey D. Lewis, Sherman The work involves collaboration withAfrican researchers Robinson, and Pekka Sinko. 1997. "Simple General Equilibrium and outside institutions. Modeling." In J. Franqois and K. Reinert, eds., Applied Methods Responsibility: Policy Research Department, Public for Trade Policy Modeling. Cambridge: Cambridge University Economics Division-Shantayanan Devarajan (sdevarajan Press. @worldbank.org); and Africa Regional Office, Office of Devarajan,Shantayanan,DelfinS. Go, SethaputSuthiwart-Narueput, the Vice President-Alan Gelb. and John Voss. 1997. "Direct and Indirect Fiscal Effects of the Completion date: June 2000. 83 INTERNATIONAL ECONOMICS Determinants of Japanese Foreign The study examined the effects of Japanese FDI on the Direct Investment: Policy Implications pattern and characteristics of host country trade, focus- for Developing Countries ing on differences in trade behavior between Japanese- owned firms and other multinational firms (especially Ref. no. 679-35C U.S. firms). The first significant finding is that host coun- This research empirically examined the main determi- try trade may become more sensitive to exchange rate nants of foreign direct investment (FDI) from Japan, which movements as the share of multinational trade increases. has emerged as a leading source of FDI for developing This suggests that multinationals have flexibility in deter- countries, and analyzed the implications for the direct mining where to produce a particular product, taking investment policies of developing countries. The study advantage of changes in exchange rates and other also investigated the effects of FDI flows on other eco- location-specific advantages. Regression results reveal nomic variables, particularly to ascertain the link between that exports by foreign-owned firms have responded FDI and trade flows. The research developed a theoret- more to exchange rate movements than have exports by ical framework in which the major determinants of FDI the parent companies. The exports of Japanese affiliates and the relationship between FDI and trade could be have shown greater sensitivity to changes in exchange rigorously explored, conducted a regression analysis in rates, with estimated coefficients three times those for both time-series and cross-sectional settings, and assessed other foreign firms in manufacturing. the policy implications of the results. The analysis drew The study found evidence providing partial support on balance of payments data, Japanese Ministry of Finance for the common proposition that foreign firms, especially notification data, survey data series, and host country Japanese-controlled ones, are more import-oriented than data. local firms in the host country, worsening the country's The relationship between FDI flows and various eco- trade balance. But panel regressions suggest that the neg- nomic variables was estimated by using pooled cross- ative trade balance effect of Japanese FDI applies mostly country and time-series data to control for country-specific to industrial countries; no significant adverse trade bal- and time-specific effects, paying particular attention to ance effects were detected for Japanese FDI in Asian devel- the differing characteristics of industrial and develop- oping countries. On the question of whether Japanese ing countries as investment locations for Japanese multi- FDI is trade-creating or trade-substituting, the study's national firms. empirical results strongly support the theory that it is The results indicate robust exchange rate effects on trade-creating. This effect is more apparent in Asian newly Japanese FDI for a variety of specifications and samples. industrializing economies than in major industrial These results confirm that appreciation of the yen had a countries. positive impact on outflows of Japanese FDI and suggest The study's results will be used as inputs to regular that the substitutability of Japanese FDI and exports reports of the Bank, such as Global Economic Prospects became stronger in recent years. Another important find- and the Developing Countries. They are also expected to ing is the positive and statistically significant effect of the contribute to policy formulation and dialogue in devel- intensity of research and development in the host coun- oping countries on promoting FDI flows and enhancing try on Japanese FDI. This provides support for the the- economic integration as well as to operational cross- ory that Japanese FDI tends to be trade-oriented and support. focused in sectors where Japan is about to lose its com- Responsibility: International Economics Department, petitiveness. In addition, profit and tax variables were International Finance Division-Kwang W. Jun (kjun found to be more significant in explaining the trend in @worldbank.org). With Joosung Jun, Yale University; and Japanese FDI than conventionally believed. The regres- Ewha University, Republic of Korea. sion estimation provides strong empirical support for the Completion date: November 1996. theory that an increase in effective corporate tax rates in Reports: the host country could increase inward FDI, reflecting Jun, Kwang W., and Joosung Jun. 1996. "Japanese Foreign Direct the fact that Japan is a relatively high-tax country that Investment and Host Country Trade." World Bank, International has adopted the foreign tax credit system. Economics Department, Washington, DC. 84 International Economics . 1996. "Japanese Foreign Direct Investment: Trends and spillovers from training by foreign firms. In Malaysia, by Determinants." World Bank, International Economics contrast, the intensity of training provided by multi- Department, Washington, DC. national corporations has a positive impact on the effi- ciency of local firms. To better identify the nature of FDI spillovers, the study Foreign Direct Investment Spillovers is augmenting the cross-section analyses with panel analy- in Developing Countries ses. For Malaysia, panel data linked to the 1994 survey are now available for 1973-94, and analysis of these data Ref. no. 680-07 has begun. Access to the linked 1992-95 panel data for Many developing countries see foreign direct investment Mexico is still being negotiated. When both data sets are (FDI) as a key element of their development strategies in hand, the study will compare and contrast the extent and seek to attract it through a variety of financial incen- and nature of vertical and horizontal flows between firms tives. They view FDI as a source of important direct ben- of know-how, technology, technical assistance, quality efits for the host country-financing new firms or business control, and skills upgrading, and then investigate the expansions, creating jobs, and generating tax revenues. effects of these links on the technical efficiency of firms. They also believe that FDI produces important indirect When completed, this research should provide devel- benefits for domestic firms-spillovers-from the accel- oping country policymakers and Bank staff with new erated transfer of superior technology, turnover of skilled insights into the nature of FDI spillovers, the role of inter- labor, and increased export opportunities through links firm links and industry clusters in technology diffusion with multinational corporations and foreign buyers. This and skills upgrading, and potentially useful policy instru- study seeks to quantify the most important spillovers ments for promoting these links and boosting growth in from FDI and to investigate the mechanisms through technical efficiency. which these spillovers occur. Responsibility: Private Sector Development Department In the course of the research the study has shifted its -Hong Tan (htan@worldbank.org), Geeta Batra, and focus to just two developing economies-Malaysia and Xiaomin Chen. Mexico-where firm-level cross-section and panel data Completion date: June 1998. are available on foreign ownership, research and devel- Reports: opment (R&D) spending, training, and production. Data Tan, Hong, and Geeta Batra. 1995. "Technology Spillovers from FDI: on the production, R&D spending, and worker training Evidence from Mexico." PSD Working Paper. World Bank, Private of foreign firms are used to characterize the presence and Sector Development Department, Washington, DC. importance of FDI and to estimate the potential tech- World Bank. 1997. Malaysia: Enterprise Training, Technology, and nology and skill spillovers of FDI for a sample of domes- Productivity. World Bank Country Study Washington, DC. tic firms. The effects of FDI on domestic firms are measured through frontier production function model estimates of the efficiency-enhancing effects of FDI on Analytical Perspectives on domestic firms, through aggregate measures of FDI pres- Aid Effectiveness in Africa ence, and through measures of the technological and training activities of foreign firms. Ref no. 680-18C Early results based on cross-section data-for 1992 for This project consisted of two main theoretical papers Mexico and 1994 for Malaysia-are promising. Frontier exploring the analytical links between aid and policy for- production function estimates indicate that in both coun- mation. The first paper, on policy conditionality, argues tries domestic firms have levels of technical efficiency that a theory of policy persistence is needed for long- that lag significantly behind those of multinational cor- run policy conditionality to make sense. It then devel- porations, while joint ventures have intermediate levels ops a lobbying model in which temporary policies induce of efficiency. More interesting is the evidence that the policy-specific investments that then "lock in" the poli- larger the foreign presence, as measured by the FDI share cies. The paper discusses the implications of the analy- of industry output or employment, the higher the effi- sis for the design of conditionality programs. ciency levels of local firms. In Mexico the evidence also The second paper, on aid, taxation, and development suggests that R&D by foreign firms raises the produc- in Sub-Saharan Africa, surveys cross-country empirical tivity of local firms in the same industry, suggesting that evidence and theory on the damaging effects of high technology spillovers are important. In Malaysia it is R&D and uncertain taxation of capital in Sub-Saharan Africa. by joint ventures that has the most significant effect on It develops a theoretical model in which an endogenous domestic firms. In Mexico no evidence was found for skill tax rate affects the composition and growth of invest- 85 International Economics ment in a political equilibrium that captures key of bank credit, which has longer maturities and is not features of African systems of personal rule. The model tied to a specific input purchase. is used to study the role of aid conditionality in creating To evaluate the effect of credit on SME exports restraints on future policy, under the assumption in Mercosur, the study conducted a survey in the four that donors act as the agents of the recipient country's original member countries of about 350 formal sector private sector. The analysis formalizes currently firms in manufacturing and services. The firms had popular views about the importance of political econ- an average of about 40 full-time employees and assets omy and helps to explain the recent shift from economic of less than $3 million. The questionnaire covered export to political conditionality. The paper argues that effec- behavior, use of formal finance, general characteristics tive design of policy conditionality requires an under- (age, size), and credit transactions with banks and standing of domestic political institutions and their suppliers. evolution. The youngest firms were the most dynamic exporters. Both papers attempt to formalize political aspects of Firms established in the past 10 years generated about conditionality that are extremely important in practice 40 percent of sales from exports, compared with only 13 but have received little analytical attention in the eco- percent for the oldest firms (48 years or older). Smaller nomics literature. They are expected to contribute to more firms' exports were less concentrated in Mercosur than rigorous policy discussions of aid conditionality and to larger firms', consistent with trade statistics showing that encourage the adoption of explicit models of political larger firms benefit most from Mercosur. The percent- economy in analytical work. age of exports with financing backed by letters of credit Responsibility: Policy Research Department, Macro- and other legal documents was low across the sample economics and Growth Division--Christine Jones and exhibited no clear trend by firm size or age. (cjones4@worldbank.org). With Stephen A. O'Connell, The smallest firms had an average of slightly more Swarthmore College; Christopher S. Adam, Oxford than two banks and received credit from 1.5 institutions. University; and Stephen Morris and Stephen Coate, The largest enterprises dealt with more than six banks University of Pennsylvania. and received credit from more than four of them. This Completion date: February 1997. number of banking relationships is relatively high and Reports: may contribute to information asymmetries between bor- Adam, Christopher S., and Stephen A. O'Connell. 1996. "Aid, rowers and lenders in the SME market. The share of bank Taxation, and Development: Analytical Perspectives on Aid credit in total credit showed no clear relation with size, Effectiveness in Africa." World Bank, Policy Research but reliance on supplier or trade credit fell with size, indi- Department, Washington, DC. cating that firms reduce their dependence on this costly Coate, Stephen, and Stephen Morris. 1995. "Policy Persistence." source of finance as they grow. University of Pennsylvania, Wharton School and Department To test for the effect of bank credit on exports, empir- of Economics. ical models were estimated using ordinary least-squares - 1996. "Policy Conditionality." University of Pennsylvania, regression analysis. The dependent variable was the share Wharton School and Department of Economics. of exports in firm sales; independent variables included firm size, age, use of different types of credit, and the nature of the bank-business relationship. The size of the Is Finance a Barrier for Small and Medium- firm in terms of asset value had no effect on export per- Size Enterprise Exports in Mercosur? formance, but size in terms of employment had a statis- tically significant and negative impact, indicating that Ref no. 680-39C more capital-intensive firms perform better in foreign Exports have more than tripled among the four original markets. The age of the firm was negatively correlated members of Mercosur (Argentina, Brazil, Paraguay, and with the share of exports in sales, but the number of years Uruguay) since 1990. Large firms have led this growth, exporting yielded a positive and statistically significant while small and medium-size enterprises (SMEs) have correlation-more experience means a greater share of lagged behind. This research examined the extent to which sales from exports. access to credit, particularly from commercial banks, The percentage of credit that firms received from banks affects the ability of small firms in Mercosur to take advan- tested both positive and significant, indicating that greater tage of export opportunities created by the regional trad- access to bank finance has a positive effect on exports. ing bloc. While SMEs can finance small domestic orders Foreign lines of credit showed the strongest relationship with internal resources and with short-term credit from with export success. Publicly sponsored lines of credit input suppliers, export orders increase the importance demonstrated a negative, but not statistically significant, 86 International Economics impact on export performance, and the share of credit from tance for export growth of facilitating new business suppliers a negative and statistically significant effect. creation. Also shown to have a positive impact on export per- Findings from the research were presented at the formance is the strength of the bank-business relation- ABCDE-LAC Conference in Montevideo, Uruguay, and ship, as proxied by the number of years the firm owner at a conference on Mercosur in Buenos Aires, Argentina, knew the loan officer in the firm's primary bank, the num- both in July 1997. The survey database will be made avail- ber of years the firm had done business with that bank, able to interested researchers. This research forms part and the physical distance between the firm and that bank. of the Mercosur study (Economic Integration: The This finding suggests that it is important for small firms Americas) directed by the International Economics to establish a trusting relationship with a bank. The ben- Department, International Trade Division, and Latin efits may include improved access to credit or greater America and the Caribbean, Country Department I, choices in financing-both critical ingredients for export Country Operations Unit 1. success. Responsibility: Latin America and the Caribbean, Regressions to determine which exporters were most Country Department I, Public Sector Modernization and sensitive to bank credit showed that smaller exporters Private Sector Development Division-Margaret Miller and those concentrating their exports in Mercosur were (mmiller5@worldbank.org), and Country Operations Unit both greatly affected by access to bank finance-more 1-Homi Kharas; Policy Research Department, Finance so than larger exporters or firms focused on exports out- and Private Sector Development Division-Gerard side the region. When the sample was divided by asset Caprio; and International Economics Department, size and age, however, it was the larger firms (with more International Trade Division-L. Alan Winters. With than $1 million in assets) and the older firms (10 years Beatriz Alonzo; Virginia Moori, Economic Commission or older) for which bank credit had a positive and sta- for Latin America and the Caribbean (ECLAC); Hi-Tech tistically significant impact on exports. More capital- International; CERES; Glaucia Vasconcellos Vale, SEBRAE; intensive firms also benefited more from bank credit. Jairo Procianoy; Gladys Benegas; and ECLAC. These results show that while less mature exporters ben- Completion date: June 1997. efit from bank finance, firms must also have a minimum Report: size, age, and capital structure to access institutional credit Miller, Margaret, and Gerard Caprio. 1997. "The Role of Credit in and use it for exports. Small and Medium-Size Enterprise Exports: The Case of Analysis of the survey data thus confirms the impor- Mercosur." Latin America and the Caribbean Economic Note tance of bank credit for small firm exports in Mercosur, 21. World Bank, Washington, DC. but also shows that not all bank credit is equally valu- able. The negative correlation between publicly backed credit lines and exports argues for caution on direct inter- Revenue Consequences of Trade Reform vention in credit markets. The finding that bank credit is most important for exports of firms above a minimum Ref no. 680-93 size does not mean that bank credit would not benefit Trade liberalization can cause fiscal problems, especially the smallest firms, but more likely reflects the extent to in countries where tariffs are a major source of revenue. which they are credit-rationed. The link between credit Many economists have discussed this issue, generally and export performance suggests that tariff reduction taking an aggregative and macroeconomic perspective. may not be sufficient to stimulate trade growth if other But projecting the probable effects of trade reform is distortions are not addressed. difficult because of the lack of detailed data linking The importance of the bank-business relationship to imports and revenue collections. This problem is partic- credit availability is another significant finding, given ularly important where high tariff rates are combined trends in Mercosur that may weaken these ties. with a pervasive system of exemptions and quantitative Consolidation in the financial sectors of Mercosur nations restrictions. has reduced the number of cooperative banks, state banks, This project is supporting improved design and imple- and development institutions that traditionally have been mentation of trade reform programs by exploiting new important sources of credit for SMEs. While efficiency data that have recently become available in a standard concerns may dictate greater concentration in banking format for a large number of developing countries. The services, the effect on SMEs needs to be monitored. new data come as a result of a customs administration The findings that younger firms are more likely to be system, ASYCUDA, that was developed and imple- export-oriented and that more export experience means mented by UNCTAD. Roughly 76 countries have adopted a greater share of sales from exports suggest the impor- the system since 1985, and 14 more are in the process of 87 International Economics doing so. The data include all the information from the simply wrong. Although many tactical tools for active customs entry documents and an exhaustive coding of risk management in developing countries have been the system of rates and exemptions, including historical developed in the past decade, a framework for devel- changes. oping a strategy that incorporates country-specific fac- The project is in some respects a demonstration pro- tors has lagged far behind. Typical approaches to asset ject. Four of the countries selected for the study are likely and liability management exclude trade flows, for exam- to undertake trade reforms as members of free trade areas ple, resulting in strategies that are unrelated to any mea- with common external tariffs. Each of these countries sure of the country's earnings potential and that ignore faces challenges representative of those facing the other the natural hedges in the import and export sector. members of its trade group, many of which also have This project has developed tools and guidelines that the ASYCUDA system. The project could therefore incorporate country-specific factors, including trade be extended to other countries in a way that will flows, to assist developing countries in devising an asset support the coordinated development of regional trade and liability management strategy. It is completing a gen- agreements. eral modeling process that includes trade flows and esti- Data have been collected for five countries-Belize, mates of the sensitivity of imports and exports to Benin, Ghana, Guatemala, and Zimbabwe-for 1995 and commodity prices, interest rates, exchange rates, and 1996. Data for 1997 will be collected in early 1998. For other macroeconomic factors. The project is also carry- each country the tax rate file, the exemption code file, ing out a study of the application of the methodology and the customs entry file have been extracted, converted and model to a few developing countries, emphasizing to DOS, and loaded into a database program (Foxpro). significant paradigm shifts over existing methodologies. The data have been subjected to exhaustive screening The project plans include developing a training program and cleaning to render them suitable for analysis. and implementation plan for transferring the method- The data for Zimbabwe were used to analyze the ology and model to interested developing countries. impact of proposed trade reforms by combining the new To provide practical input to the model development, rates with the existing trade and exemption patterns a mission was undertaken to the Colombian Central Bank under alternative assumptions about import elasticities. and Ministry of Finance. The mission not only led to sub- The data and the analysis were instrumental in assisting stantial improvements in the strategic tools and guide- the government in framing its final tariff reform. Further lines being developed but also made clear that these tools analysis was done to assess the conformity of the changes would greatly enhance Colombia's capacity for asset and with Zimbabwe's commitments under the Cross-Border liability management and provide new techniques for Initiative, a regional trade agreement. risk analysis. A similar analysis is under way for Ghana. Estimates The project has formulated an asset model for the of the revenue costs of the exemption system are being Central Bank, a liability model for the Ministry of Finance, formulated and will be shared with the government and and a combined asset and liability model to ease finan- the International Monetary Fund. cial coordination between the two institutions. For the A seminar was held in January 1996 to inform Bank asset model the project has developed techniques for cap- staff and others about the project and to disseminate turing the uncertainty structure of the joint stochastic preliminary results of the studies. Twenty-five Bank and movements of interest and exchange rates for use in the IMF staff attended. stochastic dynamic optimization model. Further work to Responsibility: International Economics Department, add macroeconomic factors and commodity prices is International Trade Division-Alexander Yeats (ayeats under way. New computing tools for the solution of sto- @worldbank.org) and John Nash. With Ronald D. Hood, chastic dynamic optimization problems have been devel- Ron Hood Associates; and Daniel Radack. oped, linked to a modeling system, and ported to a PC. Completion date: June 1998. The ability to work with a modeling system on a PC allows the user to introduce changes to the equation system (con- straints, policies, and the like) and eases the tree gener- A Strategic Approach to Asset and Liability ation process capturing the stochastic nature of the Management in Developing Countries problem. In continuing work this project will refine the tools Ref. no. 681-23 and solution process developed with Colombia for under- The World Bank and investment bankers regularly pro- standing and analyzing risk and model solutions. It will vide advice to developing countries on asset and liabil- investigate how best to integrate these tools into devel- ity management. But that advice often is nonoptimal or oping countries' operations and to accommodate their 88 International Economics policy objectives, by applying these techniques to at least markets, but with inadequately developed financial sec- one more developing country. These applications tor and regulatory institutions. South Africa's experience are being designed to ensure that the model will be treated has important lessons to offer these countries. Its insti- as a tool for decisionmaking and not as a substitute tutions are more developed, but it faces similar problems for it. in exchange rate management, with limited reserves and Responsibility: East Asia and Pacific Regional Office, commodity-dominated export sectors. The lessons from Office of the Regional Vice President-Stijn Claessens this research will also be of benefit to other emerging (sclaessens@worldbank.org); Information and Technology economies that have to manage volatile capital flows. Services Department, Information Engineering Unit- The results will be disseminated in academic, policy, Jerome Kreuser; and Financial Operations Department, and business forums and in conferences in South Africa Office of the Director-Lester Seigel. With Roger J. B. and the United Kingdom and at the Bank. Wets, University of California at Davis; and Philippe Responsibility: Africa Technical Families, Macro- Jorion, University of California at Irvine. economics 1-Yvonne Tsikata (ytsikata@worldbank.org) Completion date: May 1998. and Luiz Pereira da Silva. With Janine Aron, University of Oxford; Ibrahim Elbadawi, African Economic Research Consortium, Nairobi; and Brian Kahn, University of Cape Exchange Rate Policy and Medium-Term Town, South Africa. Adjustment and Growth in South Africa Completion date: June 1998. Report: Ref no. 681-28 Aron,Janine, BrianKahn, and Luiz Pereira daSilva. 1997. "AReview SouthAfrica's blend of economic structures presents some of Exchange Rate Policies and Foreign Exchange Markets in difficult choices and tradeoffs. In exchange rate policy South Africa since the 1960s." there is tension between the short-run concerns of a sophisticated financial sector and the longer-term objec- tives of the economy. This project examines the evolu- Trade Reform: Incentives on the Ground tion of real exchange rate policy in South Africa and the implications for adjustment and economic growth. It does Ref. no. 681-33C this by estimating econometrically the determinants of This project collected information on prices, outputs, the equilibrium real exchange rate, assessing the impli- inputs, labor employed, wages paid, and the like for a cations under different policies, and extending the basic sample of manufacturing enterprises in selected African real exchange rate model to include the role of capital countries. These data were used to gauge the impact at flows and the link with the optimum savings rate in an the enterprise level of trade policy reforms in these coun- irreproducible resource-based economy. The research tries and to analyze the response of African manufac- uses data from the South Africa Reserve Bank tape and turing enterprises to policy reforms that affected their World Bank databases. business environment. For a spectrum of exchange rate regimes the study Responsibility: International Economics Department, looks in detail at the evolution of economic fundamen- International Trade Division-Michael Finger (mfinger tals and short-run policy factors affecting the real exchange @worldbank.org). With Mayank Raturi; Iris Balvany; rate. A cointegration framework is used with single- Manju Kedia Shah; and Jim Tybout, Georgetown equation econometric models to investigate the short- University. run and long-run equilibrium determinants of the Completion date: June 1997. exchange rate in 1970-96. Finally, the study calculates the misalignment of the exchange rate under different assumptions, including estimates of sustainable capital The Dynamic Impact of Trade Liberalization flows across exchange rate regimes. The research repre- in Developing Countries sents the first quarterly real exchange rate model with both real and monetary determinants to 1996 and includes Ref. no. 681-40 estimates of misalignment for South Africa. International trade economists and Bank policy advice The research will provide an important input into Bank have typically argued that an open trade regime is very policy advice on exchange rate and capital flow man- important for economic growth and development. This agement issues. Many Sub-Saharan African countries view has been based in part on neoclassical trade the- have significantly liberalized their spot markets, or are ory, which generally finds that trade liberalization in the process of doing so, and are developing forward improves a country's welfare; in part on casual empiri- 89 International Economics cal observation that countries that remain highly pro- somewhat aggregate computable general equilibrium tected for long periods appear to suffer significantly and model of a small open economy with endogenous growth perhaps cumulatively; and in part on empirical work that entering through an Ethier-Dixit-Stiglitz variety pro- also finds trade liberalization beneficial to welfare and ductivity multiplier. Trade liberalization in this model growth. dramatically increases welfare because it results in a Yet numerical estimates of the impact of trade liber- significant increase in the number of varieties (tech- alization have generally found that it increases the wel- nologies) available in the economy. fare of a country by only about 1 percent of GDP. These These results provide support for the strong version estimates have been based on comparative static mod- of the link between trade liberalization and economic els, however, and researchers typically claim that they growth. They should buttress the intellectual case in the would be much larger if they incorporated the dynamic development community for the importance of openness gains from trade liberalization. These gains have not yet for growth. In later stages of the project, work will be been quantified. This project is developing models that aimed at providing more specific advice on regional trade will quantify the relationship between trade liberaliza- arrangements and growth. tion and growth. The findings are being presented at several confer- The development of endogenous growth theory has ences, including one in Paris in September 1997 and one provided a clear theoretical link from trade liberalization in Copenhagen in June 1998. to economic growth. Because of the complexity of the Responsibility: International Economics Department, models, the theoretical literature has necessarily been International Trade Division-David Tarr (dtarr based on rather aggregate models, and it has focused on @worldbank.org). With Thomas Rutherford, University the steady-state growth path, so it is difficult to gain of Colorado. insight into the dynamic growth path of the key vari- Completion date: November 1998. ables. This project is developing applied general equi- Reports: librium endogenous growth models that should make it Rutherford, Thomas, and David Tarr. 1997. "Regional Trading possible to obtain a number of important insights into Arrangements for Chile: Do the Results Differ with a Dynamic the relationship between trade liberalization and growth. Model?" Paper presented at the ASSA meetings, New Orleans, It focuses on the class of models that are relevant to devel- January. oping countries-small open economies with techno- . 1997. "Trade Liberalization and Endogenous Growth in a logical change generated primarily in the rest of the world. Small Open Economy: An Illustrative Model." Paper presented The research first quantifies the dynamic gains from at the conference Trade and Technology Transfer: The Evidence trade liberalization, taking into account the adjustment with Implications for Developing Countries, Milan, April. costs associated with forgone consumption, so as to assess the claim that the dynamic welfare gains from trade lib- eralization are considerably larger than the comparative Aid Allocation in a Federal System: static estimates. Using a numerical model, it then inves- A Case Study of India tigates the importance of the availability of a variety of imported inputs into domestic production as well as tech- Ref. no. 681-41 nological spillovers on domestic production deriving The institutional arrangements in an aid-recipient coun- from imported goods. After developing somewhat styl- try form an important part of the mechanism of aid. This ized models, the study applies the model to a small open research project evaluates how institutional arrangements developing economy that has recently undertaken trade affect aid fungibility. It looks at two main issues: What liberalization and signed an important regional trade part do the aid-recipient country's institutions play in agreement. The analysis draws on the Global Trade the resource transfer process? Is aid likely to be more or Analysis Project database, the International Trade less effective when the ultimate recipient of the aid is Division's database on tariffs, and input-output tables as not the primary one, as is often the case in a federal struc- appropriate. ture of government? Two draft papers have been produced. The first extends The central government of India receives and is liable a comparative static analysis of Chile's trade policy for all aid, including that earmarked for state govern- options to a Ramsey-type dynamic model of Chile with ment projects. The study looks at this system of aid dis- constant returns to scale and perfect competition. It shows bursement to analyze the institutional, political, and that simply adding a dynamic element to the analysis economic factors inherent in a federal structure of gov- does not increase the welfare gains from trade liberal- ernment that might influence aid disbursement within ization much. The second paper develops a stylized, the country and thus the effectiveness of aid. Another 90 International Economics objective of the research is to analyze whether or not the embarked on ambitious capital market reform, notably size of aid inflows relative to the national income of the those in Asia. recipient country matters in making aid work. One cross- The purpose of this research project was to develop a country study has argued that aid is nonfungible only when systematic information base on the attributes of the major it is a big share of the recipient country's national income. capital markets in Asia, including priorities and recent But sharp insights into such issues can only come through initiatives in reform, to develop perspectives on best prac- looking in detail at the process of resource transfer to a tice and the sequencing of reforms in the context of inten- country. The project assesses whether funds given by donor sifying financial integration. The study used a variety of agencies to India are fungible at the margin. It also looks methodological approaches, including reviews of previ- at the fungibility issue at the state level of government. ous and ongoing work on capital market reform in Asia To analyze the role of budgetary institutions, partic- and a survey of the region's stock markets and regula- ularly the intergovernmental fiscal transfer mechanism, tory agencies. It also drew on the results of a workshop in making foreign aid effective, the project studies the aid attended by representatives of the region's main stock experience of India in a model of aid fungibility. It uses a markets and regulatory agencies and by private market linear expenditure demand system to estimate the fungi- participants. bility'coefficient across different functional classifications The study found that emerging Asian markets have of public spending. The main data sources are publica- been able to make rapid progress in improving their mar- tions of the government of India. The analysis addresses ket infrastructure in the 1990s by leapfrogging to state- two questions: First, has aid to India been fungible, and of-the-art systems. The improved infrastructure has what part has center-state relations played in this regard? reduced risks (both systemic and settlement risks) and Second, if aid is fungible, is the small size of aid inflows transaction costs and has played a key part in attracting to India (relative to its domestic resources) a factor in increased portfolio flows. this? Would it be better to link aid with an agreed on pub- Asian markets have placed particular emphasis on lic expenditure program in areas critical to development? setting up central depositories to facilitate settlement and Preliminary results indicate that foreign aid is fungi- registration. Fast, reliable settlement is important in reduc- ble at the central government level, but that funds given ing systemic risk and volatility in markets, and shorten- by the central government to state governments are spent ing the settlement cycle to achieve the G-30 standard of for the intended purposes. The study's findings should settlement speed has been a central focus for regulators be useful not only for donors but also for the central and exchange managers. Foreign institutional investors government of India, for planning better management of are less interested in G-30 speed standards, however, than external and internal resources. in a system that may take a few more days to settle but Responsibility: Policy Research Department, Public is predictable. Economics Division-Vinaya Swaroop (vswaroop Asian markets have also focused on improving their @worldbank.org). With Shikha Jha, Indira Gandhi trading systems. All the markets in the study sample have Institute of Development Research; and Andrew Sunil instituted a computerized trading system or are in the Rajkumar, University of Maryland at College Park. final stages of putting one in place. Computerized sys- Completion date: December 1997. tems improve transparency and efficiency, a prime con- cern of market authorities and participants, and can handle the rapid increases in the number and value of Implications of Financial Integration transactions that have occurred in most Asian markets. for Capital Market Reform: Where Asian markets have made less progress has The Asian Experience been in achieving delivery versus payment in the settle- ment process. With central depositories, the delivery side Ref. no. 681-48C is generally working well. It is on the payment side that Portfolio investment flows encourage investment, the system often fails, perhaps because of weaknesses in increase liquidity, and often bring improvements in man- domestic banking and payment systems. agerial and financial techniques. But these flows can The public sector's role in capital markets is chang- increase volatility in emerging markets, especially if the ing from one of direct intervention to one of support capital market infrastructure and regulatory framework and oversight. All the countries in the sample have are not well developed. Developing countries grappling adopted the disclosure and self-regulatory model and with the problem of how to attract foreign investment are in the process of gradually expanding the role of without unduly increasing volatility can learn from the self-regulatory organizations. Because their markets are experience of other economies that have already still developing, however, this process is liable to be a 91 International Economics lengthy one, and the state will continue to play a more ments either directly, through tax or subsidy mechanisms, important role in Asian markets than it does in industrial or indirectly, through quantitative restrictions. These countries. Many Asian markets suffer from poor disclo- interventions have shifted resources into or out of agri- sure practices, lack of protection of minority shareholder culture, depending on whether the effect was to implic- rights, concentrated and financially weak capital itly subsidize or implicitly tax the sector. A number of market intermediaries, and inadequate skills and train- studies have found that both taxation and subsidization ing in the self-regulatory organizations. These weaknesses through these policies have harmful effects in develop- raise concerns about potential conflicts of interest in these ing as well as industrial countries. organizations and their capacity to monitor and regu- During the mid-1980s and early 1990s many late markets. developing countries embarked on policy reforms under Fixed income securities markets are relatively under- structural adjustment programs, usually with the assis- developed in Asia but are expected to develop rapidly tance of multilateral and bilateral lending institutions. in the years ahead. There are massive investment needs, One of the objectives of such programs has been to move particularly in infrastructure, that will require debt financ- domestic prices close to international ones. The trans- ing, and the development of domestic institutional mission of world price signals to domestic markets allows investors will significantly increase the demand for fixed more efficient allocation of resources not only in the com- income instruments. modity sector directly affected but also in the overall Asian countries are exploring ways to overcome key economy. constraints to the development of bond markets. To This study examines the extent to which domestic develop price benchmarks, some countries have been prices move closer to world prices following policy issuing government securities regardless of budgetary reforms. It is expected that domestic price levels will be needs, while others have promoted high-grade non- closer to world price levels and that changes in world government securities with well-known and stable risk prices will be transmitted to domestic markets more fully properties. Governments throughout the region are also and at a higher speed. reforming their tax codes or instituting tax concessions Responsibility: International Economics Department, to eliminate or moderate tax discrimination againstbonds. Commodity Policy and Analysis Unit-John Baffes And country experience in Asia shows that developing (jbaffes@worldbank.org) and Panos Varangis. With Bruce market infrastructure greatly enhances activity and liq- Gardner, University of Maryland; and Mohamed Ajwad, uidity in bond markets. University of Illinois. Responsibility: International Economics Department, Completion date: October 1997. Office of the Director-Pedro Alba (palba@worldbank. org) and Amar Bhattacharya. With Ismail Dalla and Martin Edmonds, Washington Asset Management; Implementation of the Uruguay Round YoonShik Park, George Washington University; Joan Boros, Agreement on Agriculture: New Issues Katten Muchin and Zavis; and Elizabeth Morrissey, and Progress in Post-Round Liberalization Kleiman International Associates. The Asian Development Bank contributed funding for the research. Ref no. 681-69 Completion date: December 1996. The signatories to the Uruguay Round agreement on agri- Report: culture made commitments to liberalize agricultural trade Bhattacharya, Amar, and Pedro Alba. 1996. "Implications of Financial in three ways: by converting nontariff barriers into bound Integration for Capital Market Reform: The Asian Experience." tariffs and reducing border protection, by reducing trade- Background paper to World Bank, Private Capital Flows to distorting domestic subsidies, and by reducing the value Developing Countries: The Road to Financial Integration (New York: and volume of subsidized exports. But the agreement did Oxford University Press, 1997). World Bank, International not spell out how the commitments would be imple- Economics Department, Washington, DC. mented. That raises the central question that this research will address: How and by how much do countries still restrict agricultural imports? World Price Signals, Policy Reforms, The research will look at how the current applied rates and Domestic Commodity Price Behavior of protection are set relative to the bound rates and assess the trade restrictiveness of post-Round agricultural poli- Ref no. 681-49 cies. It will evaluate the progress in liberalization by quan- Agricultural policies in many developing countries have tifying the reduction in applied protection during the tended to isolate domestic prices from world price move- post-Round regime. The data used will come from the 92 International Economics World Trade Organization, UNCTAD, the U.S. Depart- will be held in Tokyo before the 1997 World Bank- ment of Agriculture, and country officials. International Monetary Fund Annual Meetings. In addi- The study will provide information useful in identi- tion, the results will contribute to a planned World Bank fying policy issues for the next round of negotiation Policy Research Report on aid effectiveness. (due to commence in 1999) and in enhancing develop- Responsibility: Policy Research Department, Macro- ing countries' participation in-and thus their gains economics and Growth Division-David Dollar (ddollar from-the multilateral trading system. The results will @worldbank.org). With Charles Chang. also contribute to Bank trade policy advice on imple- Completion date: October 1997. mentation of liberalization and structural adjustment pro- Report: grams to enhance post-Round trade policy reforms. Burnside, Craig, and David Dollar. 1997. "Aid, Policies, and Growth." Responsibility: International Economics Department, Policy Research Working Paper 1777. World Bank, Policy International Trade Division-Merlinda D. Ingco Research Department, Washington, DC. (mingco@worldbank.org) and Daniel Radack. With Can Erbil, Boston College. Completion date: June 1998. The Implications of Rapid Growth in Large Developing Countries Economic Policies and the Effectiveness Ref. no. 681-75 of Foreign Aid Several large developing and transition economies- China, India, Indonesia, Brazil, and Russia-have Ref no. 681-70 achieved or are likely to achieve more rapid growth and This research, part of a larger Policy Research Department integration into the world economy as a result of policy study of aid effectiveness, aims to answer several ques- reforms undertaken in recent years. These countries- tions: Does aid have a positive effect on growth in the the Big 5--contain about half the world's labor force. The presence of good economic policies? Have donors sys- objective of this research is to assess which countries or tematically allocated assistance in favor of good economic groups of countries are likely to be most affected by the policies? Has aid affected policies-for good or for ill? emergence of these large developing countries and to What factors influence the success or failure of structural derive broad quantitative estimates of the potential size adjustment programs supported by the World Bank and of changes in world and national resource allocation, the International Monetary Fund? How can we reform production, trade, and product and factor prices over aid to strengthen its support of policy reform and of the next 25 years as a result of this process. Taking these growth? effects into account, the study will then explore what The research includes a theoretical explanation of how remedial policy measures affected countries can take aid might affect growth in the context of a neoclassical to mitigate adjustment costs or take advantage of new growth model and looks at the sensitivity of these effects opportunities. to the introduction of strategic behavior on the part of Because of the critical importance of intersectoral policymakers. It uses an empirical approach to measure resource allocation effects in the problem being studied the effects of aid on growth and the interactions between and the need for global macroeconomic consistency, the aid and policy. research uses a multiregion, applied general equilibrium The research has produced a paper showing that aid approach. The main data sources are the Global Trade has a positive effect on growth in a good policy envi- Analysis Project database and a model constructed and ronment but no effect in a poor policy environment. This maintained at Purdue University. finding suggests that foreign aid would have a greater Model simulations suggest that the emergence of the impact on growth and poverty reduction if it were more Big 5 countries will generate significantbenefits for indus- systematically allocated to poor countries with good trial countries and for most other developing countries. reform programs. The paper also shows that there has These benefits include generally rising real wages for been some tendency to allocate multilateral aid to poor both skilled and unskilled workers, resulting from broader countries with good policies, but no such tendency for opportunities for specialization along lines of compara- bilateral aid. tive advantage and from improved terms of trade. Findings have been presented at workshops at the Moreover, half the growth in industrial country exports Bank and the Fund and at academic meetings. They will in the next 25 years is expected to be to developing coun- also be presented at a symposium, cohosted by the Bank tries, based in part on growing specialization in service and Japan's Overseas Economic Cooperation Fund, that exports. 93 International Economics Among developing regions, the Middle East and North Using newly collected information on international Africa, Sub-Saharan Africa, and Latin America and the trade and trade barriers, the study found that loss of inter- Caribbean will derive the largest welfare gains from the national competitiveness played a key part in Africa's emergence of the Big 5. Lower relative prices for some declining importance in international trade. If Africa labor-intensive products as a result of trade liberaliza- had merely maintained its 1962-64 OECD market tion and increased participation by countries with abun- shares for its major products, its exports now would be dant unskilled labor, such as China and India, may, more than twice their current value. Also a factor is that however, generate some pressures on unskilled wages in global demand for the region's exports grew at a con- a few countries with a closely similar structure of endow- siderably slower pace than that for most other goods. ments. But these countries can offset such pressures by Africa therefore suffered from a two-pronged problem- accelerating trade liberalization, a policy that tends to ben- it experienced declining market shares for its key exports, efit the most abundant factor of production (unskilled which were of declining relative importance in world labor), and by undertaking other policy reforms to improve trade. the efficiency of their allocation and use of resources. The Empirical evidence provides no support for the propo- analysis also suggests that fears that fast growth in the sition that external protection contributed to Africa's mar- Big 5 will generate significant increases in world food ginalization in global trade. The share of African countries' and energy prices do not appear to be well founded. exports subject to nontariff barriers is far lower than The information and analysis from this research should that for other developing countries, some of which prove useful to developing country policymakers in launched successful, sustained, export-oriented indus- designing policies to take advantage of the market oppor- trialization drives. In addition, tariff preferences under tunities and potential gains from specialization and trade the European Union's Lom6 Convention or under OECD that will arise as a result of the emergence of the large members'generalized system of preference schemes pro- developing countries-as well as policies to ease adjust- vide Africa with more favorable terms of market access ment to intensifying competitive pressures and reduce than those for many other exporters. Even so, the OECD undue exposure to potential market risks. countries have policy options available that could fur- Interim research results are summarized in the World ther enhance market access for African exports. Bank's Global Economic Prospects and the Developing Responsibility: International Economics Department, Countries 1997 (Washington, DC, 1997) and are being pre- International Trade Division-Alexander Yeats (ayeats sented as part of an extensive international program of @worldbank.org), Azita Amjadi, and Ulrich Reincke. dissemination of the report in September 1997. Completion date: January 1997. Responsibility: International Economics Department, Reports: International Economic Analysis and Prospects Amjadi, Azita, Ulrich Reincke, and Alexander Yeats. 1997. Did Division-Milan Brahmbhatt (mbrahmbhatt@worldbank. External Barriers Cause the Marginalization of Sub-Saharan Africa org), T. G. Srinivasan, and E. Mick Riordan. With Thomas in World Trade? World Bank Discussion Paper 346. Washington, Hertel, Purdue University. DC. Completion date: January 1998. Amjadi, Azita, and Alexander Yeats. 1996. "Have Transport Costs Contributed to the Relative Decline of Sub-Saharan African Exports?" Policy Research Working Paper 1559. World Bank, Africa and the International Economy International Economics Department, Washington, DC. Yeats, Alexander, Azita Amjadi, Ulrich Reincke, and Francis Ng. In the mid-1950s Sub-Saharan Africa accounted for 3.1 1997. Did Domestic Policies Marginalize Africa in International Trade? percent of global exports. By 1990 this share had fallen Directions inDevelopmentSeries. Washington, DC: World Bank. to 1.2 percent. What are the reasons for this decline? One view is that falling commodity prices and external pro- tection in OECD markets are largely to blame. If so, the Measuring the Dynamic Gains from Trade solution to Africa's problems would be liberalization of industrial countries' trade barriers. Another view is that This research investigated the links between trade pol- Africa's marginalization is primarily due to inappropri- icy and economic growth in a cross-section of 53 coun- ate domestic policies that reduced the region's ability to tries between 1970 and 1989. It developed a new measure compete. If true, changes in Africa's own policies would of trade policy openness based on the effective policy be essential to reverse the adverse trade trends. This component of trade shares and used this measure in a research attempted to determine which of these expla- simultaneous equations system aimed at identifying the nations is correct. effect of trade policy on several determinants of growth. 94 International Economics The results suggest that trade policy openness has a exporters to capitalize on opportunities in foreign strong positive effect on economic growth. Improvements markets. in the quality of government policy and accelerated accu- Responsibility: International Economics Department, mulation of physical capital account for three-quarters International Trade Division-Alexander Yeats (ayeats of this effect; smaller effects operate through technology @worldbank.org) and Francis Ng. Basic data collection transfer and reduced economic distortions. The study was undertaken by UNCTAD in Geneva. found this decomposition to be robust with respect to Completion date: February 1997. alternative specifications and time periods, and testing Reports: of the model determined that it exhaustively captures the Ng, Francis, and Alexander Yeats. 1996. "Open Economies Work effects of trade policy on growth. Better! Did Africa's Own Barriers Cause Its Marginalization in Responsibility: International Economics Department, World Trade?" Policy Research Working Paper 1636. World Bank, International Economic Analysis and Prospects Division International Economics Department, Washington, DC. -Milan Brahmbhatt (mbrahmbhatt@worldbank.org). . 1997. "Open Economies Work Better!" World Development With Romain Wacziarg, Harvard University. (June). Completion date: January 1997. Report: Wacziarg, Romain. 1997. "Measuring the Dynamic Gains from Regionalism and Agricultural Trade Trade." World Bank, International Economics Department, Washington, DC. This research examined the ex post and ex ante effects of regional integration on international trade flows. It focused on agricultural trade because the impact of African Trade Barriers regional integration has often been much stronger for agricultural than for manufacturing trade. Much evidence has accumulated showing a strong pos- Using a simple Dixit-Stiglitz-Krugman trade model itive association between trade policy reform and eco- with product differentiation, the study analyzed the nomic growth. Trade restrictions and domestic policy impact of an expansion in a free trade arrangement on interventions often create a bias against tradables, espe- agricultural trade, comparing it with the impact on man- cially exports, that prevents economies from achieving ufacturing trade. It found that the size of the impact otherwise attainable rates of growth. This study attempted depends on two key parameters, initial level of protec- to determine whether Sub-Saharan African countries' tion and degree of product differentiation: the higher trade barriers have been an important factor in the poor the initial level of protection and the lower the product trade and economic performance that has characterized differentiation, the greater the impact. Thus expansion almost all these countries. of a free trade arrangement tends to have a larger impact Since detailed, systematic records on trade barriers on agricultural trade flows than on manufacturing trade in Sub-Saharan African countries were unavailable, the because initial protection is higher and goods are less dif- research undertook a large-scale data collection effort. It ferentiated in agriculture. tabulated information on tariffs and nontariff barriers Examination of data on the change in trade flows after from national customs schedules for 17 African countries two instances of expansion of the European Community and stored it in machine-readable form for further confirmed, at least to some extent, the validity of the analysis. theoretical prediction. When the European Community The study found that import barriers in Africa are expanded, agricultural trade between the new and the far higher than those in the developing countries old members increased dramatically, while no compa- that achieved the highest export growth rates, and rable jumps were observed for manufacturing trade. they appear to be biased against potential export prod- Further, among agricultural goods, the impact was ucts. African tariffs are more than three times higher stronger for less differentiated products, such as meat, than those in the developing countries with the highest oils, and animal feed, than for more differentiated prod- growth rates and more than five times higher than ucts, such as fruits, vegetables, and beverages. those in OECD countries. In addition, more than a The study also applied the model to an ex ante analy- third of African imports encounter some form of non- sis of the impact of the Asia Pacific Economic Cooperation tariff trade barrier. These findings suggest that if Africa (APEC) free trade agreement on rice in the Japanese mar- is to reverse its unfavorable export trends, the region ket. The agreement could be expected to have a large needs to adopt appropriate trade policies to enhance its impact on the Japanese rice market because the current international competitiveness and to permit African level of protection is very high (with a tariff equivalent 95 International Economics of more than 500 percent). But there is also high product . 1996. "India: Trade Policy, the Exchange Rate, and the differentiation, which would tend to reduce the impact. Domestic Terms of Trade for Agriculture." World Bank, The simulation results show that the impact of these International Economics Department, Washington, DC. two conflicting forces under partial liberalization is rather . 1996. "Indian Trade Policies since the 1991-92 Reforms." small, although when fully implemented, the free trade World Bank, International Economics Department, Washington, agreement will have a profound impact on Japanese rice DC. producers. Pursell, Garry, and Anju Gupta. 1996. "Trade Policies and Incentives Responsibility: International Economics Department, in Indian Agriculture: Background Statistics and Protection Commodity Policy and Analysis Unit-Junichi Goto and Incentive Indicators, 1965-95." Background Paper 1, Sugar (jgoto@worldbank.org) and Takamasa Akiyama. and Sugarcane. World Bank, International Economics Completion date: April 1997. Department, Washington, DC. Rosenblatt, David, Garry Pursell, Anju Gupta, and Benoit Blarel. 1996. "Protection, the Exchange Rate, and the Taxation of Trade Policy, Incentives, and Resource Agriculture in India." World Bank, International Economics Allocation in Indian Agriculture Department, Washington, DC. Sharma, Anil. 1996. "Indian Agricultural Trade Liberalization and An earlier research project systematically measured the the Uruguay Round Agreement." Paper presented at the con- net impact of the many government interventions that ference Uruguay Round Agreement:Implications forSouthAsian affect the profitability of agricultural crops in India. Agriculture, Kathmandu, April. Consultant studies, most covering 1980-81 to 1989-90, Sharma, Anil, and Garry Pursell. 1995. "Food Grains, Pulses, quantified the effects of export and import restrictions, Oilseeds, and Cotton inIndia: The PotentialImpact of Unilateral import duties and export taxes, the activities of para- Trade Liberalization." Paper presented at the 11th World statals, and input subsidies in several of the main pro- Congress of the International Economic Association, Tunis, ducing regions in India. In addition, the research December. compared agricultural incentives with incentives to man- ufacturing industries. This project brought together the results of the earlier Components of Successful research, extending some aspects back to 1964-65 and Commodity Exports forward to 1994-95 to capture the effects of the rupee devaluation of 1991 and the important trade and other An economy's dependence on primary commodities is reforms that began in July 1991. It also incorporated quan- often associated with low income and poor development titative estimates of the effects of India's agricultural and performance. The World Bank's Global Economic Prospects manufacturing incentive policies on the exchange rate and the Developing Countries 1996 (Washington, DC, 1996) from 1970-71 to 1994-95, including a simulation of the found that many commodity-dependent countries have likely effects over this period of the removal of export lagged in global integration; slow integration too is closely restrictions for rice, cotton, and wheat. related to low income growth. Pessimism has surrounded The research will be synthesized in a book, and the commodity dependence since the 1950s and the devel- detailed underlying data will be presented in separate opment of the Prebisch-Singer thesis. This thesis-that monographs. In addition, a number of papers have been because demand for commodities is income inelastic, prepared on special topics. it is difficult for developing countries to achieve high Responsibility: International Economics Department, export growth by focusing on primary commodity International Trade Division--Garry Pursell (gpursell exports-gained renewed prominence in the 1980s, when @worldbank.org) and Anju Gupta. With Ashok Gulati commodity prices collapsed. and Anil Sharma, National Council of Applied Economic In response to the pessimism, many commodity- Research, New Delhi. dependent countries might adopt strong anticommod- Completion date: April 1997. ity, pro-industry policies without duly considering their Reports: comparative advantages-as many Latin American coun- Pursell, Garry. 1994. "Indian Agriculture: Some Evidence on Anti- tries did after the Prebisch-Singer thesis first appeared. Agriculture Bias." Paperpresented at the conference SouthAsian Such policies are likely to fail, as many of the import Economic Development, Australian National University, substitution policies adopted by the Latin American coun- November. tries did. In addition, these policies tend to reinforce other . 1996. "Dual Pricing in the Indian Sugar Industry." World policies in commodity-dependent countries that already Bank, International Economics Department, Washington, DC. tend to have an urban bias. Because of these important 96 International Economics policy implications, this study examined the validity of While lower global interest rates provided an impor- the commodity dependence pessimism in some depth, tant impetus to the surge in private capital flows in the both theoretically and empirically. 1990s, the study found that these flows are now being The study found that many commodity-dependent driven by structural forces that are leading to progres- countries have achieved high growth rates in total mer- sive integration of developing countries into world finan- chandise exports and in per capita income through com- cial markets. These forces include advances in information modity exports. And many commodity sectors have and communications technology, deregulation and inno- showed spectacular production and export growth in vation in financial markets, and the rising importance of developing countries. These facts cast doubt on the valid- institutional investors that are able and willing to invest ity of commodity dependence pessimism. internationally. In turn, reforms in developing countries The study also undertook both theoretical and empir- have boosted creditworthiness and returns and opened ical analysis to identify the reasons that commodity sec- these markets to foreign investment. Given continuing tors in some developing countries have failed to develop. decline in investment risks and higher expected rates of Responsibility: International Economics Department, return combined with opportunities for portfolio diver- Commodity Policy and Analysis Unit-Takamasa sification, net private capital flows to developing coun- Akiyama (takiyama@worldbank.org) and Nanae Yabuki. tries are likely to be sustained at the high levels of the Completion date: May 1997. 1990s. Reports: The study concludes, however, that private capital Yabuki, Nanae, and Takamasa Akiyama. 1996. "Is Commodity flows to developing countries will not expand uninter- Dependence Pessimism Justified?" Policy Research Working ruptedly; sizable year-to-year fluctuations and large vari- Paper 1600. World Bank, International Economics Department, ations across countries are likely. The main risks of Washington, DC. volatility and large reversals lie at the country level, - 1997. "Does Commodity Dependence Slow Development?" because many developing countries lack the precondi- DEC Note 30. World Bank, Development Economics Vice tions to ensure the sound use of private capital. Financial Presidency, Washington, DC. integration can magnify the effects of underlying dis- tortions and institutional weaknesses and thereby mul- tiply the costs of policy mistakes. Developing countries Private Capital Flows to Developing therefore face two related challenges: managing the over- Countries: The Path to Financial Integration heating pressures and the risks of large reversals associ- ated with large surges in private capital flows that are The surge in private capital flows in the 1990s and the typical in the early stages of financial integration, and Mexican crisis in 1994 have focused the attention of pol- adapting policies and institutions to an increasingly inte- icymakers on the growing importance of these flows to grated financial environment. developing countries and the challenges they pose. This Based on country experience, the study drew several study, undertaken at the request of the Board, looked at broad policy lessons on dealing with these challenges in the role of external private capital in developing coun- macroeconomic management, banking, and capital mar- tries. The study aimed to provide a better understand- kets. First, the macroeconomic policy mix used to com- ing of the factors driving financial integration and to draw bat overheating due to large surges in capital flows also policy lessons for managing the process of integration. has a major effect on the real economy's performance and The study used a variety of methodological its ability to benefit in the long term from capital flows approaches, including reviews of previous and ongoing and to avoid large reversals. In particular, heavy reliance work, surveys of market participants (including pension on fiscal policy-supported by sterilization and, in more and mutual funds), and empirical methods ranging from extreme cases, capital controls-not only can be an effec- econometric tests of specific hypotheses to less rigorous tive response to overheating but also can improve the cross-country analysis. It also drew on about a dozen full balance between investment and consumption and mod- and partial country case studies. In addition to the sur- erate real exchange rate appreciation. Conversely, exces- veys and country sources, data sources included sive reliance on monetary policy and the use of a nominal Bloomberg, the International Monetary Fund's Interna- anchor can exacerbate the problem by attracting even tional Financial Statistics and World Economic Outlook, and larger inflows, especially short-term capital flows. the World Bank's World Debt Tables and Emerging Markets Second, the health of the banking system is key to Database. Data on institutional aspects of the financial securing the benefits of financial integration and avoid- systems of emerging markets were drawn from primary ing its pitfalls. Banks in developing countries play a larger sources in the countries as well as secondary sources. role in financial intermediation than those in industrial 97 International Economics countries but are generally weaker, and regulatory and Agricultural Trade Liberalization supervisory capacity is also generally weaker in devel- and Food Security oping than in industrial countries. These weaknesses in banking systems make them more prone to lending booms The changes under way in the international trade and in the early stages of financial integration. The study policy environment will have far-ranging consequences shows that countries that experienced large lending for the food and agriculture sector and for food security. booms typically also experienced increases in macro- Domestic policy responses to these changes will influ- economic vulnerabilities, in the riskiness of bank port- ence food security in both the short and the long term. folios, and in financial sector vulnerability. Addressing These policy responses are occurring in a dynamic con- the underlying weaknesses of the financial sector thus text of changing comparative advantage in agricultural becomes more urgent with financial integration, because production arising from population and income growth banks can increase lending more quickly and incur greater and changes in technology and resource constraints. risks. Also important is to curb lending booms associated Countries that have undertaken policy reforms and adjust- with capital inflows through macroeconomic policies and ment in the right direction have been much better posi- more targeted interventions in the banking sector and to tioned to cope with short-term shocks and take advantage deal promptly with banking sector crises, since delays of opportunities from more open markets than coun- only increase the ultimate cost. tries that have not done so. Third, with a growing share of flows to developing This study evaluated the extent of trade and market countries taking the form of portfolio capital, the stakes liberalization carried out by industrial and developing are high for strengthening capital markets. To make countries during the post-Uruguay Round regime. It their capital markets more attractive to foreign investors, examined existing trade barriers and domestic protec- developing countries should address three key areas in tion, quantified the pre- and post-Uruguay Round the market and regulatory structure: market inefficien- applied rates of protection, and projected the effect of lib- cies that cause higher transaction costs and failed trades, eralization on production, consumption, and price lev- lack of protection of property rights, and inadequate els through 2005. The study also analyzed the effect of disclosure. Country experience suggests that rapid the projected increases in world prices on low-income progress is possible in improving efficiency, but improv- food-deficit countries. And it assessed the implications ing investor protection and disclosure requires more sus- of liberalization for the food sector and food security by tained efforts. Promoting domestic institutional investors looking at changes in terms of trade, domestic output, that can mobilize large pools of dedicated money becomes food consumption, and incomes. even more importantwith financial integration, to assuage Work during 1997 focused on the consequences of the fears of excessive foreign presence and potential rapid growth in the Pacific Basin, particularly in China, volatility. for world food demand and prices. This question was The study's findings have been presented in a vari- analyzed using the global general equilibrium model ety of ways, including press briefings in Washington, DC, from the Global Trade Analysis Project to provide a more in May 1997, workshops and meetings for policymakers comprehensive assessment than has been possible with from developing and industrial countries, and workshops the partial equilibrium analyses used in the past. for market participants in London and Frankfurt. The Responsibility: International Economics Department, findings will also be presented in Canada in September Commodity Policy and Analysis Unit, and International 1997 at an Asia Pacific Economic Cooperation meeting, Trade Division-Merlinda Ingco (mingco@worldbank. in Latin America at the Latin American Economics org). With Kym Anderson, University of Adelaide; Association meeting, and in a high-level policy work- Christian Bach, University of Copenhagen; Betina shop for Asia in Manila in November 1997. Other coun- Dimaranan, Purdue University; Dale Hathaway, National try seminars are planned during the coming year. Center for Food and Agricultural Policy; and Tom Hertel, Responsibility: International Economics Department, Purdue University. Office of the Director-Amar Bhattacharya (abhattacharya Completion date: June 1997. @worldbank.org) and Pedro Alba, and International Reports: Finance Division-Swati Ghosh and Leonardo Anderson, Kym, Betina Dimaranan, Tom Hertel, and Will Martin. Hernandez. 1997. "Asia-Pacific Food Markets and Trade in 2005: A Global, Completion date: May 1997. Economywide Perspective." Australian Journal of Agricultural Report: and Resource Economics 41(1):19-44. World Bank. 1997. Private Capital Flows to Developing Countries: The Ingco, Merlinda. 1996. "India's Domestic and External Trade Policy Road to Financial Integration. New York: Oxford University Press. Environment: Implications for Market Stabilization Policies and 98 International Economics Strategies." Annex 6 in World Bank, "The Indian Oilseeds Responsibility: International Economics Department, Complex: Capturing Market Opportunities." Report 15677-IN. Commodity Policy and Analysis Unit-Panos Varangis South Asia Country Department II, Washington, DC. (pvarangis@worldbank.org). Ingco, Merlinda, Donald Mitchell, and Alex McCalla. 1996. Global Completion date: June 1997. Food Supply Prospects. World Bank Technical Paper 353. Reports: Washington, DC. (Also presented as a background paper at the Varangis, Panos. 1996. "Structural Adjustment and Africa's World Food Summit, Rome, November 1996.) Competitiveness." Paper presented at the conference Commodities-Africa in the World Market, INZET (Association for North-South Campaigns), Amsterdam, September 26. Commodity Marketing Systems . 1997. "Market Reforms in West African Cocoa Subsectors and Their Impact on the World Cocoa Market." Paper presented Government intervention in commodity marketing sys- at the Fourth International Cocoa Convention, CocoaMerchants tems has resulted in significant costs and inefficiencies. Association of America, Phoenix, Arizona, March 5-8. Internal marketing costs and margins, for example, are significantly higher in countries with government monop- olies than in those with free market systems. Recognizing Developing Countries and these costs, many developing countries are liberalizing Government Procurement commodity marketing. They are reducing government controls and interventions, phasing out government Government procurement in most countries accounts for monopolies, and encouraging a private sector role in com- a substantial share of the total demand for goods and ser- modity marketing. They also are abolishing administra- vices, especially when purchases of public enterprises, tively set prices and leaving prices to market forces, regulated monopolies, state and regional governments, phasing out input and consumption subsidies, and pass- and municipalities are included. The Government ing internal and external export marketing to the pri- Procurement Agreement (GPA) is intended to subject vate sector. government procurement to international competition. This research examined commodity market liberal- The GPA was renegotiated as part of the Uruguay Round, ization in several developing countries, particularly in but signing it was not obligatory, and only nine economies Africa, and its effect on marketing costs, farmgate prices, besides the European Union and the United States quality, and crop financing arrangements. In a number did so. Only one of the signatories was a developing of countries it found that private trade leads to lower country. marketing costs and margins and thus leaves a larger That so many countries, including nearly all devel- share of the export price for farmers. Improved oping countries, did not sign the GPA suggests that the incentives at the farm level have contributed to produc- costs were perceived to exceed the benefits. One objec- tion and export increases in several countries. Following tive of this research was to study how procurement mar- liberalization, the private sector can provide a channel kets function in developing countries so as to better for credit as private traders begin to establish financing understand the costs and benefits of procurement poli- agreements with foreign buyers and extend cash cies as actually applied and to explore what might be purchases down to the farm level. The government done to expand developing country participation in the can still determine quality standards, but it can gradu- GPA. For this purpose two small exploratory studies of ally pass quality inspection services to licensed private procurement policies and practices in two important non- inspectors. Market liberalization need not affect crop signers, Brazil and India, were carried out. In addition, quality. the World Bank's project files were surveyed to see what The study also found that it is often preferable to light they throw on developing country procurement have a gradual and orderly withdrawal of government policies, and a paper was written on the experience with monopolies, to reduce the possibility of disruptions in the GPA in industrial countries. crop commercialization and quality. Equally important The studies of Brazil and India showed that, as a result are the development of private sector institutions, such of recent reforms, central government procurement poli- as professional associations of traders and exporters, and cies and practices for goods are broadly compatible with the introduction of appropriate laws and regulations for the GPA rules. But the renegotiated GPA covers services private trade. The dissemination of market information as well as goods, and state, municipal, and local gov- to farmers and traders is also very important, as is the ernment procurement in addition to central government training of the emerging private sector in modem com- procurement. There is no systematic body of knowledge modity marketing and trading systems. in either country on the procurement policies and prac- 99 International Economics tices of these government entities or of the many state Opening Domestic Debt Markets enterprises. But enough is known to conclude that fur- in Developing Countries ther and politically difficult reforms would be needed before these policies and practices would be compatible This study examined policy and analytical issues per- with the GPA. taining to the development and internationalization of The survey of the World Bank's procurement files indi- domestic bond markets in emerging economies. The cated that a careful reading can give useful insights into analysis was based on pooled regression and iterative the procurement practices of many developing countries, three-stage least-square methods. It drew on balance of but that a more complete picture would require inde- payments data from the International Monetary Fund pendent empirical research in each country. This is prin- and data from the World Bank's Debtor Reporting System cipally because, unlike for most transactions, procurement and country sources. under Bank-financed projects is subject to the Bank rules Cross-country experience suggests that development on international competitive bidding. of domestic bond markets may be best achieved by start- The study of government procurement in industrial ing with the market for government debt, because a buoy- countries provides quantitative data for 1983-92. It shows ant domestic market for government debt is a key that by far the largest markets covered by the GPA dur- prerequisite for the development of private fixed income ing this period were the United States, the European markets. Voluntary domestic markets for government Union, and Japan, but that in these economies there was debt provide opportunities for learning-by-doing in mar- virtually no change in domestic firms' share in total pro- ket price determination for relatively simple financial curement above the threshold contract levels to which claims. The skills acquired in domestic markets for gov- the GPA applies. The share of domestic procurement in ernment debt can then spill over into markets for pri- the smaller countries was lower and declined over the vate sector claims, in which the additional complication period, but other factors in addition to the GPA could of credit risk arises. Before such markets can be opened account for this trend. In both cases, however, the GPA to foreign investors with any realistic expectation of for- is a counterweight to nationalistic impulses and among eign participation, they must meet international stan- other things helps to at least maintain the openness of dards in the market microstructure-trading practices, these markets to developing country exports. registry, transfer and settlement systems, and the like- Responsibility: International Economics Department, and establish a track record. International Trade Division-Garry Pursell (gpursell Opening domestic fixed income markets to foreign @worldbank.org), L. Alan Winters, Bernard Hoekman, participants is of secondary importance for both market and Marie-Helene Le Manchec. With Bibek Debroy; and development and surges of foreign capital. Both occur Helson Braga, ABRASPE, Brazil. without foreign participation in domestic fixed income Completion date: June 1997. securities markets. There is evidence that permitting Reports: foreign participation exacerbates the problem of exces- Braga, Helson, and Marcelo Piancatelli. 1996. "Government sive capital inflows. But market development may be Procurement in Brazil." World Bank, International Economics accelerated by foreign participants, who can bring expe- Department, Washington, DC. rience and technology to these markets. Debroy, Bibek. 1995. "Indian Government Procurement Practices." In general, little purpose is served by restricting for- World Bank, International Economics Department, Washington, eign participation in segments of the domestic fixed DC. income market. Any benefits from deterring short-term Debroy, Bibek, and GarryPursell. 1997. "Government Procurement capital inflows can be effectively achieved only through Policies in India." In Bernard M. Hoekman and Petros C. a broad measure such as a tax on foreign exchange trans- Mavroidis, eds., Law and Policy in Public Purchasing: The WTO actions related to the capital account. But the benefits of Agreement on Government Procurement. Ann Arbor: University of foreign participation for competition and liquidity may Michigan Press. be greatest at the short end of the maturity spectrum. The Hoekman, Bernard. 1997. "Operation of the Agreement on transfer of technology from abroad and the other bene- Government Procurement, 1983-92." In Bernard M. Hoekman fits of foreign participation could be particularly useful and Petros C. Mavroidis, eds., Law and Policy in Public Purchasing: in the early stages of market development. The WTO Agreement on Government Procurement. Ann Arbor: Responsibility: International Economics Department, University of Michigan Press. International Finance Division-Kwang W. Jun (kjun Hoekman, Bernard M., and Petros C. Mavroidis, eds. 1997. Law @worldbank.org). With Maxwell Fry, University of and Policy in Public Purchasing: The WTO Agreement on Government Birmingham. Procurement. Ann Arbor: University of Michigan Press. Completion date: June 1997. 200 International Economics Reports: Research results were disseminated in a seminar, Fry, Maxwell J., and Kwang W. Jun. 1997. "Opening Domestic Commodity Risk Management and Trade Finance, held Markets for Fixed Income Securities in Developing Countries." in Prague in November 1996 for about 30 academics, gov- World Bank, International Economics Department, Washington, ernment officials, policymakers, and private sector rep- DC. resentatives from the Czech and Slovak Republics. Jun, Kwang W., and May Ng. Forthcoming. "Debt Issues from Responsibility: International Economics Department, Emerging Asian Markets." In Michael Pettis, ed., New Dynamics Commodity Policy and Analysis Unit-Panos Varangis of Emerging Markets. London: Euromoney Books. (pvarangis@worldbank.org), Donald Larson, Nanae Yabuki, and Shane Streifel; and Europe and Central Asia, Country Departments I and II, Agriculture and Regional Risk Management and Development Operations Division-Richard Lacroix. Commodity Export Finance Completion date: June 1997. Reports: Liberalization in commodity markets has brought pro- Claessens, Stijn, and Panos Varangis. 1997. "Portfolio Allocation found changes in the way price risks are allocated and and Commodity Risk Management in Emerging Country managed in commodity sectors. Price risks increasingly Economies." In M. Papaioannou and G. Tsetsekos, eds., Emerging are allocated to private traders and farmers rather than Market Portfolios: Diversification and Hedging Strategies. Irwin absorbed by the government. The success of market Professional Publishing. reforms crucially depends on the ability of the emerging Lacroix, Richard, and Panos Varangis. 1996. "Using Warehouse private sector to make full use of the range of modem Receipts in Developing and Transition Economies." Finance commodity marketing, financing, and price risk man- and Development (33)3. agement instruments (such as futures, options, and Varangis,Panos, andDonLarson. 1996. "Dealing with Commodity swaps). Because farmers are generally unable to access Price Uncertainty." Policy Research Working Paper 1667. World these instruments directly, there is a need for intermedi- Bank, International Economics Department, Washington, DC. aries. Large private traders and banks are best positioned to become these intermediaries. Uncertainty in com- modity prices has negative implications for commodity Economic Integration: The Americas financing: banks and other lending institutions are reluc- tant to finance commodity trade or commodity-related The economic effects of Mercosur, a trade arrangement projects because loan repayment often depends on future among Argentina, Brazil, Paraguay, and Uruguay, could commodity prices. be substantial. The new market encompasses 200 million This study identified important preconditions for people, a GDP of almost $1 billion, and more than half accessing modem commodity marketing, price risk man- of Latin America's market. The proposed reductions in agement, and financing instruments: tariffs and nontariff barriers under Mercosur are sub- * Reducing government intervention that crowds stantial and are expected to expose its member economies out private sector involvement, to vigorous competition. * Removing controls on prices and margins, reduc- Traditional static computations of welfare gains from ing trade restrictions, and allowing the market to deter- trade do not predict great benefits from Mercosur. But mine prices. they address only the effect of tariff changes on the likely * Creating an appropriate institutional, legal, and reg- pattern of trade. The changes under Mercosur are ulatory framework. expected to go far deeper. If Mercosur is a harbinger of * Providing training and raising awareness. a broader philosophy of open trade and freer competi- * Improving creditworthiness and reducing counter- tion to encourage growth, it would represent a sea change party risk. in its members' development strategies and have impor- The use of commodity derivative instruments to hedge tant implications for the World Bank's country assistance commodity price risk is not new among developing coun- strategies. tries. The private sector in many Asian and Latin American This research was intended to develop a better under- countries has been using commodity futures and options standing of the implications of Mercosur-to help shape for some time, and more recently, commodity deriva- World Bank views on macroeconomic prospects, the con- tive instruments have increasingly been used in several straints of policymaking, and the risks of recidivism. The African countries and many transition economies. Several work highlighted key sectoral issues likely to arise with developing and transition economies are working to adjustment to the new regime-issues relating to trans- establish commodity derivative exchanges. port costs, agriculture, and services-as well as regional 101 International Economics issues. A hypothesis of the study was that improvements America and the Caribbean Region Economic Note 10. World will be required in all these areas to maximize the hoped- Bank, Washington, DC. for allocative efficiency gains; they are all elements of Laird, S. "Mercosur: Objectives and Achievements." World Bank, "getting the prices right." The work will inform consid- International Economics Department, Washington, DC. eration of the kinds of competition policies and institu- Miller, Margaret, and Gerard Caprio. "Small Business Finance in tions that need to emerge to support the new paradigm Mercosur." World Bank, Latin America and the Caribbean, of competitive, private sector-led development. Country Department I, and Policy Research Department, The work was oriented less toward government insti- Washington, DC. tutions than toward the ongoing local dialogue on Rowat, Malcolm, and Mike Lubrano. "Competition Policy and Mercosur. Its aim was to develop a World Bank position Mercosur." World Bank, Latin America and the Caribbean, on key issues that can be discussed in broad, strategic Country Department I, Washington, DC. terms in each Mercosur member country, and to build Yeats,AlexanderJ. 1992. "DoesMercosur's Trade PerformanceRaise knowledge to support the Bank's ability to respond to Concerns about the Effects of Regional Trade Arrangements?" requests for assistance. For these purposes the project Policy Research Working Paper 1729. World Bank, International produced papers on an overview of Mercosur, trade pat- Economics Department, Washington, DC. terns developing in Mercosur, integration and intra- regional transport costs, trade in food and agriculture, small and medium-size enterprise finance, professional Commodity Models: A Method services, financial services, trade policy, and the scope to Evaluate Commodity Projects for harmonization, competition policy, and industrial policies. For a country with a large world market share in a com- The research also considered Chile's prospective acces- modity with low price elasticity of demand, it is difficult sion to the North American Free Trade Agreement to evaluate how expansion of the commodity's produc- (NAFTA) and to Mercosur. It assessed the arguments that tion will affect welfare. The difficulty arises because an the trade benefits are likely to be small since both Chile increase in production under such circumstances often and the NAFTA countries have relatively low trade bar- leads to a large reduction in prices and in the revenues riers, but that advantages might arise from locking in and profits of producers. This issue has been addressed Chile's reforms and from increasing the security of its in the context of the adding-up problem, or immiseriz- access to U.S. markets. ing growth, by a number of economists. This research Responsibility: International Economics Department, tries to determine how to evaluate the welfare effects of International Trade Division-L. Alan Winters (awinters productivity increases in commodity production. @worldbank.org), Alexander Yeats, and Maurice Schiff; This issue is important in public policy decisions about Policy Research Department, Finance and Private Sector how much to invest in infrastructure or research Development Division-Gerard Caprio; Industry and and extension to increase productivity in a commodity Energy Department, Telecommunication and Informatics when there is a possibility of causing immiserizing Division-Carlos Primo Braga; Latin America and the growth. For some countries and some commodities, Caribbean, Country Department I, Country Operations most of the benefits from the productivity increase could Unit 1-Homi Kharas, and Public Sector Modernization accrue to importers. In these cases in-depth welfare and Private Sector Development Division-Margaret analysis is required to determine what level of resources Miller; Latin America and the Caribbean, Technical should be allocated for the purpose of increasing Department, Public Sector Modernization Unit-Malcolm productivity. Rowat and Mike Lubrano; and Economic Development Although there have been a few theoretical analyses, Institute, Regulatory Reform and Private Sector Enterprise evaluations of the effects of investment or research- Division-Danny Leipziger and Antonio Estache. With induced technical change on a country's welfare are dif- Julio de Brun and Jose Mauro de Morais. ficult, especially for policymakers and project managers. Completion date: July 1997. One reason is the difficulty of estimating supply and Reports: demand curves and elasticities. This research is devel- Amjadi, Azita, and L. Alan Winters. 1997. "Transport Costs and oping a simple and practical method for estimating the 'Natural' Integration in Mercosur." Policy Research Working welfare effect for a country of a supply shift in a partic- Paper 1742. World Bank, International Economics Department, ular commodity sector. The data requirements are small, Washington, DC. and the quantitative solutions can be obtained using a Frischtak, Claudio, Danny M. Leipziger, and J.F. Normand. widely available spreadsheet program. The model, which "Industrial Policy in Mercosur: Issues and Lessons." Latin is essentially a single-commodity supply and demand 102 International Economics model rather than a general equilibrium model, should and Caribbean Economic Association meeting in Bogoti, be easy to use even for noneconomists. Colombia, in October 1997. The model was presented at the Food and Agriculture Responsibility: International Economics Department, Organization Intergovernmental Group Meeting on Tea International Finance Division-Leonardo HernAndez in Bali, Indonesia, in July 1997. (fhernandez@worldbank.org). With Vittorio Corbo, Responsibility: International Economics Department, Catholic University of Chile. Commodity Policy and Analysis Unit-Takamasa Completion date: August 1997. Akiyama (takiyama@worldbank.org) and Nanae Yabuki. Completion date: August 1997. Global Economic Prospects-Related Research Private Capital Flows and the Role Global Economic Prospects and the Developing Countries, an of Economic Fundamentals annual report by the World Bank, provides an assessment of global economic prospects as they affect developing Since the late 1980s there has been a sharp increase in pri- countries. It also analyzes the links between developing vate capital flows to developing countries, mainly in East countries and the world economy, particularly in trade Asia and Latin America. Developments following the and capital flows. Research for Global Economic Prospects devaluation of the Mexican peso in 1994 have reopened is carried out by Bank staff and consultants on a variety the question of how sustainable these flows are. This of topics. question is important because a generalized reversal of Research for the 1997 report reviewed the implications flows could have serious disruptive effects in the for developing countries of three important changes in economies receiving them and, in the extreme, even derail the world economy that globalization is bringing about: economic reforms. the emergence of the large developing countries as key This research addresses the issue of sustainability, iden- players in the world economy, the role of global pro- tifying the driving forces behind the recent surge in pri- duction networks established by multinational enter- vate flows to developing countries and assessing the prises, and the policy challenges for governments, relative importance of these forces. Because the surge in particularly in handling the costs of adjustment associ- private capital flows since the late 1980s has coincided ated with trade liberalization. with a period of both domestic policy reform in the devel- The rapid growth and integration of the Big 5 devel- oping world and low international interest rates, there oping and transition economies over the next quarter is debate about whether the surge is driven primarily by century (China, India, Indonesia, Brazil, and Russia) will domestic or external factors. If by domestic factors, then likely redraw the economic map of the world as their domestic policies are the key to ensuring sustainable share of world output doubles. The emergence of the capital flows. Big 5 will generate important net benefits for the world To explain private capital flows to developing coun- economy arising from increased specialization along lines tries, the research uses a model in which both domestic of comparative advantage. But it will also cause signifi- and external explanatory variables are defined. The model cant economic adjustments, including those driven by is estimated using panel data for 1985-94 for 73 devel- greater competitive pressures in markets for labor- oping countries, including countries that have benefited intensive manufactures. The analysis suggests that fears from the new wave of private capital flows and countries that fast growth in the Big 5 will generate significant that have not. increases in world food and energy prices do not appear The results provide evidence that domestic factors- to be well founded. initial conditions-matter in explaining the allocation Developing countries are participating to an increas- of private capital flows among recipient countries. So ing extent in the global production networks of multi- countries can expect to continue receiving capital flows national enterprises, networks made possible by as long as domestic policy reforms continue strengthen- liberalization of economic policies, cost reductions in ing their economic fundamentals and improving their transport and communications, and the growing impor- long-term prospects. Official flows from multilateral insti- tance of knowledge and other intangible assets in mod- tutions appear to play a complementary role in improv- ern production. These networks ease the access of ing the creditworthiness of recipient countries. developing countries to new means of enhancing their Preliminary findings of the research were dissemi- economic performance and increasing integration by dif- nated at a conference in Santiago, Chile, in August 1996, fusing the benefits of improved management and labor and the final results will be presented at the Latin America skills, better information about world markets, new ideas 103 International Economics and technologies, and, generally, faster catch-up with in the context of financial integration are to contain over- best practices in the world economy. heating, develop a sound financial system, and avoid Concerns about job losses and other adjustment costs negative interactionshbetween macroeconomidc and finan- still deter many developing countries from undertaking cial sector vulnerabilities. Although Asian countries have or extending trade liberalization, though the evidence been broadly successful in dealing with the initial chal- suggests that such costs tend to be more limited than is lenges of overheating associated with capital flows in the sometimes feared. Nevertheless, there is much that gov- 1990s, developments over the past three years-partic- ernments can do to minimize adjustment costs, as well ularly the recent crisis in Thailand and the contagion as to carefully manage the political economy and equity effects on other countries of the region-show thai they issues that trade liberalization may raise. Adjustment are still prone to surges and ebbs in capital flows. costs will be lower if macroeconomic stability and com- These recent events also illustrate how financial inte- plementary policies strengthen the credibility of reforms gration can magnify the effects of underlying distor- and support a quick and substantial increase in new pri- tions and institutional weaknesses, multiplying the costs vate investment. For equity reasons it may also be desir- of policy mistakes. A premise of the study is that the links able to implement carefully designed social safety net and feedback effects between the macroeconomy and the measures to assist the most vulnerable groups that may financial sector have been particularly important in Asia. be adversely affected by reforms. These effects have amplified macroeconomic cycles and Responsibility,: International Economics Department, reduced the effectiveness or constrained the use of macro- International Economic Analysis and Prospects economic policy instruments. Division-Uri Dadush (udadush@worldbank.org), Milan The study addresses three sets of research questions. Brahmbhatt, Dipak Dasgupta, E. Mick Riordan, T. G. First, what are the main channels through which finan- Srinivasan, Ashok Dhareshwar, Caroline Farah, Kumiko cial integration is taking place in Asia, including the role Imai, Ken Itakura, Jalaleddin Jalali, Robert King, Robert of foreign, regional, and offshore centers? To what extent Lynn, Kim Murrell, and Miria Pigato, and International were external factors responsible for the observed surges Trade Division-David Tarn, Bernard Hoekman, and and ebbs in capital flows? What does the changing nature Alexander Yeats. With Robert Lipsey, National Bureau of of the investor base imply for the behavior of flows in the Economic Research; Steve Mateuz, Michigan State future? University; Matthew Slaughter, Dartmouth College; and Second, what lessons can be drawn from country expe- Romain Wacziarg, Harvard University rience on the conduct of macroeconomic policy, and the Completion date: September 1997. related role of the financial system, in a more integrated Report: environment? What determines the best policy mix to World Bank. 1997. Global Economic Prospects and the Developing deal with surges and ebbs in private capital flows? What Countries 1997. Washington, E)C. are the emerging lessons and outstanding issues in avoid- ing and responding to speculatory attacks on currencies? Third, how does financial integration affect the con- Managing Private Capital Flows in Asia: text in which financial institutions perform their inter- Lessons and New Challenges mediation function? In particular, what risks does financial integration create or enhance? What are the Following up on the recent World Bank Policy Research implications for banks, capital market institutions, and Report Private Capital Flows to Developing Countries: The the regulatory frameworks for both? What are the insti- Road to Financial Integration (New York: Oxford University tutional reform and development priorities in this new Press, 1997), this study aims to provide a better under- context of financial integration? standing of the policy challenges of managing the process The study uses a variety of methodological approaches, of financial integration in developing Asia. While on bal- including reviews of previous and ongoing work and ance financial integration can bring significant benefits, empirical methods ranging from econometric tests of spe- to secure these benefits developing countries need to put cific hypotheses to less rigorous cross-country analyses. in place a set of policy and institutional preconditions. It also draws on about eight full and partial country case Since the process of financial integration is relatively well studies. Data sources include the International Monetary advanced in Asia, the analysis of country experience in Fund's International Financial Statistics and World Economic the region should yield rich policy lessons for other devel- Outlook, the World Bank's World Debt Tables and Emerging oping countries. Markets Database, the Morning Star, and country sources. To reduce vulnerability to large reversals in private Data on institutional aspects of the financial systems of capital flows, the key policy and institutional challenges emerging markets are drawn from both primary and sec- 104 International Economics ondary sources. Information on capital markets is drawn in Seven Latin American Countries." World Bank, Policy Research from the parallel research project Implications of Financial Department, Washington, DC. Integration for Capital Market Reform: The Asian Experience (ref. no. 681-48). The research findings will be disseminated through the Controlling Recidivism joint publication of a volume by the Asian Development Bank and the World Bank, press briefings, and a senior This project will examine case studies in which devel- policy seminar in Manila in November 1997 for finance oping countries have had to deal with significant pres- ministers and heads of central banks. Small workshops sures for "new" import restrictions, analyzing how they and seminars in selected countries are also planned. overcame or why they succumbed to these pressures. It Responsibility: International Economics Department, will also design a rational safeguards system, one that Office of the Director-Amar Bhattacharya (abhattacharya makes economic sense and supports the politics of con- @worldbank.org) and Pedro Alba, and International tinuing a liberalization program. Finance Division-Swati Ghosh and Leonardo Responsibility: International Economics Department, Hernandez. With Willem Jansen, George Washington International Trade Division-Michael Finger (mfinger University; Peter Montiel, Williams College; Michael @worldbank.org). Pomerleano; Yakup Ergincan, University of Michigan; Completion date: June 1998. Mr. Taimur, University of Illinois; and Madeleine Li-Chay- Chung, University of Western Ontario. The research is a joint project of the World Bank and the Asian Estimating Equilibrium Exchange Rates Development Bank. in Developing Countries Completion date: December 1997. A central problem in empirical macroeconomics in low- income countries is to determine when and by how much Real Exchange Rate Misalignment the exchange rate is misaligned. Decisions to devalue or in Latin America to implement any exchange rate policy other than a clean float require both measuring the actual real exchange rate This study examines the degree of misalignment of the (RER) and estimating the equilibrium RER. In addition, real exchange rate in Argentina, Brazil, Chile, Colombia, when considering a devaluation, policymakers want to Mexico, Peru, the United States, and Venezuela using a know what its effects on inflation, the RER, and output model in which balance of payments equilibrium is asso- growth will be. Quantitative answers to these questions ciated with conditions in asset markets. Using cointe- are essential for implementing exchange rate policy and gration analysis, it finds that for all eight countries there for designing accompanying reforms. is a long-run relationship between the real exchange rate, The objective of this research project is to set out, for the stock of net foreign assets, and a measure of tradable use by Bank economists and others, practical method- sector productivity. It uses an unobserved components ologies for assessing exchange rate misalignment in low- model to estimate the equilibrium value of the real income developing countries where data, time, and exchange rate and the degree of misalignment. professional capacity are limited. The research draws The results suggest that in 1996 the real exchange rates together methodologies from disparate sources and doc- in Argentina and Peru were in equilibrium, and those in uments empirical innovations in applying them. It Chile and Colombia were close to equilibrium though addresses three methodological questions that are cen- with some room for further appreciation. Mexico's and tral to effective exchange rate management: how to define Venezuela's were slightly overvalued, and Brazil's was and measure the actual RER, how to estimate the equi- clearly overvalued. The exchange rate in the United States librium RER, and how to quantify the likely impact of a in 1995 was undervalued by about 5 percent. nominal devaluation on the RER, inflation, and output. Responsibility: Policy Research Department, Macro- The research produced 11 papers organized into four economics and Growth Division-Norman Loayza sets. The first set of 3 papers examines alternative con- (nloayza@worldbank.org) and J. Humberto Lopez. With cepts and measures of the actual RER to determine how Fernando Broner, Massachusetts Institute of Technology. accurately it can be measured in developing countries. Completion date: December 1997. These papers show that movements in RER indexes must Report: be carefully analyzed when the home country is experi- Loayza, Norman, J. Humberto Lopez, and Fernando Broner. 1997. encing trade liberalization, fluctuations in its terms of "Misalignment and Fundamentals: Equilibrium Exchange Rates trade, or different productivity growth rates than its trad- 105 International Economics ing partners-or where there are significant parallel mar- economics 4-Ingrid Ivins, and Macroeconomics 5- kets, unrecorded trade, or shifts in trade patterns. In these Fabien Nsengiyumva. With Ibrahim Elbadawi, African circumstances calculating separate RER indexes for Economic Research Consortium; Nadeem UI Haque, imports and exports is particularly important. International Monetary Fund; Steven Kamin, U.S. Federal The second and third sets of papers assess alternative Reserve Board; Peter Montiel, Williams College; and methodologies for determining the equilibrium RER. The Steven O'Connell, Swarthmore College. second set discusses partial equilibrium approaches. Completion date: June 1998. These three papers consider the use of the parallel mar- Reports: ket rate as an indicator of the equilibrium rate, set out Ahlers, Theodore 0., and Lawrence E. Hinkle. 1997. "Estimating updated versions of two methodologies (purchasing the Equilibrium Real Exchange Rate: An Update of Traditional power parity and base year, resource balance target and Approaches." World Bank, Policy Research Department, trade elasticities), and synthesize the empirical evidence Washington, DC. on trade elasticities and the effects of exchange rate move- Baffes, John, Ibrahim A. Elbadawi, and Stephen A. O'Connell. ments on trade flows in developing countries. These par- 1997. "Single-Equation Estimation of the Equilibrium Real tial equilibrium approaches have several virtues: they Exchange Rate." World Bank, Policy Research Department, draw on a substantial body of empirical work, impose Washington, DC. minimal data requirements, and are computationally Devarajan, Shantayanan. 1996. "Estimates of Real Exchange Rate straightforward. Although they do not do justice to the Misalignment with a Simple General Equilibrium Model: The general equilibrium nature of real exchange rate adjust- CFA Franc Zone." World Bank, Policy Research Department, ments, they can still provide useful estimates of mis- Washington, DC. alignment and benchmarks for more sophisticated Ghei,Nita, andLawrenceE.Hinkle. 1997. "Devaluations, Inflation, analyses. and the Real Exchange Rate: The Stylized Facts and a Simple The third set of papers considers general equilibrium Consistency Framework." World Bank, Policy Research methodologies for estimating the equilibrium RER. Department, Washington, DC. These four papers discuss the theory of the long-run Ghei, Nita, and Steven B. Kamin. 1996. "The Use of the Parallel equilibrium RER, single-equation econometric estimates Market Rate as a Guide to Setting the Official Exchange of the equilibrium RER, and computable general equi- Rate." World Bank, Policy Research Department, Washington, librium and macroeconomic models for estimating DC. the equilibrium RER. These methodologies make it pos- Ghei, Nita, and Lant Pritchett. 1997. "The Three Pessimisms: sible to take into account the interaction of key macro- Exchange Rates, Trade Elasticities, and Trade Flows in Low- economic variables in a sound theoretical framework but Income Countries." World Bank, Policy Research Department, are far more complex than the partial equilibrium Washington, DC. approaches. Haque, Nadeem UI, and Peter J. Montiel. 1996. "Long-Run Real Although much work has been done on methodolo- Exchange Rate Changes in Developing Countries: Simulations gies for estimating the equilibrium RER, methodologies from an Econometric Model." World Bank, Policy Research for determining the nominal exchange rate adjustments Department, Washington, DC. required to achieve a given realignment of the RER Hinkle, Lawrence E., and Fabien Nsengiyumva. 1997. "External are more rudimentary and will often be the most Real Exchange Rates: Concepts, Measurement, and problematic part of the policy analysis. The paper in the Interpretation." World Bank, Policy Research Department, final part of the study establishes the stylized facts relat- Washington, DC. ing to the effects of exchange rate movements on infla- . 1997. "Internal Real Exchange Rates: Concepts and tion and the RER and sets out a reasonably accurate Measurement." World Bank, Policy Research Department, consistency framework for quantifying these effects that Washington, DC. can be used until more sophisticated approaches are . 1997. "The Relationship between and Interpretation of developed. External and Internal Real Exchange Rates: Competitiveness, Responsibility: Policy Research Department, Macro- Productivity, and the Terms of Trade." World Bank, Policy economics and Growth Division-Lawrence E. Hinkle Research Department, Washington, DC. (1hinkle@worldbank.org), Public Economics Division- Montiel,PeterJ. 1997. "Estimating Equilibrium Exchange Rates: An Shantayanan Devarajan, and Poverty and Human Overview." World Bank, Policy Research Department, Resources Division-Lant Pritchett; International Washington, DC. Economics Department, Commodity Policy and Analysis _ . 1997. "The Theory of the Long-Run Equilibrium Real Unit-John Baffes; Africa Country Directorate 13- Exchange Rate." World Bank, Policy Research Department, Theodore Ahlers; Africa Technical Families, Macro- Washington, DC. 106 International Economics International Comparison Programme * Applying the price data (and related expenditure Analysis weights) in reviewing the meanings and economic con- texts of core inflation across countries and determining The Bank's work on the International Comparison how the different concepts should best be measured. Programme (ICP) is broadly split between two tasks: * Compiling internationally comparable estimates of the statistical activities of data collection and accompa- capital to use in growth analysis and to combine with nying quality control of price and expenditure informa- human capital series in order to derive more meaning- tion obtained from surveys in the 120 participating ful assessments of total factor productivity in different countries and six core regions, and the use and analysis countries. of the resulting estimates. Experience in using the esti- * Looking at the importance of regional price level mates is often fed back into the statistical compilation differences and market structure differences in large processes to improve the relevance and reliability of the economies, particularly China, and relating this to provin- raw data. ICP analysis is a continuing program of data cial income distributions. interrogation and use. The Bank and other multilateral agencies make sig- The work under this project is currently focused pri- nificant use of the purchasing power parities and aggre- marily on the data compilation side, where the concern gate price level measures (PPPs divided by exchange is the best choice of estimation methods, aggregation rates) that have been generated through the Bank's ICP functions, and time-space linking procedures. ICP analy- initiative. Among the more important uses are the sis has been concerned with the interpolation and extrap- International Monetary Fund's determination of aggre- olation of previously derived benchmark figures. (The gate economic size in producing the World Economic new and more comprehensive 1993 benchmark pur- Outlook tables; the Bank's estimation of nontariff barri- chasing power parity [PPP] estimates at different expen- ers by comparing price levels of identical goods in dif- diture levels for the 120 countries covered will not become ferent markets; the United Nations Development available until late 1997.) The benchmarks are used to Programme's measure of economic well-being (the provide information on absolute price level differences Human Development Index) prepared for the Human for countries that are not covered in the baseline sur- Development Report; and estimates of internationally com- veys and to compile values for nonreference years. In parable poverty rates. In addition, the latest information, connection with this work the ICP has commissioned two based on econometric extrapolation methods for coun- studies to address some of the complex problems involved tries and years not covered in the baseline survey, was in linking grouped country data compiled on a regional shared with the United Nations Committee on basis and producing robust time-to-time extrapolations Contributions to assist in forming its recommendations of ICP results. to the General Assembly on member contributions. This work is closely tied to a recent agreement to take Responsibility: International Economics Department, over the Penn World Tables exercise that has been car- Development Data Group-Michael Ward (mward ried out by the University of Pennsylvania. The Bank's @worldbank.org), Sultan Ahmad, and Yonas Biru. With intention is to ensure that information on purchasing Yuri Dikhanov. power parities at all levels is produced regularly and Completion date: June 1998. on a consistent and reliable basis. The overriding objec- tive is to make sure that the aggregate GNP and more disaggregated sector numbers that are thus obtained Monitoring and Implementation remain economically meaningful across countries and of the Uruguay Round over time. More detailed, topical research activities are being built This project includes a number of studies spanning the on the new database as new information becomes avail- enormous range of issues addressed under the Uruguay able, including: Round. Some of the studies are pure research; others are * Carrying out price level analysis for specific income more applied studies, undertaken in close cooperation groups in seven African countries to enhance under- with Bank operational staff to obtain the best assess- standing of the spending behavior of poor households ment of the country-specific implications of the Round. and of households' responses to markets and prices. The project focuses on the implementation of the com- * Using aggregate and consumption-based PPP in mitments made under the Uruguay Round, which will preparing internationally comparable national poverty determine both the long-run economic impact of the lines, such as a dollar a day per capita in 1985 consumption Round and the base from which future trade liberaliza- PPP terms. tion will be undertaken. 107 International Economics A key element of the project is the ongoing work on During 1998 the project's focus will turn from the con- the implementation of the Uruguay Round agreement text created by the Uruguay Round to the issues and on agriculture. This study draws on the notifications to opportunities for liberalization in the negotiations sched- the World Trade Organization made by each member to uled to begin by 2000. assess the extent and manner in which each country has Responsibility: International Economics Department, implemented key trade policy reforms. The analysis International Trade Division-Bernard Hoekman addresses two questions: How have countries been imple- (bhoekman@worldbank.org), Merlinda Ingco, Will menting their market access commitments under the Martin, and Garry Pursell. With Aziz Elbeheri and Tom Uruguay Round agreement on agriculture? And what Hertel, Purdue University; Tim Josling, Stanford has actually happened in agricultural trade liberaliza- University; Denise Konan, University of Hawaii; and tion since 1995? Keith Maskus, University of Colorado. In agriculture the new tariff quotas created new oppor- Completion date: June 1998. tunities for rent seeking and for government interven- Reports: tion in trade. Quota rents are captured by those to whom Bach, Christian, Will Martin, and J.A. Stevens. 1996. "China and the import rights are granted, creating incentives for non- the WTO: Tariff Offers, Exemptions, and Welfare Implications." market-based allocation and administrative intervention Weltwirtschaftliches Archiv 132(3):409-31. through licensing procedures. Since many in-quota allo- Elbeheri, Aziz, Tom Hertel, and Will Martin. 1996. "Estimating the cations have been given to particular countries, domes- Impactof TradeReforms on the Indian Cottonand Textile Sectors: tic producer groups, or state trading enterprises, the new AGeneral Equilibrium Approach." Background paper for World schemes have resulted in coalitions to preserve the sta- Bank, "India: Cotton and Textile Industries-Maximizing tus quo. Thus the mechanisms adopted determine the Potential for Growth in a More Competitive Environment." whether markets have become more competitive, or Report 16347-IN. South Asia Department, Washington, DC. whether the new arrangements have resulted in a form Hoekman, Bernard, and Carlos Primo Braga. 1997. "Protection of "managed trade," as nontariff barriers did in the past. and Trade in Services: A Survey." Open Economies Review The lack of specified rules on how the tariff quotas are 8(3):285-308. to be administered and allocated have resulted in some Hoekman, Bernard, and P. Mavroidis, eds. 1997. Law and Policy in undesirable arrangements. The analysis shows that while Public Purchasing: The WTO Agreement on Government Procurement. many countries are faithfully implementing their mar- Ann Arbor: University of Michigan Press. ket access commitments, the new rules have been less Hoekman, Bernard, and Arvind Subramanian. 1996. "Egypt and successful in actually liberalizing agricultural trade. the Uruguay Round." Policy Research Working Paper 1597. Results from this analysis were presented at a well- World Bank, International Economics Department, Washington, attended seminar held as part of the Fourth World Bank DC. Conference on Environmentally Sustainable Develop- Ingco, Merlinda, and D. Hathaway. 1996. "Implementation of the ment, in 1996. Uruguay Round Commitments on Agriculture: Issues and Several studies under the project have focused on the Practice." Paper presented at the Fourth World Bank Conference implications of the abolition of the Multifibre on Environmentally Sustainable Development, Washington, DC, Arrangement (MFA) for developing countries and for September 25-27. particular sectors. Much of this work has focused on South Josling, Tim. 1996. "Emerging Issues for the 1999 Round: Options Asia, expected to be one of the largest gainers. Since up- for Agricultural Policy Reform." Paper presented at the Fourth to-date data on the restrictiveness of the MFA were World Bank Conference on Environmentally Sustainable unavailable, a survey of Indian exporters was undertaken Development, Washington, DC, September 25-27. to assess the export tax equivalent of the MFA. Kathuria, S., and A. Bharwaj. 1997. "Export and Policy Constraints Country studies of the implications of Uruguay Round in the Indian Textiles and Garments Industry" World Bank, New liberalization were undertaken for a number of countries Delhi Resident Mission. and regions, including China, Egypt, South Asia, and the Konan, Denise, and Keith Maskus. 1997. "A Computable General Middle East. Much attention was devoted to the impli- Equilibrium Analysis of Egyptian Trade Liberalization cations of China's potential accession to the World Trade Scenarios." In Ahmed Galal and Bernard Hoekman, eds., Regional Organization. Partners in Global Markets: Limits and Possibilities of the Euro-Med Another study surveyed progress in implementing the Initiative. London: Centre for Economic Policy Research. General Agreement on Trade in Services. Yet another study Pursell, Garry. 1997. "Some Aspects of the Liberalization of examined the Government Procurement Agreement, South Asian Agricultural Policies: How Can the WTO Help?" providing the most comprehensive assessment currently World Bank, International Economics Department, Washington, available. DC. 108 International Economics Tradable Services Responsibility: International Economics Department, International Trade Division-Will Martin (wmartinl This project includes continuing work to monitor the role @worldbank.org) and L. Alan Winters. With Keith of services in international trade and investment flows. Maskus, University of Colorado. The project is compiling a database on global service flows Completion date: June 1998. and preparing a report analyzing patterns of trade and Reports: investment in services and the impact of protection of Martin, Will, and Keith Maskus. 1997. "The Impact of Core Labor service industries in developing countries. Standards on Competitiveness." World Bank, International Responsibility: International Economics Department, Economics Department, Washington, DC. International Trade Division-Bernard Hoekman Maskus, Keith. Forthcoming. "Core Labor Standards: Trade Impacts (bhoekman@worldbank.org). and Implications for International Trade Policy."Policy Research Completion date: June 1998. Working Paper. World Bank, International Economics Reports: Department, Washington, DC. Hoekman, Bernard. 1997. "International Production of Services." . Forthcoming. Global Labor Standards and International Trade Background paper for World Bank, Global Economic Prospects and Policy. World Bank Discussion Paper. Washington, DC. the Developing Countries 1997 (Washington, DC, 1997). World Maskus,Keith, and J. Colman. Forthcoming."CoreLaborStandards Bank, International Economics Department, Washington, DC. and International Trade Policy." Contemporary Economic Hoekman, Bernard, and Carlos Primo Braga. 1997. "Protection Policy. and Trade in Services: A Survey." Open Economies Review 8:285-308. Hoelanan, Bernard, and Simeon Djankov. 1997. "Effective Protection The World Trade Organization and Investment Incentives in Egypt and Jordan: Implications and Developing Countries of Free Trade with Europe." World Development 25:281-91. At the Uruguay Round the developing countries for the first time took an active interest in the multilateral sys- Trade and Labor Standards tem as a means for advancing their own programs of pol- icy reform. This project consists of studies of several areas This project addresses the new and highly controversial of trade reform that are both of particular interest to devel- issue of whether labor standards should be incorpo- oping countries and active items on the World Trade rated in multilateral trade agreements. An initial, Organization (WTO) agenda: agricultural liberalization, exploratory analysis was prepared, followed by a detailed, use of safeguard mechanisms, and rules for international book-length study of the issues. investment and for intellectual property. Research will Recent proposals to include labor standards in trade also look at developing countries' effectiveness in pro- agreements have focused on a set of core labor standards, moting reforms through the WTO that are of particular including such basic human rights as freedom of asso- interest to them. ciation and collective bargaining, and the absence of Responsibility: International Economics Department, discrimination. Much of the support for these proposals International Trade Division-Michael Finger (mfinger has been based on a perception that weak labor standards @worldbank.org) and L. Alan Winters. With Jeff Hayden give exporters a competitive advantage. and John Croome. The study focused on developing simple, robust ana- Completion date: June 1998. lytical models to analyze the consequences of core labor standards for workers in different situations. A key con- clusion is that deficient provision of core labor stan- Regionalism and Development dards typically reduces the competitiveness of exporting countries rather than increases it. One possible exception Nearly every developing country is in or is discussing a is the exploitative use of child labor, which could expand regional integration arrangement. Policymakers not only exports of some highly labor-intensive goods in the short have to decide whether to pursue regional arrangements run. but also how best to manage them (including those that The study concludes that weak provision of core labor already exist). Many developing countries are seeking standards cannot be treated effectively by imposing trade advice from the Bank on whether to join a regional sanctions, but should instead be approached through arrangement or on how best to organize one. The Bank programs that aim directly at poverty reduction, educa- has also been asked to respond to initiatives such as the tional improvement, and information disclosure. Cross-Border Initiative in Africa or the development of 109 International Economics the Free Trade Area of the Americas and to work with Working Paper 1751. World Bank, International Economics other multilateral agencies on regional matters. Department, Washington, DC. Proponents of regional integration arrangements pre- Bond, Eric, C. Syropoulos, and L. Alan Winters. 1996. "Deepening sent them as a means of stimulating competition, reap- of Regional Integration and Multilateral Trade Agreements." ing economies of scale, attracting capital inflows, and Centre for Economic Policy Research Discussion Paper 1317. promoting technology transfer. They claim that such London. arrangements allow some liberalization by countries De Bonis, Valeria. "Regional Integration and Commodity Tax unwilling to open up on a nondiscriminatory basis and Harmonization." facilitate liberalization in areas too complex to be nego- -. "Regional Integration and Factor Income Taxation." tiated successfully in the World Trade Organization. Fernandez, Raquel. "Returns to Regionalism: An Evaluation." Opponents see regional arrangements as fostering dis- Galal, Ahmed, and Bernard Hoekman, eds. 1997. Regional Partners criminatory trade restrictions, causing governments to in Global Markets: Limits and Possibilities of the Euro-Med Initiative. look inward rather than outward, and undermining the London: Centre for Economic Policy Research. multilateral trading system. Harrison, Glenn, Thomas Rutherford, and David Tarr. 1996. This research, and research undertaken elsewhere, is "Economic Implications for Turkey of a Customs Union with starting to shed light on such questions as the effect of the European Union." Policy Research Working Paper 1599. trading blocs on growth and on policy credibility, the World Bank, International Economics Department, Washington, diplomatic and political benefits of regional integration, DC. whether and how to harmonize standards or industrial . 1997. "Trade Policy Options for Chile: A Quantitative policy, and whether regional blocs are undermining the Evaluation." Policy Research Working Paper 1783. World Bank, multilateral trading system. International Economics Department, Washington, DC. Responsibility: International Economics Department, Hoekman, Bernard. 1995. "Trading Blocs and the Trading System: International Trade Division-L. Alan Winters (awinters The Services Dimension." Journal of Economic Integration @worldbank.org), Maurice Schiff, Bernard Hoekman, 10(1):1-31. David Tarr, and Will Martin. With S. Andriamananjara; -."Towards aFreeTrade AgreementwiththeEuropeanUnion: Dani Ben-David, Tel Aviv University; Eric Bond, Issues and Policy Options for Egypt." World Bank, International Pennsylvania State University; W. Chang; D. de Rosa, Economics Department, Washington, DC. ADR International; A. Gupta; J. Hayden; Patrick . "The WTO, the EU, and theArab World: Trade Policy Priorities Messerlin; and J. F. Ruhashyankiko. and Pitfalls." World Bank, International Economics Department, Completion date: August 1998. Washington, DC. Reports: Hoekman, Bernard, and Simeon Djankov. 1996. "The European Union's Amjadi, Azita, and L. Alan Winters. 1997. "Transport Costs and MediterraneanFreeTradelnitiative." World Economy 19(4):387-406. 'Natural' Integration in Mercosur." Policy Research Working . Forthcoming. "Effective Protection in Jordan and Egypt in Paper 1742. World Bank, International Economics Department, the Transition to Free Trade with Europe." World Development. Washington, DC. - . Forthcoming. "Imports of Inputs, Foreign Investment, and Amjadi, Azita, L. Alan Winters, and Alexander Yeats. 1995. Reorientation of East European Trade." World Bank Economic "Transport Costs and Economic Integration in the Americas." Review. Swiss Journal of Economics and Statistics 131(3). Kaminski, Bartlomiej. 1994. "The Significance of the 'Europe Ben-David, Dani. "Trade and Income Convergence." Agreements' for Central European Industrial Exports." Policy Blomstrom, Magnus, and AriKokko. 1997. "How Foreign Investment Research Working Paper 1314. World Bank, International Affects Host Countries." Policy Research Working Paper 1745. Economics Department, Washington, DC. World Bank, International Economics Department, Washington, Majd, Nader, and L. Alan Winters. "EU-Egyptian Association DC. Agreement." World Bank, International Economics Department, . 1997. "Regional Integration and Foreign Direct Investment: Washington, DC. A Conceptual Framework and Three Cases." Policy Research Martin, Will. "Assessing the Implications for Lebanon of Free Trade Working Paper 1750. World Bank, International Economics with the European Union." World Bank, International Economics Department, Washington, DC. Department, Washington, DC. Bond, Eric. "The Impact of the Canada-U.S. Free Trade Agreement Olarreaga, Marcelo, and Isidro Soloaga. "Explaining Mercosur's on Antidumping Filings and Decisions." Tariff Structure: A Political Economy Approach." "Transportation Infrastructure Investments and Trade Padoan, Pier Carlo. 1997. "Technology Accumulation and Diffusion: Liberalization." Is There a Regional Dimension?" Policy Research Working Paper .- 1997. "Using Tariff Indices to Evaluate Preferential Trading 1781. World Bank, International Economics Department, Arrangements: An Application to Chile." Policy Research Washington, DC. 110 International Economics Rutherford, Thomas F., Elisabet E. Rutstrom, and David Tarr. ."Lessons from EU Integration for Latin America: Integration Forthcoming. "Morocco's Free Trade Agreement with the EU: and the Rest of the World." Working Paper 215. Inter-American A Quantitative Assessment." Economic Modeling. Development Bank, Washington, DC. (Also published in Spanish . "The Free-Trade Agreement between Tunisia and the under the title, "Las Americas: Integraci6n economia en per- European Union." spectiva," by the National Department of Planning, Colombia, Schiff, Maurice. 1996. "Small Is Beautiful: Preferential Trade and the Inter-American Development Bank.) Agreements and the Impact of Country Size, Market Share, . Forthcoming. "Regionalism and the Rest of the World: Theory Efficiency, and Trade Policy." Policy Research Working Paper and Evidence from European Integration." Review ofInternational 1668. World Bank, International Economics Department, Economics. Washington, DC. (Also forthcoming in Journal of Economic Winters, L. Alan, and Won Chang. 1997. "Regional Integration and Integration.) the Prices of Imports: An Empirical Investigation." Policy Schiff, Maurice,with C. Sapelli, eds. 1996. ChileenelNAFTA:Acuerdos Research Working Paper 1782. World Bank, International de libre comercio versus liberalizaci6n unilateral. Santiago, Chile, Economics Department, Washington, DC. and San Francisco: Center for Economic Growth. Schiff, Maurice, and L. Alan Winters. "Regional Integration as Diplomacy." World Bank, International Economics Department, African Trade Policy Washington, DC. Stephenson, Sherry. "Standards, Conformity Assessments, and This study assesses whether trade policy and macro- Developing Countries." economic reforms in Africa have translated into signifi- Vamvakidis, Athanasios. "Regional Integration and Economic cant changes in microeconomic responses at the farm and Growth." household level. It evaluates changes in incentives, the Venables, Anthony, and Diego Puga. 1997. "Trading Arrangements supply and demand response, and incomes during the and Industrial Development." Policy Research Working Paper pre- and postreform periods using farm and household 1787. World Bank, International Economics Department, survey data. Washington, DC. The findings of the study will contribute to the under- Winters, L. Alan. 1996. "Intigration Europ6enne et bien-@tre standing of how trade policy and macroeconomic reforms 2conomique dans le Reste du Monde." 8conomie Internationale have affected farm households in poor countries. Through 65:123-42. country case studies in Ghana and Zambia, the study will - 1996. "Lebanon's Euro-Mediterranean Agreement: Possible also provide a means of evaluating country assistance Dynamic Benefits." Paper presented at the Lebanese Center for and adjustment strategies and point to ways to enhance PolicyStudies conference Lebanese-European Union Relations, the positive effects of reform for the poor. Beirut, July. Responsibility: International Economics Department, .1996. "Regionalism versus Multilateralism." Policy Research International Trade Division-Michael Finger (mfinger Working Paper 1687. World Bank, International Economics @worldbank.org) and Merlinda D. Ingco. With Adela Department, Washington, DC. Luque, National Bureau of Economic Research; and .- 1997. "Regionalism and the Rest of the World: The Irrelevance Adriana Castro. of the Kemp-Wan Theorem." Oxford Economic Papers 49:228-34. Completion date: June 1999. Ill DOMESTIC FINANCE AND CAPITAL MARKETS Term Finance: Theory and Evidence The study showed that the lack of term finance in developing countries is due mainly to institutional fac- Ref no. 679-62C tors, such as the extent of government subsidies, the devel- This project investigated whether industrial firms in opment of stock markets and banks, and the legal developing countries suffer from a shortage of long-term infrastructure. The results indicate that different poli- credit and, if so, whether this shortage has an impact on cies would be necessary to increase long-term debt lev- firm investment, productivity, and growth. Both these els for different groups of firms. Relatively small issues-access and performance-are important in improvements in the commercial code and the legal sys- designing the industrial lending policy of the World Bank. tem through which contracts are enforced would initially Both the Bank and the development community at large benefit the largest firms in a country, which are more are reevaluating mechanisms aimed at increasing the likely to use direct finance; far more significant improve- availability of term finance or lessening the constraints ments are needed to boost small firms' financing. Policies imposed by its absence. that would help improve the functioning and liquidity The study used cross-country analysis as well as coun- of stock markets would again benefit mostly large firms. try case studies. It drew firm-level data for the largest Policies that lead to even small improvements in the devel- firms in industrial countries from the Global Vantage opment of the banking system, however, would improve database of Standard & Poor's and data for large firms the access of small firms to long-term credit. The results in developing countries from the International Finance also provide a warning that government subsidies, often Corporation's corporate finance database. Data for the intended mostly for small firms, may find their way to case studies came from the Reserve Bank of India, the larger and politically more influential firms. Colombian Central Bank, the Superintendencia de The study also found that government intervention Compaftias in Ecuador, and the Annual Survey of in providing term finance has generally not been suc- Manufacturing Establishments in Indonesia. The Italian cessful, possibly because of weaknesses in design and in data set was from CERIS, and the U.K. data from the institutional infrastructure. Subsidies in particular Datastream. appear to be misguided; the availability of long-term The study found that developing country firms use credit may be more important than its price, and under- significantly less long-term debt than their industrial pricing it appears to lead to inefficient use. country counterparts, even after controlling for firm char- A general lesson from the project is that although the acteristics. The difference in debt composition between benefits of an increased supply of long-term credit pro- industrial and developing countries can be explained vide a basis for intervening, any interventions should by firm characteristics, macroeconomic factors, and, most be carried out with care. In view of the strong tendency important, by financial development, government sub- for firms to match assets and liabilities, increasing the sidies, and legal and institutional factors. availability of long-term credit might be ineffective or The research also concluded that a greater volume of could spur asset-liability mismatches that would make long-term finance tends to be associated with higher companies more fragile. Care should also be taken to min- productivity. The cross-country analysis of firm-level imize subsidies, shown to be associated with lower pro- data showed that an active stock market and an improved ductivity. Indirect methods of encouraging long-term ability of creditors and debtors to enter into long- finance, such as developing pension funds and improv- term contracts are reflected in the ability of firms to ing the legal system and other parts of the financial sys- grow at rates greater than they could attain by relying tem's infrastructure, are likely to have a high payoff. on internal sources and short-term credit alone. Although Findings were disseminated at a conference held on the research found that government subsidies around June 14,1996, in Washington, DC, for Bank staff, policy- the world have increased the long-term indebtedness makers, and the academic community. Papers arising of firms, there is no evidence that these subsidies are from the research have also been presented at numerous associated with an ability for firms to grow faster. Indeed, academic seminars and conferences. in some cases subsidies are associated with lower Responsibility: Policy Research Department, Finance productivity. and Private Sector Development Division-Gerard 112 Domestic Finance and Capital Markets Caprio (gcaprio@worldbank.org) and Ash Demirgitq- ing. The research incorporated cross-country compar- Kunt. With Charles Calomiris, University of Illinois; isons of successful regulatory policy, with the goal of Douglas Diamond, University of Chicago; Fidel Jaramillo, developing policy alternatives for developing countries Multiplica; James Kuhn; Vojislav Maksimovic; Sandra that are sensitive to the country-specific regulatory con- Ospina; Raghuram Govind Rajan; Fabio Schiantarelli, text. The first stage of the research looked at the rela- Boston College; Vivek Srivastava; Thekla Halouva; tionship between bank regulation and bank performance Qinghua Zhao; and Luis Zingales. using about 100 years of data for the United States and Completion date: June 1997. evaluated different hypotheses about the factors that lead Reports: to greater financial fragility in banking. Using data for Calomiris, Charles, TheklaHalouva, and Sandra Ospina. 1996. "Debt individual banks, it examined the relationship between Maturity, Financial Asset Accumulation, and the Cost of External banks' franchise value, their capital structure, their port- Finance: Evidence from the U.S. and Colombia." World Bank, folio diversification, and other variables. The second stage Policy Research Department, Washington, DC. applied this analysis to Mexico. Caprio, Gerard, Jr., and Ash Demirgio-Kunt. 1997. "The Role of Results from the first stage indicate that insufficient Long-Term Finance: Theory and Evidence." Policy Research diversification was a key factor in bank failure in the Working Paper 1746. World Bank, Policy Research Department, United States over the entire 100-year period. Especially Washington, DC. before the provision of a federal safety net supporting Demirgig-Kunt, Asli, and Vojislav Maksimovic. 1996. "Financial the banking system, better diversified banks were able Constraints, Uses of Funds, and Firm Growth: An International to hold less capital-in effect, the market demanded more Comparison." Policy Research Working Paper 1671. World Bank, capital in the more concentrated, risky banks. Nonetheless, Policy Research Department, Washington, DC. the failure rate among the risky banks was higher. .1996. "Institutions, Financial Markets, and Firms' Choice of Applying the analysis to Mexico, the study found that Debt Maturity." Policy Research Working Paper 1686. World in 1992-94 Mexican banks concentrated their on-balance Bank, Policy Research Department, Washington, DC. sheet risks in the sectors most exposed to devaluation. If Diamond, Douglas W. 1996. "Liquidity, Banks, and Markets." Policy the banks had diversified their portfolios across sectors, Research Working Paper 1566. World Bank, Policy Research they would still have suffered in the short run from the Department, Washington, DC. December 1994 devaluation, but by the end of 1995 their Jaramillo, Fidel, and Fabio Schiantarelli. 1997. "Access to Long-Term portfolio marked-to-market would have increased from Debt and Effects on Firms'Performance: Lessons from Ecuador." the end-1994 level and by 1996 they would have earned a Policy Research Working Paper 1725. World Bank, Policy significant return. Instead, 40 percent of the Mexican bank- Research Department, Washington, DC. ing system's portfolio is now held by the authorities and Schiantarelli, Fabio, and Alessandro Sembenelli. 1996. "Form of some banks are reported still to have portfolio problems. Ownership and Financial Constraints." Policy Research Working If supervision is weak, and since it cannotbe improved Paper 1629. World Bank, Policy Research Department, in the short term, country authorities may want to con- Washington, DC. sider simple rules that would lessen the likelihood of sys- - 1997. "The Maturity Structure of Debt: Determinants and temic banking problems. Mexican banks could have Effects on Firms' Performance-Evidence from the United diversified better domestically but chose not to, a choice Kingdomand Italy."PolicyResearch WorkingPaper 1699. World encouraged by one of the most generous deposit insur- Bank, Policy Research Department, Washington, DC. ance schemes in the world and permitted by regula- Schiantarelli, Fabio, and Vivek Srivastava. 1997. "Debt Maturity and tions. Authorities may thus wish to limit explicit deposit Firm Performance: A Panel Study of Indian Companies." Policy guarantees and also consider imposing minimum diver- Research Working Paper 1724. World Bank, Policy Research sification guidelines. Such measures are especially rele- Department, Washington, DC. vant where banks are being privatized more quickly than Vittas,Dimitri. 1996. "Contractual Savings and Term Finance." World the basic supervisory and regulatory framework is being Bank, Policy Research Department, Washington, DC. improved. The project results have been disseminated in semi- nars at the Bank and outside organizations (Cambridge Bank Regulatory Regimes University, the Bank of England), and a policy paper will be presented at a Bank-Fund Annual Meetings sem- Ref no. 680-36C inar in Hong Kong. A follow-up project will investigate This project examined bank regulation over relatively the ability of Sub-Saharan African banks to diversify and long time frames, focusing on periods in which spillover the implications for the importance of regional banking and contagion effects were common features of bank- in Africa. 113 Domestic Finance and Capital Markets Responsibility: Policy Research Department, Finance on average, agricultural contracts were introduced first and Private Sector Development Division--Gerard in derivatives exchanges, followed by index and inter- Caprio (gcaprio@worldbank.org) and Philip Keefer. With est rate products. More recently, derivatives exchanges Anqing Shi; Berry Wilson; and Anthony Saunders, New have introduced index and interest rate products first. York University. There is no predominate form of ownership for the deriv- Completion date: April 1997. atives exchanges, although most are regulated directly Reports: or indirectly by the government. The most common Caprio, Gerard, Jr., and Berry Wilson. 1997. "On Not Putting All market-making system is based on an open-outcry, daily the Eggs in One Basket: The Role of Diversification in Banking." mark-to-market with gross margining. A large share of World Bank, Policy Research Department, Washington, DC. exchanges maintain ownership of the clearing facilities. Saunders, Anthony, and Berry Wilson. 1997. "Bank Capital Structure: The results of the research were presented at the Fourth Charter Value and Diversification Effects." World Bank, Policy Annual Meeting of the Multinational Finance Society Research Department, Washington, DC. on June 25-28,1997, in Thessaloniki, Greece, and will also Saunders, Anthony, Berry Wilson, and Gerard Caprio Jr. 1997. be presented at the Financial Management Association "Mexico's Banking Crisis: Devaluation andAssetConcentration Annual Meeting on October 15-18, 1997, in Honolulu, Effects." World Bank, Policy Research Department, Washington, Hawaii. DC. Responsibility: International Economics Department, Commodity Policy and Analysis Unit-Panos Varangis (pvarangis@worldbank.org). With George Tsetsekos, Derivatives Markets and Risks Drexel University; and Tom Scott, Sparks Companies. in Emerging Economies Completion date: January 1997. Report: Ref no. 680-45C Tsetsekos, George, and Panos Varangis. 1997. "Architecture of Derivative instruments, increasingly used in developed Derivative Exchanges." World Bank, International Economics markets, are now spreading to emerging markets. Their Department, Washington, DC. potential contribution to efficiency and economic per- formance is enormous. Derivatives can expand risk man- agement capabilities, improve credit allocation and risk Saving in Developing Countries sharing among economic agents, reduce the transaction costs of achieving desired risk profiles, increase the pric- Ref. no. 681-36 ing efficiency of financial markets, and provide new Over the past three decades the world has witnessed a instruments for dealing with contractual and informa- large and growing divergence in savings rates. The gap tional problems. This study was aimed at contributing between industrial and developing country savings rates to the knowledge of the preconditions for developing a has widened since the mid-1970s, and there has been a successful derivatives market by looking at the struc- dramatic divergence in the developing world: savings ture of derivatives exchanges and products traded in both rates have doubled in East Asia, stagnated in Latin emerging and developed markets. America, and collapsed in Sub-Saharan Africa. These The research collected data in emerging and devel- regional disparities have been closely reflected in growth oped markets on the types of derivatives traded and their performance: with higher savings rates has come higher characteristics, the evolution of derivatives trading in income growth. each of the exchanges, and the volume of trading for each Even apart from any direct effect on growth, there type of derivative. In addition, the research collected are other reasons that an adequate supply of savings is information on the structure of each derivatives exchange a central policy objective. A national savings ratio broadly (membership, ownership, regulations), the trading or in line with an economy's investment needs is key to market-making system, the system for clearing opera- reducing its vulnerability to unexpected shifts in inter- tions, and the structure of the clearinghouse. The study national capital flows. In conditions of increasing obtained the data from existing data sources about deriv- international financial integration, high domestic say- atives markets and through a survey sent to each ing helps ensure macroeconomic stability. Yet little is exchange. known about the relative effectiveness of different poli- The research used cross-sectional analysis of variables cies in encouraging saving, even for policy measures that that describe activity in derivatives markets to examine have often been advocated for their positive effect on possible differences in derivative instruments between saving, such as pension system reform or financial emerging and developed markets. The study found that, sector liberalization. 114 Domestic Finance and Capital Markets This research addresses three broad questions: Why Responsibility: Policy Research Department, Macro- do savings rates differ so much across countries and time economics and Growth Division-Norman Loayza periods? How much do higher savings rates contribute (nloayza@worldbank.org), Luis Serv6n, Craig Burnside, to growth? And what policy measures are most effective and Aart Kraay, and Finance and Private Sector in raising national savings rates? Development Division-Gerard Caprio. With Klaus The project is structured in five parts. The first involves Schmidt-Hebbel, Central Bank of Chile; Timothy Besley the construction of an international macroeconomic data- and Costas Meghir, London School of Economics; Angus base on saving and related variables. A preliminary ver- Deaton and Christina Paxson, Princeton University; Faruq sion of the database is nearly complete. Using this new Kahn, Harvard University; Andrew Samwick, Dartmouth macroeconomic information and household surveys, the College; Patrick Honohan, Economic and Social Research second part will seek to explain differences in saving Institute; Jonathan Ostry and Alejandro L6pez, across space and time and the link between saving and International Monetary Fund; Fabio Schiantarelli, Boston growth. The third part will focus on the effects of spe- College; Peter Montiel, Williams College; Janine Aron cific policies on saving, using a cross-country compara- and John Muellbauer, Oxford University; Antonello tive approach. The fourth will assess the saving Scorcu and Lucio Picci, Universiti de Bologna; Orazio performance of different countries to draw lessons from Attanasio, University College of London; Carmen policy experience. The last part will provide a policy- Reinhart, University of Maryland; Dani Rodrik, Columbia oriented synthesis of the main results and lessons from University; and Ijaz Nabi. the research. Completion date: December 1998. The research methodology will be based both on rel- Reports: atively narrow analytical frameworks derived from Schmidt-Hebbel, Klaus, and Luis Serv6n. 1996. "Income Inequality intertemporal optimization and on broader models not and Aggregate Saving: The Cross-Country Evidence." Policy derived from first principles but encompassing a num- Research Working Paper 1561. World Bank, Policy Research ber of alternative consumption and saving motives. Department, Washington, DC. Empirical applications of the analytical models will use _. 1997. "Does Income Inequality Raise Aggregate Saving?" both microeconomic and macroeconomic data. The aggre- Working Paper 97-08. Central Bank of Chile, Santiago. gate data for the cross-country studies will be drawn from -.1997. Saving Across the World:Puzzles and Policies. World Bank the database on saving. The empirical models and data Discussion Paper 354. Washington, DC. coverage will vary across studies, depending on data . Forthcoming. "Income Inequality and Aggregate Saving." availability and the need to tailor the samples to the ques- In Andrds Solimano, ed., Social Inequality, Values, Growth, and tions under investigation. the State. Ann Arbor: University of Michigan Press. The project will contribute to Bank operational work Schmidt-Hebbel, Klaus, Luis Serv6n, and Andr6s Solimano. 1996. in several ways. Clarifying what drives saving and how "Saving and Investment: Paradigms, Puzzles, Policies." World saving relates to growth will assist in policy diagnosis Bank Research Observer 11(1):87-117. and the selection of policy targets. The quantitative assess- _ . 1996. "Saving, Investment, and Growth in Developing ment of the relative effectiveness of different policies in Countries: An Overview." In Andres Solimano, ed., Road Maps promoting saving will aid in the selection of policy tools, to Prosperity: Essays on Growth and Development. Ann Arbor: clarifying which instruments are likely to have the biggest University of Michigan Press. effect under different circumstances. This will help to determine the priority and sequencing of reform mea- sures. Finally, the development of empirically validated Managing Natural Disasters savings functions with firm analytical foundations will in the Caribbean through Mitigation contribute to the formulation of country analyses, pro- and Financial Risk Sharing jections, and strategies. The research findings will be disseminated to Bank Ref. no. 681-44C country economists through a conference and a seminar This project investigated whether better economic and on savings policies, to policymakers in developing financial management mechanisms and institutions than countries through regional conferences in Latin America those now in use are available to manage natural hazard and Eastern Europe or the former Soviet Union, and to and catastrophe shocks (such as hurricanes) in the the broader development community through articles Caribbean economies. in Bank and academic journals and a volume of col- The study's analytical approach was based on actu- lected papers. A first volume with preliminary findings arial- and engineering-based loss probability models. The is under preparation. analysis combined engineering- and actuarial-based event 115 Domestic Finance and Capital Markets probability estimates of hurricanes with probable max- The Financial Structure and imum loss exposures based on property coverage valu- Governance of Venture Capital Funds ation. It derived the likely pricing for coverage and in Developing Countries compared it with current market rates to determine whether intraregional funding would be more efficient Ref. no. 681-51 with use of capital market instruments to cover the high- In developing countries venture capital funds have est levels of risk. The analysis drew on insurance and become an important source of financing for small and reinsurance industry statistics (from the Caribbean, medium-size enterprises, which often have difficulty rais- Germany, London, Switzerland, and the United States) ing long-term financing because of underdeveloped cap- and data from the Caribbean Disaster Emergency Relief ital markets. But developing countries can pose special Agency (on hazard events and frequencies), the U.S. bank- challenges for venture capital funds if institutions and ing industry, and California, Florida, and Hawaii (on legal and regulatory frameworks do not adequately sup- pooled catastrophe insurance funds). port enforcement of contracts with the enterprises in The study's findings indicate that it is possible to set which they invest. What types of venture capital fund up more self-sufficient funding and insurance mecha- structure and governance are most effective in dealing nisms in the region in order to provide better financial with such regulatory environments? This study addresses and economic cushions against volatility in the event of that question by looking at funds active in developing natural catastrophes. In the long run such mechanisms countries. (which can be coupled with international capital market Preliminary results based on industry data show that, instruments) might be cheaper and more reliable than in contrast to the United States, where pension funds the current dependence on donor grant funds for recon- are the leading institutional investors in venture capital, struction on a case-by-case basis. in developing countries nonfinancial corporations and A standby line of credit or guarantee provided by the banks are the two largest sources of formal venture cap- Bank could support the initial development of regional ital. In the United States most venture capital is chan- catastrophe insurance funds and maintain their liquid- neled into the computer and medical and biotechnology ity while their capital is built up. Technical assistance industries, while in developing countries the consumer for regulatory reform of the insurance industry and dis- goods and industrial products industries are the biggest aster mitigation measures in the real sector would need recipients. Most venture capital investment in the United to be coupled with funding arrangements to ensure that States is structured as convertible preferred equity shares, appropriate incentives are in place for insurance under- while in developing countries ordinary equity is more writers and property owners. Enforcement of mitiga- common. tion and emergency preparedness measures in the region In further analysis the study will draw on an would support a broader risk underwriting effort by the International Finance Corporation database that docu- private insurance industry. This would help to increase ments venture capital fund structure and governance and domestic risk capital and thus reduce dependence on on the results of a survey on the composition of fund port- higher-priced external coverage. folios. The study will examine how the structuring, mon- The study's findings have been discussed with pub- itoring, voting, board representation, and residual control lic and private sector representatives in the Caribbean rights given to venture capital funds vary with the asset and insurance and reinsurance specialists to determine characteristics of the businesses being financed and with what recommendations would be made to regional heads the organizational form of the venture capital fund. The of government. A final report will be distributed to the study will provide useful insights on best practice in the region's governments and regulatory authorities as well structure and governance of private equity investment as the private sector. in developing countries. Responsibility: Latin America and the Caribbean, Responsibility: International Finance Corporation, Country Department III, Public Sector Modernization Economics Department-Guy P. Pfeffermann and Private Sector Development Division-John D. (gpfeffermann@ifc.org). With Anthony Aylward. Pollner (jpollner@worldbank.org) and Christopher Completion date: September 1997. Barham. With the Insurance Information Institute; Risk Management Center, Wharton School; Arthur Evans; and Isabelle Daverne. The Canadian (CIDA) Trust Fund con- tributed funding for the research. Completion date: June 1997. 116 Domestic Finance and Capital Markets The Effects of Urban Land Titling and Tenure Philippines, and Thailand. In particular, it will examine Security on Investments, Property Value, and banks' behavior to find out whether interest rates are Credit Access in Ecuador determined in a competitive manner and whether they represent a significant obstacle to economic growth. The Ref. no. 681-80 project will use the most disaggregated data to analyze This research project examines the importance of tenure in which sectors these obstacles are greatest. The analy- security for access to credit, investments in homes and sis is based mainly on data on individual banks (from in the community, and property values in Ecuador. It financial statements collected in Bankstat) and aggregate gives particular attention to the effects of tenure secu- data collected primarily from central banks. rity on investments in local public goods, such as sew- Use of a common methodology will allow the study ers and waste removal. to carry out cross-country comparisons and assess the The research uses a stratified sampling technique to success of reforms in improving the competition and effi- collect data and estimates the effects of land tenure secu- ciency of banking sectors. The research should also pro- rity using an instrumental variable approach. It estimates vide policy recommendations relating to finance for small environmental quality, investments in public goods, and and medium-size firms, yielding insights on the effect property values as functions of title, other tenure vari- of financial reforms on different kinds of borrowers. ables, and control variables, and access to formal credit The results will be presented at seminars and confer- as a function of these variables as well as assets and access ences and through one or two working papers. The study to other sources of credit. will also result in a database in Excel containing all the The findings, still very preliminary, indicate that there statistical information used. are informal barriers to obtaining tenure security. Age Responsibility: Financial Sector Development Depart- and education of head of household are not significant ment-Fernando Montes-Negret (fmontesnegret predictors of whether title could be or had been obtained, @worldbank.org) and Luca Papi. but whether the neighbors have title is a good predictor. Completion date: December 1997. Title appears to add value to the property, but the effect diminishes over time. Households with a stronger claim to their property are significantly more likely to partici- Finance and Growth pate in activities to improve the community. The study will generate data with unique detail regard- This research found strong conceptual and empirical sup- ing responses to tenure security and should give useful port for the view that better financial systems accelerate insights for the design of sector policies. Preliminary economic development. Financial systems mobilize say- results were presented at the workshop on the research ings, evaluate firms and allocate capital based on those project Social and Environmental Consequences of evaluations, exert corporate governance, facilitate risk Growth-Oriented Policies, May 1-2, 1997. The 35 partic- management, and ease transactions. Economies with ipants were academics and Bank specialists. financial systems that efficiently and abundantly sup- Responsibility: Policy Research Department, Poverty ply these functions have stronger growth prospects. And and Human Resources Division-Emmanuel Jimenez evidence suggests that countries with larger banking sys- (ejimenez@worldbank.org). With Jean Lanjouw, Yale tems and more liquid stock markets enjoy faster capital University; and Jorge Equiguren. The Social and accumulation rates, larger productivity gains, and quicker Environmental Consequences of Growth-Oriented overall growth rates than countries with less developed Policies Trust Fund, Ministry of Foreign Affairs, the financial systems. Netherlands; the Yale Center for International and Area On the policy front, financial economists' opinions Studies; and the German Agency for Technical on financial repression are converging. Because the finan- Cooperation are contributing funding for the research. cial system serves important functions for the nonfinan- Completion date: December 1997. cial sectors of the economy, many financial economists argue against financial repression-taxes, interest rate controls, and directed credit. Much greater policy debate Bank Reform, Concentration, and Costs continues on what constitutes sound supervisory and regulatory policies. Ref no. 681-90 Responsibility: Policy Research Department, Finance This project will investigate the effects of financial reform and Private Sector Development Division-Ross Levine on competition and efficiency in the banking sectors of (rlevine@worldbank.org). several countries, including Chile, Colombia, Italy, the Completion date: December 1996. 117 Domestic Finance and Capital Markets Reports: @worldbank.org). With Amitava Sardar, Columbia Levine, Ross. 1994. "Government Insurance and Financial University. Intermediaries: Issues of Regulation, Evaluation, and Completion date: December 1996. Monitoring." In Shakil Faruqi, ed., Financial Sector Reforms, Report: Economic Growth, and Stability: Experiences in Selected Asian and Jun, Kwang W., Amitava Sardar, and Gary Kleiman. 1996. Latin American Countries. Washington, DC: World Bank. "Internationalization of Emerging Capital Markets: Cross- . 1995. "Does the Financial System Matter?" In Monica Aparicio Country Experience." World Bank, International Economics and William Easterly, eds., Economic Growth: Theory, Institutions, Department, Washington, DC. Draft. and International Experience. Bogoti: Banco de la Repdblica, in cooperation with the World Bank. .1996. "Financial Development and Economic Growth: Issues Bank Restructuring in Sub-Saharan Africa and Agenda." World Bank, Policy Research Department, Washington, DC. This project was intended to produce a best practice piece . 1996. "Financial Functions, Institutions, and Growth." In A. on bank restructuring in Africa. It was based on a prac- Harwood and B. Smith, eds., Sequencing Financial Sector tical, desk-based review of case studies in seven African Development and Reform: Major Themes and Issues. Washington, countries-Benin, C8te d'Ivoire, Ghana, Kenya, DC: The Brookings Institution. Mozambique, Tanzania, and Uganda. The study analyzed . 1996. "Foreign Banks, Financial Development, and Economic factors that contributed to the success or failure of bank Growth." In Claude Barfield, ed., International Trade in Financial restructuring operations supported by the Bank in those Services. Washington, DC: American Enterprise Institute. countries. The choice of countries was determined by the .1996. "Unresolved Issuesinthe Relationship betweenFinance availability of project completion reports or project per- and Development." In N. Hermes and R. Lensing, eds., Financial formance audit reports issued by the Bank's Operations Development and Economic Growth: Theory and Experiences from Evaluation Department, reports that allowed a mean- Developing Countries. London: Routledge. ingful comparison of outcomes and original program .1997. "Financial Development and Economic Growth: Views objectives. The data in these reports were complemented, and Agenda." Journal of Economic Literature 35:688-726. where possible, by discussions with the task managers of the operations. The analysis was based on secondary data tied either Internationalization of Emerging Capital to structural adjustment programs that included a finan- Markets: Cross-Country Experience cial sector component or to financial sector adjustment loans and credits undertaken in the late 1980s and early This study explored the following questions: What are 1990s. Close cooperation was maintained throughout the major characteristics of emerging capital markets that with the Operations Evaluation Department, which was have recently been internationalized? Did the market conducting a worldwide review of bank restructuring opening help or hurt domestic market performance? And operations over the same period. what are the policy lessons for developing countries The results of the study point to the importance of cer- that have not yet fully liberalized their capital market? tain key factors in the success or failure of bank restruc- The study assessed changes in key market indicators turing operations in Africa. One such factor is strong before and after the market opening, using data from government commitment to the banking reform. Without the International Finance Corporation's Emerging such commitment, reform is likely to be diverted by pow- Markets Database and from country and market sources erful interests and will ultimately fail. Other important in 10 emerging economies. Preliminary results suggest factors are a willingness to liquidate insolvent institu- that most of these emerging capital markets saw their tions, a flexible approach to privatization in dealing with performance improve after the liberalization of foreign potential investors, and diligent work by the Bank's oper- investment. ational staff to identify and analyze problems facing banks The study's findings provide further support for Bank and to help build a consensus around practical, realistic operations in capital market development. The cross- solutions to these problems. country experience documented in the study should The findings indicate a need for a more rigorous, sys- facilitate Bank policy dialogue with developing coun- tematic approach to bank restructuring, one that takes tries that have not yet implemented market liberaliza- stock of past experience in the region and elsewhere and tion programs. ensures that the necessary conditions for successful bank Responsibility: International Economics Department, restructuring are in place before reforms are implemented. International Finance Division-Kwang W. Jun (kjun Hastily prepared operations and those that take insuffi- 118 Domestic Finance and Capital Markets cient account of reality on the ground or fail to build low inflation and an initially underdeveloped financial adequate consensus on the objectives will have no last- sector. Moreover, although loan conditionalities focus on ing positive effect on efficiency and competitiveness in the same six areas of reform-interest rate distortions, the financial system. prudential regulation, bank supervision, bank recapi- The study's main findings and conclusions were talization, bank privatization, and nonbank financial widely distributed to staff in the Bank's Africa Region regulation-recapitalization, privatization, and super- and to other Bank staff who are working on financial vision were more heavily emphasized after 1990. sector issues. Controlling for initial macroeconomic and financial sec- Responsibility: Africa Technical Families, Knowledge tor conditions, the analysis found that certain types of Information and Technology Division-Kevin Cleaver reforms, especially those that dealt with prudential reg- (kcleaver@worldbank.org), and Private Sector Finance ulation, were associated with relatively large increases Division-Jean-Jacques Deschamps. in the ratio of M2 to GDP. Those dealing with recapital- Completion date: May 1997. ization were also relatively successful, especially when Report: they also tackled prudential regulation or banking super- Deschamps, Jean-Jacques, and James Bonnardeaux. 1997. "Bank vision or both. But those that focused on supervision Restructuring in Sub-Saharan Africa: Lessons from Selected Case did not, on average, substantially outperform those that Studies." World Bank, Africa Technical Families, Private Sector did not. In addition, reform focused on bank privatiza- Finance Division, Washington, DC. tion was associated with much less financial deepening three years after intervention. Responsibility: Policy Research Department, Finance World Bank Financial Sector Adjustment and Private Sector Development Division--Gerard Lending: The Experience to Date Caprio (gcaprio@worldbank.org) and Robert Cull; and Operations Evaluation Department, Country Policy, The past 20 years have seen banking crises in more than Industry, and Finance Division-Nicolas Mathieu. 100 countries. Both their size-in many cases bailout costs Completion date: June 1997. exceeded 10 percent of GDP-and the fact that they recur Report: reflect fundamental weaknesses in the financial (partic- Cull, Robert. 1997. "Financial Sector Adjustment Lending: ularly banking) sectors of many countries. Not surpris- A Midcourse Analysis." Policy Research Working Paper 1804. ing, the World Bank has increasingly issued loans with World Bank, Policy Research Department, Washington, conditionalities designed to strengthen financial sec- DC. tors. The objectives of this study were to describe how the conditionality of those loans has changed over time, to examine whether initial macroeconomic and finan- Bond Spreads in Emerging Markets cial sector conditions in recipient countries had a dis- cernible impact on postloan financial sector outcomes, This study attempts to explain spreads on bonds issued and, after controlling for initial conditions, to determine by emerging markets since 1991. The study gives care- whether the type of conditionality had an impact on post- ful consideration to the selectivity problem-that is, it loan outcomes. takes into account the factors that go into the actual issue The analysis used a database created by the Bank's of the bond simultaneous with the determination of Operations Evaluation Department to classify the types the spread. A model estimated with 1991-95 data is used of conditionalities in each loan. Data on macroeconomic to predict the spreads in 1996 in order to ask whether and financial sector conditions at the time of the loan declining spreads reflected fundamentals or "irrational were taken from the International Monetary Fund's exuberance." International Financial Statistics. For loans that had matured Responsibility: Cofinancing and Project Finance sufficiently (those issued before 1994), simple statistical Department, Project Finance and Guarantees Group- techniques were used to model subsequent changes in Ashoka Mody. With Barry Eichengreen, University of financial depth (especially as measured by the ratio of California at Berkeley. M2 to GDP). To further confirm inferences drawn from Completion date: September 1997. this statistical work, four brief case studies were com- Report: pleted (on Pakistan, the Philippines, Tanzania, and Eichengreen,Barry,andAshokaMody. 1997."WhatExplainsSpreads Venezuela). on Emerging Market Bonds: Economic Fundamentals or The principal findings of the analysis are that post- Irrational Exuberance?" World Bank, Cofinancing and Project loan financial deepening was positively associated with Finance Department, Washington, DC. 119 Domestic Finance and Capital Markets Sustainable Banking with the Poor with the Foundation for Development and Cooperation, Australia. This research project aims at improving the ability of The project has established a seminar series to donors, governments, and practitioners to design and disseminate best practice and to discuss issues and implement policies and programs for building sustain- problems emerging in the rapidly growing field of micro- able financing institutions that are effective in reaching finance. Thus far it has held 25 seminars, including a the poor. The project is carrying out a series of case stud- discussion of the draft Operational Policy 8.30. Abstracts ies of microfinance institutions in Asia, Africa, and Latin are available for most of these seminars. The project has America that have pioneered innovative approaches for also established a Website (http://www-esd.worldbank.org/ reducing the costs and risks of providing financial ser- html/esd/agr/sbp/page.htm). vices to a large number of low-income clients. The case Although the project is not yet completed, it has begun studies cover a wide range of types of institutions, includ- to influence the design and implementation of micro- ing commercial banks, specialized banks, nongovern- finance projects in the Bank. The case studies and the mental organizations, nonbank financial institutions, and examples of good practice presented in the seminar series government development finance institutions. have prompted follow-up discussions with operational The project draws on several disciplines-finance, eco- staff interested in applying the lessons learned. nomics, anthropology-and uses both quantitative and Responsibility: Asia Technical Department, Human qualitative approaches to analyze why some programs Resources and Social Development Division-James have successfully delivered financial services to the poor Socknat (jsocknat@worldbank.org), Lynn Bennett, and while others have fallen short. Success is defined by finan- Laura Gomez; and Agriculture and Natural Resources cial sustainability and by access and outreach. Financial Department, Office of the Director-Douglas Forno, and sustainability is measured in terms of key financial per- Sector Policy and Water Resources Division-Jacob Yaron formance indicators, including the Subsidy Dependence and Carlos Cuevas. With Cecile Fruman; Tom Dichter; Index widely used in the Bank. Access and outreach are Joanna Ledgerwood; and Julia Paxton. The Royal Ministry measured by assessing how far beyond the "frontier of of Foreign Affairs, Norway; the Swiss Agency for finance" a program has gone to reach those who have Development Cooperation; and the Ford Foundation are been unable to use formal financial services-whether providing funding for the research. because of gender, income, illiteracy, ethnic identity, geo- Completion date: December 1997. graphic location, or lack of collateral. Reports: On the basis of the case studies, the project will pro- Bennett, Lynn, and Carlos Cuevas, eds. 1996. Special issue on duce a sourcebook on sustainable banking with the poor Sustainable Banking with the Poor. Journal of International that will distill lessons for policy formulation, program Development 8(2). design, and implementation. In collaboration with the World Bank. 1996. "A Worldwide Inventory of Microfinance Consultative Group for Assisting the Poorest (CGAP), Institutions." Agriculture and Natural Resources Department the project also is producing two guides on microfinance. and Asia Technical Department, Washington, DC. The first is a practical guide designed to assist Bank task . 1997. "Case Studies in Microfinance: Benin, FECECAM." managers in the design and implementation of micro- Agriculture andNaturalResources DepartmentandAsia Technical finance activities. It presents a step-by-step approach to Department, Washington, DC. (Also published in French.) designing a microfinance loan or loan component, and . 1997. "Case Studies in Microfinance Zimbabwe, Zambuko extensive advice on such nonlending activities as policy Trust." Agriculture and Natural Resources Department and Asia dialogue and technical assistance. The second is a tech- Technical Department, Washington, DC. nical guide targeted to a much wider audience, includ- .1997. "An Inventory of Microfinancelnstitutions inEastAsia ing client country governments, financial institutions, and the Pacific." Agriculture and Natural Resources Department donor agencies, and practitioners. It offers a compre- and Asia Technical Department, Washington, DC. hensive overview of the main issues in microfinance . 1997. "An Inventory of Microfinance Institutions in East, and an update on the lessons learned and best practices Central, and South Africa." Agriculture and Natural Resources in the field. Department and Asia Technical Department, Washington, DC. Drafts of the two guides have been completed and . 1997. "An Inventory of Microfinance Institutions in Latin are being reviewed by Bank staff and external experts. America and the Caribbean." Agriculture and Natural Resources The final version of the practical guide is scheduled for Department and Asia Technical Department, Washington, DC. production in October 1997. A near-final version of the . 1997. "An Inventory of Microfinance Institutions in South technical guide will be the subject of a regional workshop Asia." Agriculture and Natural Resources Department and Asia in Thailand in November 1997, organized in cooperation Technical Department, Washington, DC. 120 Domestic Finance and Capital Markets . 1997. "Financial Sustainability for Credit Programs: A Travel The research will be based on case studies of successful Survival Guide." SBP Occasional Papers. Agriculture and Natural and unsuccessful reform and a statistical survey of postal Resources Department and Asia Technical Department, financial services around the world. The project will con- Washington, DC. duct this survey to fill gaps in existing databases, which contain limited and sporadic information. The other pri- mary sources of data will be the Universal Postal Union Best Practice in Postal Financial Services and the World Savings Banks Institute. The research is expected to raise awareness within the This research project addresses several questions: Bank and among borrowers of the benefits of postal finan- Could the national postal network provide an effective cial service reform for rural development and financial financial infrastructure in countries with a weak sector development in rural areas and among the poor. financial sector? Even in developing countries with a The findings will be disseminated mainly through pub- reasonably developed financial sector, could the postal lication and at least two conferences to be organized jointly network provide efficient basic financial services to with the Universal Postal Union. rural areas, low-income communities, and small busi- Responsibility: Private Sector Development Depart- nesses and traders? What are the major issues and ment, Private Sector Development and Privatization constraints in developing postal financial services? And Group-Kumar Ranganathan (kranganathan@worldbank. what steps are effective in reforming postal financial org) and Mariko Sakai. services? Completion date: April 1998. 121 TRANSITION ECONOMIES Impact of Market-Oriented Policy Reforms Dynamics of Rural Poverty in China on Households in Rural China Ref. no. 678-79C Ref no. 677-16 Panel data on households (data tracking the same In the 1980s China dismantled the commune system, in households over time) in developing countries are rare. which land was communally owned and farmed, and Yet the need for such data is great for a number of replaced it with the household responsibility system, in reasons. The vagaries of rain-fed agriculture bring which land is leased to and worked by individual house- issues of risk and transient poverty to the fore, and holds. In the early 1980s agricultural production increased transient poverty is also an important issue in the dramatically. No further large increases are expected, economic transition and adjustment that many of these however, as it appears that the gains from this new pol- countries have been undergoing. Conventional data are icy have now been reaped. less than ideal for informing policy decisions in such This research project intends to obtain answers to the settings. following questions: What are the main determinants of This project constructed a large new panel data set the productivity of agricultural households in rural China? for four provinces of rural China from a time series of Would removal of restrictions on factor markets (credit, household surveys from 1985 to 1990. Conducted by labor, and land) produce further increases in agricultural China's State Statistical Bureau, these surveys repeatedly output? How has the household responsibility system resampled a large number of households. The four affected income distribution, and what are the principal provinces range from a prosperous coastal region (where determinants of the variation in incomes across rural reforms have brought rapid gains) to far less prosperous, households in China? lagging inland areas. The data appear to be of good qual- Answering these questions requires detailed house- ity by prevailing standards. hold-level information, data that are rare for China. This The data allowed investigation of many research project collected data from about 1,000 households in 30 issues. In addition to creating the data set, the project villages in Hebei and Liaoning Provinces in the summer focused on an important subset of these issues. In of 1995. particular, it investigated the dynamics of poverty in When the project is completed, the results are expected rural China during 1985-90 and the determinants of to shed light on two broad policy questions. First, what both the persistent and the transient components of would be the effect on productivity of further liberal- household consumption. This research was the first ization of the rural economy (ending restrictions on hir- systematic investigation to use household-level data ing of labor, private provision of credit, and buying, in analyzing the transitions into and out of poverty in selling, and renting of land)? And second, what avenues rural China during a period of economic reform and are available for further reducing poverty in rural China? growth. Preliminary results have shown that clear property rights The project involved close collaboration with China's lead to more investments in land improvements. State Statistical Bureau, both in constructing the data set Responsibility: Policy Research Department, Poverty and in drawing on the results of the research, to help the and Human Resources Division-Paul Glewwe (pglewwe bureau put on a firm footing future poverty monitoring @worldbank.org). With Loren Brandt, University of efforts using these and other data. Toronto; Scott Rozelle, Stanford University; and the Results of the research have directly informed two Research Center in Rural Economy, China. The National tasks in Bank operations, the Southwest China Poverty Academy of Sciences, United States, and the International Reduction Project and ongoing economic and sector work Development Research Centre, Canada, are providing on income distribution in China. funding for the research. Responsibility: Policy Research Department, Poverty Completion date: December 1997. and Human Resources Division-Martin Ravallion Report: (mravallion@worldbank.org), Shaohua Chen, and Jyotsna Rozelle, Scott, Li Guo, and Loren Brandt. "Land Tenure, Property Jalan. Rights, and Productivity in China's Agricultural Sector." Completion date: December 1996. 122 Transition Economies Reports: The study on the evolution of the wage structure pro- Chen, Shaohua, and Martin Ravallion. 1996. "Data in Transition: duced four main empirical findings. First, the relative Assessing Rural Living Standards in Southern China." China returns to education rose rapidly during transition, as Economnic Review 7(l):23-55. did the relative employment of more educated workers. Jalan, Jyotsna, and Martin Ravallion. 1996. "Transient Poverty in The advantages of more education occurred for all expe- Rural China." Policy Research Working Paper 1612. World Bank, rience cohorts and across all sectors of the economy. Policy Research Department, Washington, DC. Second, returns to experience rose for most experience ___ 1997. "Are the Poor Less Well Insured? Evidence on cohorts, most rapidly for the young (relative employ- Vulnerability to Income Risk in Rural China." World Bank, Policy ment also rose for younger workers). Third, women's Research Department, Washington, DC. employment share declined in most sectors, but their rel- .__ 1997. "Consumption Variability and Rural Poverty in Post- ative wages increased. Ethnic minorities lost in both Reform China." World Bank, Policy Research Department, employment share and relative wages; some of this Washington, DC. decline may be due to rising relative returns to Estonian ___ 1997. "Transient and Chronic Poverty in Rural China: A language ability in most sectors of the economy. Fourth, Semiparametric Estimation." World Bank, Policy Research relative wages declined in sectors with the largest reduc- Department, Washington, DC. tions in employment and rose in sectors with the largest Ravallion, Martin, and Shaohua Chen. 1997. "When Economic gains in employment. The consistency of this pattern of Reform Is Faster than Statistical Reform: Measuring and rising relative wages associated with rising relative Explaining Inequality in Rural China." World Bank, Policy employment for human capital and ethnic groups sug- Research Department, Washington, DC. gests a well-functioning labor market responding to demand shocks. Responsibility: Policy Research Department, Poverty Labor Market Adjustment in Estonia and Human Resources Division-Branko Milanovic (bmilanovic@worldbank.org). With Milan Vodopivec, Ref. no. 679-71C Institute for Macroeconomic Analysis, Ljubljana, Slovenia; Many economies in transition have experienced massive John Haltiwanger, University of Maryland; Peter Orazem, dislocation of workers and painfully high unemploy- Iowa State University; and Kalev Katus, Rivo Noorkoiv, ment. Few, if any, will avoid these outcomes. In contrast and Allan Puur, Population Research Center, Estonian to Central and Eastern Europe, little is known about recent Interuniversity, Tallinn. labor market adjustments in the former Soviet republics. Completion date: June 1997. This research aimed to fill that void. Using the data gen- Report: erated by the Estonian retrospective labor force survey Puur, Allan, Peter R. Orazem, Rivo Noorkoiv, and Milan Vodopivec. of 1995, it assembled hard evidence on the patterns of 1996. "Employment and Wage Dynamics in the Estonia labor, mobility and wage changes during the transition Transition, 1989-95." World Bank, Policy Research Department, of one former Soviet republic-Estonia. The country not Washington, DC. only is implementing distinctive labor market policies, generally in the direction suggested by the World Bank, but also is in the forefront among the former Soviet Government Financial Transfers to the republics in implementing policy reforms. Largest Recipient Enterprises in Russia The project focused on three main issues. First, it inves- tigated the main labor market adjustments by analyzing Ref. no. 679-98C the magnitude and the determinants of the flows among Most Central and Eastern European countries launched labor market states and of direct job-to-job transitions, market reforms with a large volume of government and the changes in returns to education, experience, and financial transfers to the enterprise sector. Reducing gender. Second, it identified workers who are being these transfers was one of the major challenges for especially hurt in the transition. Third, the project the region's governments in their efforts to stabilize investigated the incentive effects of unemployment their economies. In Russia at the start of the market trans- insurance. The analysis relied on the estimation of pro- formation in 1992 this problem was much more severe bit, logit, and hazard models for analyzing determinants than anywhere in Central and Eastern Europe. While of labor market transitions, and estimation of earnings the government has made much progress in the past functions for analyzing changes in returns to human few years in reducing overall transfers to enterprises, capital and determinants of workers' reemployment state financial assistance to enterprises remains earnings losses. substantial. And the remaining transfers are concentrated 123 Transition Economies among a small number of the largest and most well- and rationalization of government financial assistance- connected enterprises. by deepening price and trade liberalization, reducing the Tackling these transfers will be critical for both macro- total volume of transfers, reducing the number of chan- economic stabilization and enterprise reform in the next nels and the number of agencies involved in the alloca- couple of years, for several reasons. First, these transfers tion of transfers, improving the transparency of the still constitute an unacceptably large share of govern- allocation system, conditioning remaining transfers on ment transfers to the economy and have a significant restructuring, and improving monitoring and supervi- impact on the budget. They need to be further reduced sion of the use of transfers. and rationalized if macroeconomic stabilization is to be Responsibility: Europe and Central Asia, Country sustained. Second, many of the largest recipient enter- Department III, Country Operations Division 2--Qimiao prises are "problem" enterprises, and their problems can Fan (qfan2@worldbank.org) and Lev Freinkman, and and will contaminate the rest of the economy through Moscow Resident Mission-Alexander Morozov; and interenterprise arrears and arrears to the banking sys- Private Sector Development Department-Syed tem. Their performance will have a significant effect on Mahmood. With Victor Rassadin; Elena Starostenkova; the financial system, especially the banking system. Third, Tatyana Chetvernina; Stepan Titov; Michail Broitman, because many of these enterprises are in basic, upstream Troika-Dialog; Yuri Kuznetsov; Georgy Semenov; and industries, sometimes with monopolistic market posi- Alla Godunova. tions, their performance will directly affect the compet- Completion date: October 1996. itiveness and adjustment of many other enterprises. Reports: Fourth, these enterprises are usually the largest employ- Alfandari, Gilles, Qimiao Fan, and Lev Freinkman. 1996. ers in their regions and localities, so how they are restruc- "Government Financial Transfers to Industrial Enterprises and tured will have important social implications. Restructuring." In Simon Commander, Qimiao Fan, and Mark This study analyzed the rationale for and the size Schaffer, eds., Enterprise Restructuring and Economic Policy in and type of such government financial support and exam- Russia. EDI Development Studies. Washington, DC: World Bank. ined the options for reducing and rationalizing it. The Freinkman, Lev, and Michael Haney. 1997. "What Affects the Russian study used data from a large World Bank survey of indus- Regional Governments' Propensity to Subsidize?" Policy trial enterprises in Russia, case studies of 10-15 of the Research Working Paper 1818. World Bank, Europe and Central largest recipient enterprises in different regions of Russia, Asia, Country Department I, Washington, DC. and official data on government financial support. The study's results show that government financial assistance does not go to the enterprises that face the most The Consequences of Large-Scale severe financial problems or to those particularly affected Privatization in Mongolia by recent external shocks, such as the loss of markets in Eastern Europe and in other former Soviet republics. Nor Ref no. 680-27 is government assistance biased toward enterprises with The restructuring of state enterprises is an important more intensive investment spending. Instead, one of the aspect of all reforms in formerly socialist countries. Mass most important determinants of whether an enterprise privatization is one favored method of accomplishing receives government transfers, and how large these trans- such restructuring. But analytical work on the conse- fers are, is the size of its workforce. Overall, government quences of mass privatization is only beginning. financial transfers do not seem to serve any identifiable Longitudinal studies, which can illuminate the nature objectives (such as promoting restructuring or support- and speed of firm adjustment, are still rare. Work has ing high-technology and export industries), although cer- been largely concentrated on the western rim of Eastern tain forms of transfers do play a slightly compensatory Europe and on Russia, where the issues are quite differ- role for price controls or government procurement. The ent from those in the second tier of reforming countries, current system of government assistance to enterprises those with less developed legal and market systems. So consists of about a dozen independent channels and a there are valuable lessons to be learned from analyses of large number of government agencies, which makes gov- the effects of the earliest privatizations in the second tier ernment assistance even less efficient and more difficult of reforming countries. Mongolia provides a fitting case to monitor. study. The current level and system of government finan- This project is collecting and analyzing data on pri- cial support clearly have not promoted enterprise restruc- vatized enterprises in Mongolia to examine the chan- turing, especially for the largest recipients. To encourage nels by which privatization affects enterprise behavior, enterprise restructuring will require further reduction the significance and speed of these effects, and their 124 Transition Economies relation to ownership structure. This research has two preliminary examination of corporate governance and central, complementary goals-testing hypotheses on the the quality of governance mechanisms imply that avail- effects of privatization and informing current policy dis- able institutions, despite a credible legal foundation, have cussions. A third objective is to generate firm-level infor- been largely captured by insiders, sometimes in direct mation that permits more accurate analyses of Mongolian violation of law. economic conditions and their implications for Bank and Information and results from the study have been national policymaking. incorporated into the latest country economic memo- The research examines links between various depen- randum for Mongolia (July 1997) and a public enter- dent variables and corresponding sets of explanatory prise review (fiscal 1996). Additional consultations with variables in a series of separate econometric analyses, Bank operational staff are planned to inform the devel- seeking to identify effects attributable to privatization. opment of an assistance program for private sector devel- Three key explanatory variables are the structure of own- opment, including technical assistance in such areas as ership, the allocation of internal influence among gov- enterprise restructuring and privatization. ernance bodies, and the time since privatization. More broadly, the research findings relating enterprise The primary data source for the research is a survey restructuring in Mongolia to various explanatory fac- of about 250 privatized enterprises in Ulaanbaatar and tors are expected to contribute to the general debate on in eight provinces. Included among these enterprises best practices for new programs and remedies for more are 94 firms surveyed in 1993, allowing a longitudinal mature programs that have deviated from those best analysis of the effects of privatization. Supplementing practices. the survey is an extensive separate data set on enter- Responsibility: East Asia and Pacific, Country prise characteristics and stock market sales constructed Department II, Country Operations Division-Natasha from data from the State Privatization Commission, the Beschorner (nbeschorner@worldbank.org) and Hongjoo Mongolian Stock Exchange, and commercial trading data Hahm. With James Anderson, Georges Korsun, and Peter source files. Murrell, University of Maryland. Findings to date are primarily descriptive because the Completion date: December 1997. econometric work is just beginning. Nevertheless, the study has identified several interesting patterns that stand in contrast to some widely held assumptions and obser- Poverty and Targeting of Social Assistance in vations relating to transition and that suggest promis- Eastern Europe and the Former Soviet Union ing avenues for deeper analysis. For example, the study has found that in Mongolia state behavior does not con- Ref. no. 680-33 form to the assumption of the disinterested owner that Declining incomes and growing income inequality have is commonplace in the literature and that has been demon- led to a rise in poverty in the transition economies of strated empirically in the Czech Republic, Hungary, and Eastern Europe and the former Soviet Union. But the Russia. effects have been uneven across different population Other findings reflect the differing objectives and con- groups, regions, and types of households. straints of local and central governments. The harder The objective of this research project is to establish budget constraints of local governments and the pres- association, and even causality, between different fac- ence of interjurisdictional competition are thought to tors-such as education, locality, age of household head, explain the finding that, contrary to general expectations, and number of household members--and vulnerability locally owned enterprises appear to behave much more during the period of transition. The study covers four like completely privatized enterprises than like centrally countries in Eastern Europe (Bulgaria, Hungary, Poland, owned enterprises. This suggests that the devolution of and the Slovak Republic) and four countries in the for- government functions to lower levels produces effects mer Soviet Union (Armenia, Estonia, the Kyrgyz Republic, similar to those of privatization, although not of the same and Russia). intensity. Increased poverty causes difficulties for social assis- In looking at postprivatization ownership changes, tance agencies in transition economies, both because fis- the study has observed a relatively weak securities mar- cal resources are usually insufficient and because many ket with little trading activity for most firms. For a sub- people apparently qualify. This leads to the presence of set of firms the study has found distinctive changes in many small programs with large "leakages" to the less the structure of ownership, with managers generally needy. Thus, if social assistance is not provided effec- strengthening their ownership positions, acquiring equity tively, scarce resources will be wasted, and chances to both from outsiders and from workers. The results of a reduce poverty missed. 125 Transition Economies Using household income and expenditure data (from Formal Employment and Survival regular or Bank-sponsored household budget surveys) Strategies under Economic Reform from the eight countries for 1993-95, the study attempts in the Former Soviet Union to answer two questions: What are the determinants of poverty in transition economies? And what types of Ref no. 680-52 households are systematically favored or discriminated Conventional labor market approaches are inadequate against in the allocation of social assistance? for understanding employment dynamics and strategies Not unexpectedly, the study has found that education in the former Soviet republics. State enterprise workers and unemployment play an important part throughout make simultaneous decisions on the extent of their work the region (the first by raising income, the second by in the state enterprise, on alternative occupations and reducing it). The importance of locality (large city ver- sources of income (many of which are informal), and on sus rural area), age of the household head (pensioner or social network interactions (that is, many are or become employed), and gender of the household head differs "network entrepreneurs"). As a result, complex survival among the countries, reflecting differences in such poli- strategies have evolved during the transition, tran- cies as those toward pensioners or protection of the real scending conventional notions of employed and unem- value of family benefits. ployed. In response to shifting sets of incentives, workers In some countries the study found systematic dis- move along a continuum of formal and informal employ- crimination in the allocation of social assistance-that ment and income options, a strategy that has important is, higher or lower access to social assistance than pre- implications for social and labor market policies. dicted. Access to social assistance varied depending on This study compares how the different reform efforts place of residence (for example, rural areas are helped in Latvia, Russia, and Ukraine have affected workers. more than expected in Hungary, but less than expected Using a survey methodology developed in Russia and in Russia). It also varied according to ownership of such Ukraine, it investigates what has happened in formal and household durables as a car or color TV, clearly indicat- informal employment and in network entrepreneurship. ing an implicit means-testing of social assistance (which The empirical analysis sheds light on the patterns and seems to be particularly strong in Poland). In almost all importance of informal sources of income. The study sug- the countries, everything else equal, female-headed house- gests who is benefiting from reform in these countries holds are more likely than male-headed households to and provides insights on the main characteristics of "non- be helped. copers." It also analyzes the differential income outcomes The study has created a large database with data from resulting from the type of firm in which a worker was the eight surveys. The database contains more than a hun- employed (state or private) and from whether the worker dred variables, identically defined (to the extent possi- stayed in the firm or was separated. It shows that the ble) across the surveys. The variables include the level deeper reform in Russia compared with that in Ukraine and composition of income and expenditures and such has implied more restructuring by firms, more network personal and household attributes as education level, entrepreneurship, and more informal labor income. These place of residence, and ownership of consumer durables. outcomes help explain why unemployment has stayed The database, which consists of about 4 million data low. points, will be available to interested researchers in SAS The results of this study are being disseminated and STATA software within the next year. through seminars, conferences, and publications. Responsibility: Policy Research Department, Poverty Responsibility: Europe and Central Asia, Country and Human Resources Division-Branko Milanovic Department IV, Office of the Director-Daniel Kaufmann (bmilanovic@worldbank.org) and Yvonne Ying; Poverty (dkaufmann@worldbank.org) and Debra Tsimbidis. With and Social Policy Department-Jeanine Braithwaite; Simon Johnson, Massachusetts Institute of Technology; Environment Department, Social Policy and Resettlement Oleh Ustenko, Kiev State Economics University; and Division-Christiaan Grootaert and Gi-Taik Oh; Lorena Barberia, Harvard University. and Europe and Central Asia, Country Department II, Completion date: December 1997. Human Resources Operations Division-Sandor Sipos. Reports: With Robert Ackland; Mark Foley; Thesia Gardner, Johnson, Simon, Daniel Kaufmann, and Lorena Barberia. "Network U.S. Bureau of Labor Statistics; Sassoun Tsirounian, Entrepreneurs during Reform." University of Yerevan, Armenia; Alexandra Posarac; Johnson, Simon, Daniel Kaufmann, and Andrei Shleifer. 1997. "The and Maria Balaz. The U.S. Department of Labor is Unofficial Economy in Transition." Paper presented at the contributing staff time. Brookings Panel on Macroeconomic Activity, Washington, DC, Completion date: September 1997. September. 126 Transition Economies Johnson, Simon, Daniel Kaufmann, and Oleh Ustenko. Forthcoming. of alternative programs and thus how much to allocate Formal Employment and Survival Strategies after Communism. to each intervention. It will also provide guidance in tar- Washington, DC: National Academy of Sciences. geting programs to those who will benefit most. "Impact of Restructuring in the Transition." The study's findings will be disseminated in the par- ticipating countries by Bank staff involved with the study, by consultants, and by task managers of Bank-supported Evaluating Active Labor Market Programs employment projects. in Europe and Central Asia Responsibility: LatinAmerica and theCaribbean, Country Department I, Country Operations Unit 1-Indermit Gill Ref. no. 680-73 (igill@worldbank.org); and Europe and Central Asia, Active labor market programs (such as public works, Country Departments I and II, Human Resources retraining, job search assistance, and job subsidies) are Operations Division-David Fretwell. With Upjohn becoming increasingly common in transition economies, Institute for Employment Research and ABT Associates. which are experiencing unprecedented levels of unem- Completion date: December 1997. ployment. There are social, political, and economic rea- sons for government action to quicken the redeployment of labor and cushion the impact of layoffs. Nevertheless, The Reach of Law into the Enterprise to avoid costly mistakes, investments in labor market in Transition programs need to be carefully and quickly evaluated. The goal of this project is to develop comprehensive Ref. no. 680-90 data on the costs of selected active labor market programs As early as July 1988 Mikhail Gorbachev used the notion and evaluate the effectiveness of the programs in help- of the rule of law as a rallying cry for legal reform in the ing different groups of the unemployed under varying Soviet Union. Establishment of the rule of law was sim- labor market conditions and during different stages in ilarly espoused as a fundamental goal during the Eastern the transition to a market economy. The countries par- European revolutions of 1989. It has ranked as high as ticipating in the study are the Czech Republic, Hungary, stabilization and privatization among the priorities of Poland, and Turkey. the leading reformers and their foreign advisers, but it The research addresses several questions: What are is typically more elusive. the key indicators of success for different types of active In a market setting the rule of law is important to labor market programs? How can information be col- governments because it enhances the credibility of pol- lected on these indicators? Do the results justify the expen- icymakers by placing restraints on their ability to arbi- ditures? And how can information be used to improve trarily reformulate policies. Itis also critical to firms. Laws the targeting and effectiveness of program delivery? provide standards of conduct that can coordinate behav- Nonexperimental techniques that examine program ior and reduce transaction costs. participants' labor market success relative to that of an The purpose of this research is to understand the part otherwise similar group of nonparticipants are used to that the rule of law plays in economic relationships in evaluate the effectiveness of programs. The economic Russia and, by implication, in other reforming socialist costs considered include direct program costs and the economies. Using original survey research, it is examin- opportunity costs for participants. Cost-benefit ratios for ing the usefulness of laws and legal institutions to firms active labor market programs will be calculated, and the in organizing themselves and their relationships with results used to determine cost-effectiveness rankings other firms. This work focuses primarily on three bod- for the programs. ies of law-contract law (including law on secured instru- The research project is being carried out in two phases. ments), antitrust law, and company law. In the first, a detailed framework for the study was drawn Collection of data from 1,200 managers and legal up. In the second phase, now in the final stages, the data experts in 300 firms in six regions of Russia should be were collected and are being analyzed. completed by September 1997. In a pretest of the survey The study should help resolve the debate within the instruments, completed in the spring of 1996, 60 man- Bank between advocates of growth-oriented policies agers and legal experts in 15 firms in Yekaterinburg and (combined with social safety nets for the most needy) Moscow were interviewed. Evidence from this pretest and advocates of labor market interventions such as suggests several interesting preliminary conclusions. retraining and public works. For client countries that have Firms appear to have fairly good access to informa- decided to invest in active labor market programs, the tion about new laws and to legal institutions in both study will help determine the relative cost-benefit ratios Yekaterinburg and Moscow. All the enterprises visited 127 Transition Economies have in-house legal expertise. Half have relationships as costly. Private security firms are widely used for with external lawyers, typically in connection with for- enforcement. eign activities. All subscribe to the standard printed What is the apparent consequence of these institu- sources of legal information, and 75 percent subscribe to tional problems? No complex transactions were observed, computerized databases that are updated regularly despite an attempt to do so. Thus the absence of social, The willingness of enterprise managers to maintain a economic, and legal institutions to support transactions legal department and to purchase a database suggests appears to undermine the ability of firms to undertake that they attach importance to obtaining up-to-date infor- certain potentially important transactions. mation about law. Yet although the legal departments Responsibility: Policy Research Department, Finance serve as the main conduit for information about laws and and Private Sector Development Division-Randi legal institutions, they are not well integrated into the Ryterman (rryterman@worldbank.org). With Peter business life of enterprises. Representatives of legal Murrell, University of Maryland; Barry Ickes, Penn- departments do not regularly advise management about sylvania State University; Kathryn Hendley, University the consequences of proposed actions. Lawyers, whether of Wisconsin; Barbara Weber, Harvard University; Alla in-house or external, do not play an active part in nego- Mozgovaya, Institute of Sociology, Moscow; and Valery tiating contracts, in restructuring relationships, or in cor- Makarov and other economists at the Central Economics porate governance. Their functions are more technical, and Mathematics Institute, Moscow. The National Council such as producing standard form contracts or verifying for Soviet and East European Research is providing fund- the legality of contracts negotiated by others. ing for the research. Firms routinely use courts to settle disputes, appar- Completion date: June 1998. ently without large cost to their business relationships. Report: But legal institutions do not appear to provide an ade- Hendley, Kathryn, Barry W. Ickes, Peter Murrell, and Randi quate foundation for relationships. Court decisions often Ryterman. 1997. "Observations on the Use of Law by Russian are not enforced, and norms necessary to increase con- Enterprises." Post-Soviet Affairs 13(1):19-41. tract compliance and reduce enforcement costs appear to be inadequate. Firms' routine use of courts appears to be a consequence of historical practice rather than of a The Cultural Foundations deliberate strategy to use law and legal institutions to of Economic Reform further their interests. Despite the availability of legal information, managers Ref no. 681-18C and legal experts in firms are unfamiliar with important A central tenet of neoclassical economics is that human aspects of contract, antitrust, and company law; in most initiative arises from the incentives embodied in free mar- cases their knowledge of the law cannot be distinguished kets. Yet other branches of economics, as well as branches from random guesses. Respondents are more familiar with of sociology, political science, and psychology; suggest historical laws than current ones and often confuse the two. that human initiative cannot be explained on the basis Moreover, many of the economic institutions com- of economic incentives alone. As Adam Smith well under- monly thought of as ensuring compliance-cross- stood, economic life is deeply embedded in social life, ownership, common membership on boards of directors, and it cannot be understood apart from the customs, common membership in business associations, and com- morals, and habits of the society. In short, it cannot be mon banks-appear to be absent or unimportant. Market divorced from culture. power appears to be diminishing. So mutual economic As economists seek to explain differences in the eco- dependence no longer appears to be an adequate mech- nomic achievements of different countries, many are turn- anism for ensuring contractual performance. Social insti- ing to explanations centered on culture. One area in which tutions commonly thought of as facilitating relationships culture might play an important part is in the way a between managers of different firms-common univer- society adapts to economic reform. Attitudes toward polit- sity affiliation, religion, national or ethnic group, or mem- ical, economic, and judicial institutions are deeply rooted bership in a civic association-also are either absent or in historical experience and are often slow to change. unimportant. Yet such attitudes are essential to the success of reform In the absence of legal and related institutions to sup- because they form part of the foundation of public sup- port transactions, most contractual relationships appear port both for reform and for the new institutions created to be based on historical relationships. Many relation- as part of the reform process. When attitudes do not ships, particularly newer ones, are supported by the use support the development and use of the new institutions, of payment terms, such as prepayment, generally viewed the sustainability of reform is called into question. 128 Transition Economies This research examined the effect of culture, as embed- Ryterman (rryterman@worldbank.org). With Peter ded in the attitudes of economic agents, on the progress Murrell, University of Maryland; Kathryn Hendley, of economic reform in Russia. It looked at the role of University of Wisconsin; Barry Ickes, Pennsylvania State attitudes in two types of adjustment: adjustment to mar- University; Barbara Weber, Harvard University; Alla kets and adjustment to a rule of law. The analysis was based Mozgovaya, Institute of Economics, Moscow; and Valery on three sources of information: data collected by the Makarov and other economists at the Central Economics European Community on the attitudes of 470 enterprise and Mathematics Institute, Moscow. The National Council managers in seven Russian provinces, data collected by the for Soviet and East European Research provided fund- World Bank on the attitudes of 60 managers and legal ing for data collection. experts in 15 Russian firms, and field research on the func- Completion date: June 1997. tioning of legal institutions in two Russian provinces. Reports: The results indicate that attitudes do play an impor- Hendley, Kathryn. Forthcoming. "Rewriting the Rules of the Game." tant part in the adjustment of firms to markets and to a Post-Soviet Affairs. rule of law. The study found that one reason that output Ickes, Barry W, Peter Murrell, and Randi Ryterman. 1997. "End of stabilization in Russia has been delayed is the uncertainty the Tunnel? The Effects of Financial Stabilization in Russia." about the duration of financial stabilization, a conse- Post-Soviet Affairs 13(2). quence of declining tax collections. Firms in Russia are Ryterman, Randi, and Barbara Weber. 1996. "The Role of Attitudes actively engaged in informal profit seeking-the pro- in the Performance of the Legal System: Evidence from a Survey duction of wealth that can be hidden from official view. of Russian Firms." World Bank, Policy Research Department, The willingness and ability of enterprises to engage in Washington, DC. such activities depend in part on managerial attitudes. A manager will be more willing to propose a strategy to earn informal profits if he is confident that most other Potential Sources of Growth in Funding managers do not consider tax avoidance or evasion to for Chinese Agricultural Research be unethical. Managers must also trust that their busi- ness partners will not behave opportunistically or reveal Ref. no. 681-19C illicit transactions to authorities. Data suggest that the Expenditure on agricultural research in China appears level of social trust in Russia is moderately high; it is only to be declining in the face of an urgent need to increase slightly lower than that in Japan, on par with that in yields. Research expenditure is now equal to only about Germany, and much higher than that in other countries 0.4 percent of agricultural GDP, and the share is decreas- in transition. Civic behavior, which is often correlated ing despite recent findings of very high rates of return with rule obedience, is very low in Russia; of the 33 coun- to agricultural research in China. In some provinces, how- tries for which data are available, Russia ranks 31st, fol- ever, funding for research has increased. lowed only by Hungary and Romania. This research addressed two questions: Why is fund- The study found that the use and functioning of legal ing increasing in some provinces? And do these provinces institutions also depend on managerial attitudes. New offer lessons for other parts of China on ways to increase legal institutions are being formed, mostly on the ashes funding? The study used a combination of interviews of socialist ones. While many new laws designed to facil- with government officials during 1996 and 1997 and offi- itate transactions in a market setting are being enacted, cial data on agricultural research funding in 25 provinces the institutions and people who will interpret and enforce in China in 1990-94. It developed a political economy them, as well as those who will use and benefit from them, model of provincial research funding and used regres- have a distinctly socialist past. The socialist legacy sion analysis to test the model. includes no experience with a state restrained from inter- The findings support the induced innovation hypoth- vening in the economy. Attitudes formed under social- esis. They show that government funding of provincial ism have a potentially profound effect on the willingness agricultural research responds positively to an increase of enterprises to use legal institutions. The study found in the demand for agricultural products and negatively that two attitudes-market orientation and rule obedi- to the availability of alternative sources of agricultural ence-explain nearly all the variation in the use of legal growth, such as land. Proxies for the strength of agri- institutions. Other factors, such as the firm's ownership, culture in the political economy, such as the size of the industry, size, and age and the manager's personal char- agricultural population or the percentage of the total bud- acteristics, have virtually no effect. get devoted to agriculture, do not have a positive impact. Responsibility: Policy Research Department, Finance The important factors are provincial tax revenues- and Private Sector Development Division-Randi provinces with greater total revenue spend more on agri- 129 Transition Economies cultural research-and provincial interest in science of in household expenditure on a set of explanatory vari- all types as measured by the percentage of provincial ables, such as household characteristics; ownership of expenditure on science. Finally, the more income research land, housing, and durable goods; income composition; institutes earn from commercial activities, the less money and changes in income composition. the government provides. The project uses two sets of data from the Polish These findings imply that wealthy provinces, which Household Budget Survey, obtained from the Central have more tax revenue, more demand for agricultural Statistical Office. The first set of data contains three two- goods, and tightening land availability, will invest more year (overlapping) panels: 1989-90,1990-91, and 1991-92. in agricultural research and that the gap in technologi- The second set of data covers two two-year panels, cal development between rich and poor provinces will 1993-94 and 1994-95, and a three-year panel, 1993-95. widen. The negative relationship between earnings from The two data sets differ in that the first excludes private commercial activities and government funds suggests sector workers, while the second includes these work- that, to increase government research funding, research ers as well as self-employed workers and those living institutes should put less emphasis on increasing earn- on social benefits. ings from commercial activities. The results of the research should assist policymak- The findings have been presented at the Center for ers in identifying those most likely-and those least Chinese Agricultural Policy in Beijing and at a Bank sem- likely-to be hurt by the reform, facilitating the design inar in August 1997. and implementation of targeted programs. Responsibility: East Asia and Pacific, Country Responsibility: Policy Research Department, Poverty Department II, Rural and Social Development Division- and Human Resources Division-Emmanuel Jimenez Rapeepun Jaisaard (rjaisaard@worldbank.org); and (ejimenez@worldbank.org). With W1adimir Okrasa and Agriculture and Natural Resources Department, the Central Statistical Office, Poland. Agriculture and Forestry Systems Division-Derek Completion date: July 1998. Byerlee. With Carl E. Pray, Rutgers University. Completion date: June 1997. Ownership, Labor Strategies, and Firm Performance in China Household Welfare Change during the Transition in Poland Ref. no. 681-22C This research addressed two questions: What effect does Ref. no. 681-21 the ownership structure of Chinese enterprises have on The welfare effects of distributional changes brought their labor strategies (job creation, job destruction, about by the transition to a market-based system are bonuses, and the like)? And what effect do labor strate- among the best-established stylized facts on the Eastern gies have on firm performance (profitability, productiv- European economies undergoing reform. Between 1989 ity, sales, growth)? and 1993 the Gini coefficient in Poland increased by 5 To answer the first question, a set of labor demand percent, and almost all Polish families experienced equations was estimated, exploiting the panel nature of declines in real income after 1989. This research project the data to capture the speed of labor demand adjust- investigates the effect of human capital on changes in the mentby type of enterprise ownership. To address the sec- distribution of income and consumption, and the deter- ond, standard firm performance models were used to minants of changes in families' well-being, focusing on estimate the effect of labor strategies on various measures the options and choices of Polish households. It pays par- of firm performance, after controlling for other factors. ticular attention to redistributive policies, especially social The study used three data sets: the 1995 state enterprise expenditures. survey; a World Bank-financed data set on state enter- Changes in income and consumption during the tran- prises, collectively owned urban enterprises, and town- sition period are estimated at selected points in time, to ship and village enterprises; and a State Statistical Bureau characterize the evolution of the socioeconomic condi- data set on a variety of enterprises. tions of Polish households. The effect of human capital The results show that ownership structure is less is analyzed by comparing the results of regressions of important than labor strategy in determining firm per- households' income and consumption on a set of house- formance. The amount of input and control by workers hold characteristics (including education levels). significantly affects both the speed of adjustment in Households' utilization of their human capital and other response to output shock and the rates of job creation and assets is explored by regressing the year-to-year change destruction. This effect is consistently important across 130 Transition Economies ownership types. There appears to be a link between the at least nominally guaranteed minimums and the per- ability of an enterprise to adjust employment and the per- ception of what a minimum should be are the widest. formance of the enterprise. The research is based on the results of a survey car- These findings suggest that the degree of employee ried out by the All-Russian Center for Monitoring of input is an important consideration when restructuring Public Opinion (VCIOM). In this survey a representa- enterprises. Privatizing firms while retaining high lev- tive sample of Russian households was asked a Leyden- els of employee ownership may act to restrict the firms' type question (on the subjective subsistence minimum) ability to respond to demand shocks, with consequent monthly between March 1993 and January 1994 and about negative effects on their performance. every other month from then until late 1996. The infor- Findings have been disseminated in the Bank and at mation from this repeated cross-sectional survey, cover- the Southern Economic Association meetings in ing three years, will be used to establish a series of November 1996 in Washington, DC. subjective poverty lines for Russia. Responsibility: Private Sector Development Department Responsibility: Policy Research Department, Poverty -R. Shyam Khemani (skhemani@worldbank.org). With and Human Resources Division-Branko Milanovic Julia Lane and Robert Feinberg, American University. (bmilanovic@worldbank.org) and Yvonne Ying. With Completion date: June 1997. Alastair McAuley, University of Essex and New Moscow Reports: Economic School; and Svetlana Sidorenko, VCIOM, Lane, Julia, H. Broadman, and Robert Feinberg. 1997. "Do Labor Moscow. Strategies Matter? An Analysis of Three Enterprise-Level Datasets Completion date: June 1998. in China." Private Sector Development Department Working Paper Series. World Bank, Washington, DC. Lane, Julia, H. Broadman, and Inderjit Singh. 1997. "Labor Flexibility, The Determinants of Agri-Food Market Ownership, and Firm Performance in China." World Bank, Integration in the Transition Economies, Private Sector Development Department, Washington, DC. Phase 2 Ref. no. 681-45 Changing Ideas about Poverty in Russia In transition economies agri-food markets are typically segmented among different vertical chains, market loca- Ref no. 681-42 tions, and types of owners and between domestic and In the transition to a market system the Russian econ- international markets. This project investigates to what omy has experienced a series of shocks-a sharp fall in extent the segmentation of agri-food markets has been output, rapid and continuing inflation, and the appear- overcome through reform and what kind of government ance of open unemployment. These shocks have led to policies would facilitate further market integration. a substantial fall in real wages. There has also been a The project's analytical approach is based on the solid marked increase in income inequality as the enterpris- understanding of market institutions and fluctuations of ing took advantage of new opportunities-and the lucky supply and demand. It applies models of market mar- reaped windfall gains. While some Russians have pros- gin determination, price transmission, and cointegration pered, most have seen a fall in their standard of living. to selected commodity markets, typically pork, wheat This research project aims to analyze how the ideas and wheat flour, and milk and dairy products. The analy- about poverty in Russia-particularly the subsistence sis relies on statistical data published by government and minimum and the subjective poverty line-have evolved nongovernment institutions and the results of field inter- during this period of unprecedented changes. The sharp views and case studies. decline in income makes it possible to see, within a very The first phase of the study focused on Poland, where compressed period, how ideas about poverty respond it found that agri-food markets are reasonably well inte- to abrupt changes in overall income and in income dis- grated. Effective market liberalization led to the emer- tribution. The study will explore how these ideas differ genceof astrongprivatesectorand intensive competition among socioeconomic and demographic groups. It will -and thus relatively high efficiency-in the agri-food also assess the importance of various factors in explain- markets. Market risk and a market structure dominated ing the speed with which attitudes toward poverty by processors are the two primary obstacles to further respond to changes in the external environment. The market integration. study should yield important findings for policymakers This second phase of the study extends the analysis about which social and demographic groups adjust their to Hungary, Romania, and Ukraine. Preliminary results expectations more slowly and where the gaps between for Ukraine suggest that liquidity, rather than a state 131 Transition Economies monopoly, is the primary challenge in developing an inte- Wei, Anning, Waldemar Guba, and Z. Krzyzanowska. 1997. "Market grated agri-food market. Development and Government Policy in the Polish Dairy Sector." The findings of the first phase contributed to the Bank's World Bank, Agriculture and Natural Resources Department, agricultural sector adjustment loan operation in Poland, Washington, DC. and the results of the second phase are expected to con- Zhurova, Svitlana V., Anning Wei, and Yuri Nechayev. 1997. tribute to agricultural adjustment programs in Hungary, "Agricultural Marketing in Ukraine: A Case Study of a Dairy Romania, and Ukraine. The summary of experience in Enterprise." World Bank, Agriculture and Natural Resources Poland should be helpful to other transition economies Department, Washington, DC. in developing their agri-food market systems. The findings from the first phase were disseminated through two Bank seminars in August and October 1995, Enterprise Restructuring in Bulgaria through presentations to government officials in Warsaw and Romania in January 1996, and through presentations at the 1995 American Association of Agricultural Economists Ref no. 681-96 Conference and the 1996 European Association of This project will document the degree of enterprise Agricultural Economists Conference. restructuring in Bulgaria and Romania and the relation- The first phase produced an Excel database contain- ships between enterprise restructuring and the banking ing monthly agri-food price data for Poland for 1990-96. systems, the macroeconomic environment, and enter- Responsibility: Agriculture and Natural Resources prise surveillance (or isolation) programs. Three papers Department, Sector Policy and Water Resources are planned, all comparative. Division-Richard Burcroff II (rburcroff@worldbank.org) The first paper will look at the link between the (lack and Anning Wei. With W1adyslaw Piskorz, Waldemar of) hard budget and the banking system on the one hand Guba, Jerzy Dabrowski, Wanda Chmielewska, and and the (lack of) enterprise restructuring on the other and Magdalena Opalka, Ministry of Agriculture and Food ask whether there is a critical point at which a banking Economy, Poland; Yuri Nechayev and Svitlana V. crisis occurs. The paper will be based on panel regres- Zhurova, Economic Research Center, Kiev, Ukraine; Jozsef sion analysis over the entire population of firms, linking Toth, Geza Tar, and Marton Szabo, Budapest University firm performance to bank lending and other measures of Economic Sciences, Hungary; and Constantin Ciupagea of external financing. The analysis will draw on detailed and Virginia Campeanu, Institute of World Economy, annual enterprise-level data for 1992-96 covering the Bucharest, Romania. entire population of firms in Bulgaria and Romania. Completion date: June 1998. The second paper will focus on the cost of delayed pri- Reports: vatization. What are the direct and indirect costs (includ- Guba, Waldemar, Anning Wei, Jerzy Dabrowski, and Wanda ing spillover effects) of a lack of privatization? And what Chmielewska. 1995. "Emerging Trends in Polish Agri-Food is the effect of preexisting sectoral characteristics on the Markets: A Report of Field Investigation." World Bank, entry of new firms? This paper will be based on a sur- Agriculture and Natural Resources Department, Washington, vey, developed for this project, of managers of state- DC. owned, privatized, and new private firms. The paper will Wei, Anning, and Richard Burcroff II. 1996. "Poland ASAL: Inter- use the survey data to quantify the effects of delayed Country Agricultural Policy Performance Review." World Bank, privatization and its determinants. Because of the qual- Europe and Central Asia, Country Department III, Washington, itative nature of the variables, it will use a probit-type DC. analysis. Wei,Anning, Waldemar Guba, Richard Burcroff II, Jerzy Dabrowski, The third paper will be an empirical assessment of and Wanda Chmielewska. 1996. "Market Efficiency and the Bulgarian and Romanian surveillance programs for Government Policy in the Polish Wheat Market." Paper pre- a subset of enterprises. The paper will use Wilcoxen sented at the European Association of Agricultural Economists rank tests and ANOVA econometrics to measure the Conference, Edinburgh, Scotland. (Also published in Polish. impact of the surveillance programs. It will match each Forthcoming as a World Bank Discussion Paper.) firm in a program with a firm that is similar (in size, ini- Wei, Anning, Waldemar Guba, Jerzy Dabrowski, Wanda tial profitability, and sector origin) and estimate the rel- Chmielewska, Magdalena Opalka, and Richard Burcroff 11. ative change in firm performance from 1992 to 1996. The Forthcoming. The Emergence of Integrated Agricultural Markets: analysis will rely on the enterprise-level data for 1992-96 Price Co-movement since Liberalization in Poland's Hog and Pork and case studies and quarterly financial statements for Sector. World Bank Discussion Paper. Washington, DC. (Also the 71 enterprises in the Bulgarian surveillance program published in Polish.) and the 147 enterprises in the Romanian program. 132 Transition Economies Responsibility: Europe and Central Asia, and Middle * To what extent do successful workout (or concilia- East and North Africa Technical Department, Private tion) agreements explicitly provide for new investments, Sector Development and Finance Group-Simeon asset sales, conversion of debt to equity, ownership stakes Djankov (sdjankov@worldbank.org) and Patrick Tardy; for management or labor, wage concessions, or changes Europe and Central Asia, Country Department I, Office in financial performance? How do an enterprise's of the Director-Frank Lysy; East Asia and Pacific, Office characteristics (size, asset composition, current prof- of the Vice President-Stijn Claessens; and Private Sector itability, debt ownership structure) affect the contents of Development Department, Private Sector Development its conciliation agreement? Are the agreements being and Privatization Group-Sudhee SenGupta. With implemented? Fabrizio Coricelli, University of Sienna, Italy; Enrico * Under what circumstances do creditors push for liq- Perrotti, University of Amsterdam; Chonira Aturupane, uidation or bankruptcy? Are creditors' interests suffi- Stanford University; and Kosali Ilayperuma, University ciently protected in liquidation and bankruptcy? of Maryland. * What impact does the program have on the hard- Completion date: June 1998. ness of the budget constraint and the subsequent per- formance of participating firms? On the extent of asset reallocation and privatization in the economy? Bank-Led Restructuring of Problem To address these questions, the study undertook a Enterprises in Poland detailed survey of the characteristics of firms and the out- comes of the process in a sample of 139 firms subject to In 1993 Poland embarked on an innovative program to the program. The sample was stratified to include a sig- restructure its state-owned enterprises-the Enterprise nificant number in each of the five categories of outcomes and Bank Restructuring Program. The goals of the pro- and to ensure representation from each region of the coun- gramwere to separate unprofitable butviable state-owned try. The questionnaire used in the survey contained firms from their nonviable counterparts, liquidate non- detailed questions on the firms' financial and operational viable firms while minimizing the inappropriate liqui- performance from 1991 through 1994 and the character- dation of viable firms, and promote the speedy istics of relevant processes under the program. restructuring and privatization of potentially viable firms. Analysis of the bank conciliation process and its out- The program forced commercial banks to address prob- comes through mid-1995 and of the other resolution paths lem loans on their books at the end of 1991 through one (court conciliation, bankruptcy, state enterprise liquida- of five routes: a nonjudicial bank-led workout with the tion, repayment, and sale of debt) found that the debtor (under a new conciliation process), a judicial work- Enterprise and Bank Restructuring Program was an out, filing for bankruptcy of the debtor, filing for liqui- important catalyst in getting banks and enterprises to dation of the debtor under the state enterprise law, or sale tackle their bad debt problems. It also found that the pro- of the problem loan on the secondary market. gram operated according to legal requirements. The pro- The objective of this research was to evaluate the impact gram appears to have been generally able to push better of the program on enterprise restructuring and exit. The firms into restructuring paths and worse firms into liq- research emphasized the links between expected changes uidation paths. in creditor behavior (brought about by other aspects of But each resolution path operated with serious short- the program, primarily bank restructuring and privati- comings. Although it is perhaps still too early to judge zation) and enterprise performance. It was part of a larger results, the bank conciliation process appears to have comparative study on modes of restructuring and exit led to little restructuring in firms subject to it. The bank- of financially distressed state-owned firms in several tran- ruptcy and state enterprise liquidation processes are sition economies. poorly designed and give creditors and trustees little The study addressed the following question: To what power or incentive to use them properly. Court concili- extent is the bank-led restructuring component of the ation also is poorly and inflexibly designed, and sales of program leading to appropriate long-term restructur- debt are impeded by tax rules and limits on purchasers' ing of the viable firms and closure of the nonviable firms use of debt. So while the program is a good start, more that are participating in the program? work is needed to redesign the underlying reorganiza- This general question led to several more specific tion and "exit" mechanisms and to strengthen creditors' questions: and debtors' incentives to use them to restructure the * What are the roles and incentives of the stakehold- Polish economy. ers (banks, other creditors, firm managers, owners, the Responsibility: Policy Research Department, Finance state) in the program? and Private Sector Development Division-Cheryl W. 133 Transition Economies Gray (cgray2@worldbank.org). With Arnold Holle, Boston as background for the World Bank's World Development Consulting Group; and Stephan Krajewski, University Report 1996: From Plan to Market (New York: Oxford of Lodz. The Japanese Trust Fund contributed funding University Press, 1996). for the research. Responsibility: Policy Research Department, Public Completion date: December 1996. Economics Division-Martha de Melo (mdemelo Reports: @worldbank.org), and Macroeconomics and Growth Gray, Cheryl, and Arnold Holle. 1996. "Bank-Led Restructuring in Division-Cevdet Denizer; Africa Technical Families, Poland: An Empirical Look at the Bank Conciliation Process." Regional Economics and Social Policy Division-Alan Policy Research Working Paper 1650. World Bank, Policy Gelb; International Finance Corporation-Stoyan Tenef; Research Department, Washington, DC. and Europe and Central Asia, Country Department Ill, . 1996. "Bank-Led Restructuring in Poland: Bankruptcy and Agriculture, Industry, and Finance Division-Karen Its Alternatives." Policy Research Working Paper 1651. World Brooks, and Country Department II, Agriculture and Bank, Policy Research Department, Washington, DC. Regional Development Operations Division-John Nash. . 1996. "Bank-Led Restructuring in Poland: The Conciliation Completion date: December 1996. Process in Action." Economics of Transition 4(2):349-70. Reports: . 1997. "Bank-Led Restructuring in Poland ll: Bankruptcy and Brooks, Karen, and John Nash. Forthcoming. "Agriculture in Its Alternatives." Economics of Transition 5(1):25-44. Transitional Economies." In Bruce L. Gardner and Gordon C. Rausser, eds., Handbook of Agricultural Economics. Amsterdam: North-Holland. A Comparative Overview of Transition Caprio, Gerard. 1995. "The Role of Financial Intermediaries in Transitional Economies." Carnegie-Rochester Conference on Public This project undertook a broad overview of the post- Policy 42:257-302. socialist transition in the countries of Eastern Europe and Commander, Simon, and Mark Schankerman. 1996. "Enterprise the former Soviet Union, focusing on the institutional, Restructuring and the Efficient Provision of Social Benefits." In sectoral, and microeconomic adjustments at the core of D. Lippoldt, ed., The Changing Social Benefits in Russian Enterprises. the transition process. It also touched on the experience Paris: Organization for Economic Cooperation and Development. in East Asia, especially in China and Vietnam. As coun- (Also published in Russian.) tries pursued very different approaches to reform, there . Forthcoming. "Enterprise Restructuring and Social Benefits." was an increasing need for comparative analysis of coun- In Economics of Transition, vol. 1. London: European Bank for try experience, in particular to assess the progress of the Reconstruction and Development. more advanced reformers and to extract lessons of expe- de Melo, Martha. 1996. "From Plan to Market: Paradoxes of rience (both positive and negative) for other countries, Transition." Banka (Zagreb, Croatia). some of which were lagging in their reforms and in sta- de Melo, Martha, Cevdet Denizer, and Alan Gelb. 1996. "Patterns bilization. In some areas, such as energy, the issues require of Transition from Plan to Market." World Bank Economic Review a multicountry perspective because adjustment involves 10(3). interdependence among countries. . Forthcoming. "From Plan to Market: Patterns of Transition." Many questions were addressed, including, What was In Mario Blejer and MarkoSkreb, eds., Macroeconomic Stabilization the legacy of the previous system? What have been the and Transition Economies. Cambridge: Cambridge University main adjustment issues? What reform strategies have Press. been followed in the leading countries, and how have de Melo, Martha, Cevdet Denizer, Alan Gelb, and Stoyan they affected the behavior and performance of firms? Tenev. "Explaining Transition: The Role of Initial Conditions." What major policy lessons have emerged from experi- World Bank, Policy Research Department, Washington, ence to date? How do sectoral or market reforms inter- DC. act with one another and with macroeconomic de Melo, Martha, and Alan Gelb. 1996. "A Comparative Analysis performance? Where are the major unknowns? Where of 28 Transition Economies in Europe and Asia." Post-Soviet are there still important areas of policy disagreement? Geography and Economics 37(5). The studies completed under this project include an - Forthcoming. "Transition to Date: A Comparative overview of the patterns of transition; a study on the Overview." In Salvatore Zecchini, ed., Lessons from the Economic role of initial conditions; and papers on agriculture, Transition. Boston: Kluwer Academic Publishers. (Also to be pub- finance, energy, the role of markets, international trade lished in Hungarian.) and finance, the transition toward private ownership, Gray, Cheryl. 1996. "In Search of Owners: Privatization and changing social benefits in Russian enterprises, and the Corporate Governance in Transition Economies." World Bank impact of transition on households. These studies served Research Observer 11(2):179-97. 134 Transition Economies Gray, Dale. 1995. Reforming the Energy Sector in Transition Economies: veys, and macroeconomic wage and income data). The Selected Experience and Lessons. World Bank Discussion Paper changes vary among the countries, but in all but one or 296. Washington, DC. two of them real per capita incomes and expenditures Ickes, Barry, and Randi Ryterman. "The Organization of Markets are still below the pretransition levels. Expenditure data and Its Role in Macroeconomic Stabilization during Transition." generally show smaller real decreases than do real income World Bank, Policy Research Department, Washington, data, but the direction of change is the same in nearly all DC. measures, whether of real income or consumption. Kaminski, Bartlomiej. 1996. "Factors Affecting Trade Reorientation Third, the study looked at what happened to inequal- of the Newly Independent States." In Bartlomiej Kaminski, ed., ity, again using income and expenditure data. It found Economic Transition in Russia and the New States of Eurasia. Armonk, that inequality has increased in nearly all the countries, N.Y.: M.E. Sharpe. but much less so in Central Europe than in the former Kaminski, Bartlomiej, and Zhen Kun Wang. Forthcoming. "External Soviet republics, particularly Russia. Fourth, the study Finance, Policy Conditionalities, and Transition from Central analyzed the real income and inequality effects on poverty, Planning." in K. Dawisha, ed., The International Dimension ofPost- finding that lower real incomes (or expenditures) and Communist Transitions in Russia and the New States of Eurasia. higher inequality have both contributed to increased Armonk, N.Y.: M.E. Sharpe. poverty. But their effect has varied over time. Early in the Kaminski, Bartlomiej, Zhen Kun Wang, and L. Alan Winters. 1995. transition poverty was driven by the decline in real "Ze Wschodu na Zachhod: ReorientacJa Handlu Zagranicznego" incomes. More recently the balance has shifted, as the (From East to West: Reorientation of Foreign Trade). Nowa Europa decline in incomes has subsided or been reversed. And (Warsaw; December). now it is uneven incomes that are still driving poverty . 1996. "Export Performance in TransitionEconomies." Economic up in most countries. But in several countries (including Policy: A European Forum (London; October). the Czech Republic and Poland), where real incomes have . 1996. Foreign Trade in the Transition: The International registered improvement for a few consecutive years, Environment and Domestic Policy. Studies of Economies in poverty has stabilized or even started to decline. Transformation 20. Washington, DC: World Bank. Finally, the study addressed a number of social pol- Milanovic, Branko. 1996. "Poverty and Inequality in Transition icy issues, such as the type of social assistance system Economies: What Has Actually Happened." In Bartlomiej transition economies might adopt, the role of a guaran- Kaminski, ed., Economic Transition in Russia and the New States teed minimum income, and pension reform and the of Eurasia. Armonk, N.Y.: M.E. Sharpe. informal sector. Responsibility: Policy Research Department, Poverty and Human Resources Division-Branko Milanovic Welfare during the Process of Transition (bmilanovic@worldbank.org) and Yvonne Ying. With Carlos Cavalcanti; Nadia Soboleva; Victor Gabor; Luisa Poverty has increased in Eastern Europe and in the for- Ferreira; Izabela Rutkowska; Carol Graham, Brookings mer Soviet republics as incomes have declined and income Institution; Alistair McAuley, Essex University, United distribution has become more unequal. Because of the Kingdom; and Nanak Kakwani, University of New South general slide in incomes, large portions of the popula- Wales, Australia. tion, including the middle class, have become poor. The Completion date: June 1997. new poor include not only unemployed urban workers Reports: but also many employed but underpaid skilled work- Cavalcanti, Carlos. 1993. "Bridging the Poverty Gap in the Former ers, pensioners, single parents, education and health per- Soviet Union." Research Paper Series 4. World Bank, Policy sonnel, and administrative staff in enterprises and in Research Department, Washington, DC. government. This is not the residual poverty found in Ferreira, Luisa. 1994. "Poverty and Inequality during Structural many other countries. Adjustment in Rural Tanzania." Research Paper Series 8. World This research project, which covers 18 transition Bank, Policy Research Department, Washington, DC. economies, is the first comprehensive, cross-country study Graham, Carol. 1993. "The Political Economy of Safety Nets dur- of what has happened to real income, inequality, and ing Market Transitions: The Case of Poland." Research Paper poverty during the transition. The project was organized Series 3. World Bank, Policy Research Department, Washington, in five parts. First, it produced a brief overview of the DC. (Also published in Carol Graham, Democracy, Markets, and social policy, income, inequality, and poverty at the end the Poor: New Coalitions for Economic Reform, Washington, DC: of the socialist period. Second, it estimated changes in Brookings Institution, 1994.) the population's real income and expenditures using dif- Kakwani, Nanak. 1994. "Income Inequality, Welfare, and Poverty ferent measures (including GDP, household budget sur- in Ukraine." Research Paper Series 7. World Bank, Policy Research 135 Transition Economies Department, Washington, DC. (Alsopublished as PolicyResearch of adjustment patterns in Azerbaijan and Central Asia Working Paper 1411, World Bank, Policy Research Department, discussed the achievements and failures of countries in Washington, DC, 1995.) that part of the world and showed that these countries McAuley, Alistair. 1994. "Social Welfare in Transition: What were generally slower in implementing reforms than were Happened in Russia." Research Paper Series 6. World Bank, Eastern European countries. Another study investigated Policy Research Department, Washington, DC. the economic growth prospects for 26 transition Milanovic, Branko. 1992. "Income Distribution in Late Socialism: economies and estimated each country's steady-state Poland, Hungary, Czechoslovakia, Yugoslavia, and Bulgaria growth rate. Compared." Research Paper Series 1. World Bank, Policy Most of the studies constructed a conceptual frame- Research Department, Washington, DC. (Revised version, "Cash work for analyzing the issues they addressed, then tested Social Transfers, Direct Taxes, and Income Distribution in Late the hypotheses implied by these frameworks using econo- Socialism," published in Journal of Comparative Economics metric methods. The main data sources were national [April]:175-79, 1994.) publications of transition economies, the International . 1993. "Determinants of Cross-Country Income Inequality: Monetary Fund, and the World Bank. An 'Augmented' Kuznets Hypothesis." Research Paper Series Some of the papers produced by the project were back- 5. World Bank, Policy Research Department, Washington, DC. ground papers for the World Bank's World Development (Also published as Policy Research Working Paper 1246, World Report 1996: From Plan to Market (New York: Oxford Bank, Policy Research Department, Washington, DC, 1994.) University Press, 1996). Papers have also influenced Bank . 1993. "The Social Costs of Transition to Capitalism: Poland lending programs in Europe and Central Asia, mainly 1990-91." Research Paper Series 2. World Bank, Policy Research adjustment operations. Department, Washington, DC. (Also published as Policy Research Responsibility: Policy Research Department, Macro- Working Paper 1165, World Bank, Policy Research Department, economics and Growth Division-Cevdet Denizer Washington, DC, 1993.) (cdenizer@worldbank.org), and Public Economics . 1995. "Poverty, Inequality, and Social Policy in Transition Division-Martha de Melo. With Marek Dabrowski, Economies." Research Paper Series 9. World Bank, Policy Center for Social and Economic Research, Poland. Research Department, Washington, DC. (Also published as Policy Completion date: July 1997. Research Working Paper 1530, World Bank, Policy Research Reports: Department, Washington, DC, 1995.) Dabrowski, Marek. 1996. "Different Strategies of Transition to a . 1996. "Income, Inequality, and Poverty during the Transition." Market Economy: How Do They Work in Practice?" Policy Research Paper Series 11. World Bank, Policy Research Research Working Paper 1579. World Bank, Policy Research Department, Washington, DC. Department, Washington, DC. . Forthcoming. Income, Inequality, and Poverty during the deMelo, Martha. 1996. "Monetary Developments during Transition." Transition. Washington, DC: World Bank. Paper presented at the Second Dubrovnik Conference, Croatia, Ying, Yvonne. 1996. "Income, Poverty, and Inequality in China June. during the Transition to a Market Economy." Research Paper de Melo, Martha, and Cevdet Denizer. 1997. "Monetary Policy Series 10. World Bank, Policy Research Department, Washington, during Transition: An Overview." Policy Research Working Paper DC. 1706. World Bank, Policy Research Department, Washington, DC. Denizer, Cevdet. 1995. "Reforms and Comparative Economic Progress in Transition Performance in Azerbaijan and Central Asia." Paper presented at a conference, University of Utah, March. This project complements a related one (A Comparative . "Stabilization and Adjustment and Growth Prospects in Overview of Transition), providing a more focused analy- Transition Economies." Paper presented at a conference on tran- sis of issues relating to the transition process or coun- sition economies, Bilkent University, Ankara, Turkey. tries in transition. The project consists of several studies. A study of monetary policy issues during transition reported on the progress of transition economies in switch- Reform along the Volga ing to indirect monetary policy instruments and analyzed how such change has affected monetary policy effec- The purpose of this project is to document and analyze tiveness, especially with regard to inflation. Another study the experience with reform at the grassroots level in reviewed the experience of a group of transition Russia. Understanding the nature and diversity of this economies and the transition strategies they adopted, experience is important for understanding the impedi- showing how the strategies worked in practice. A review ments to growth and poverty reduction-and the poli- 136 Transition Economies cies and programs that mightbe most effective in achiev- domestic and international prices and markets and is thus ing these goals. The study will also examine the rela- a key determinant of the pace and scope of the struc- tionship between regional and local governments-a tural change necessitated by the transition. relationship with increasing importance as efforts are The main output of this project in 1996 was a report made to reach an agreement on the revenue, expendi- summarizing trade performance and the experience with ture, and regulatory responsibilities to be assigned to dif- trade policy reform in the countries of the former Soviet ferent levels of government." Union. The report, based on eight country studies and The nine cities included in the study are Astrakhan, other analyses, recommends strategies for increasing their Cheboksary, Kazan, Nizhny Novgorod, Samara, Sarotov, integration with the international economy-strategies Ulyanovsk, Volgograd, and Yaroslavl. They lie along the that entail actions by the countries as well as by their Volga River, in the heartland of Russia, and span 3 of main trading partners, the OECD countries. Russia's 11 regions. Each city is the capital of one of The report concluded that ineffective trade and pay- Russia's 89 federation subjects (oblasts and the like) and ment policies in the countries of the former Soviet Union has a population between 0.5 million and 1.5 million. have been at the root of the decline in their trade, which In this first phase the project is developing case has been linked to the contraction in output. Their heavy studies of each of the cities and a database with compa- economic interdependence has intensified the problem. rable indicators across the nine cities and their sur- Countries that have reformed slowly have often main- rounding oblasts. These data will be used to construct tained that their strategy will reduce the high cost of tran- indicators of initial conditions, political developments, sition. But the slow adjustment strategy typically has and reform, and the study will try to use these indica- backfired-those that have reformed the fastest have also tors to explain reform and to identify policy levers that arrested their output decline the fastest. may be effective in achieving the goals of growth and In fiscal 1997 the main output was a paper on cus- poverty reduction. toms unions in the Commonwealth of Independent States The work to develop an information base for the sur- (CIS). A number of the states in the CIS are considering rounding oblast of each city draws on secondary data implementing a customs union. The analysis shows that, from a variety of sources. Russian researchers are devel- although preferential trade areas in the CIS may have oping indicators of initial conditions, political develop- served a useful purpose in the pastas a transitional device, ments, and reform at the municipal level, where little the time for customs unions and free trade areas in the information is readily available outside Moscow and St. CIS is over. Integrating with the world economy should Petersburg. be the highest priority now, and customs unions will Responsibility: Policy Research Department, Public retard that integration. Economics Division-Martha de Melo (mdemelo Also in fiscal l997workwas done on the issue of acces- @worldbank.org). With Michael Haney; Giir Ofer, Hebrew sion to the World Trade Organization (WTO) by the tran- University; Maxim Ivanov, Nataliya Volchkova, Elena sition economies. This work emphasized that WTO Lukoyanovo, Anna Dodonova, Yuri Khorozhilov, Nina accession provides a unique opportunity for the acced- Parphinnko, Gauhar Turmuhambetova, Yuri Andrienko, ing country to "lock in" a trade policy that is beneficial and Alexander Piskunov, New Economics School, to that country, providing it adopts a less than minimal- Moscow; and the New Economics School. ist approach in its accession offer. Completion date: June 1998. The findings and recommendations of the country studies have been communicated to the governments in the context of policy dialogue with the Bank on interna- Trade Policy in Transition Economies tional trade reform, supported in many cases by Bank lending. The customs union paper has been discussed Integration with the international economy is an essen- with and distributed to representatives of a number of tial element of the transition from central planning to a transition economies that have requested advice on the market system. Price distortions, so common under cen- subject. And the analysis of issues relating to accession tral planning, could be maintained only through formi- to the WTO was presented at two three-day conferences dable trade and foreign exchange controls that divorced in Vienna, Austria (January 30-February 5, 1997), held the domestic from the international market. Dismantling by the Economic Development Institute for 18 of the tran- these barriers promotes efficient domestic resource allo- sition economies of Central and Eastern Europe and the cation. International prices pose a competitive challenge former Soviet Union. to domestic producers and signal needed structural Responsibility: International Economics Department, changes. Trade policy reform allows the link between International Trade Division-David Tarr (dtarr 137 Transition Economies @worldbank.org) and Bernard Hoekman; and Europe economies-rule obedience and social trust. Rule obe- and Central Asia, Country Department III, Office of the dience measures the tendency of people to comply with Director-Constantine Michalopoulos. society's formal rules and use its formal institutions. Social Completion date: June 1998. trust refers to expectations of honest and cooperative Reports: behavior by others in the community, expectations based Michalopoulos, Constantine, and David Tarr. 1996. Trade Performance on commonly shared norms. The most useful kind of and Policy in the New Independent States. Directions in Development trust is often not the ability to work under formal author- Series. Washington, DC: World Bank. (Also published in ity, but the capacity to form new associations and to co- Russian.) operate within the terms of reference they establish. Thus .1997. "Customs Unions inthe Commonwealth of Independent rule obedience can be usefully thought of as the will- States." Post-Soviet Geography and Economics. (Also published as ingness of individuals to accept institutions created from Policy Research Working Paper 1786. World Bank, Europe and the top down, while trust can be thought of as contributing Central Asia, Country Department IlI, and International to the ability of individuals to create institutions from the Economics Department, Washington, DC. bottom up. In the context of transition, then, social cap- ital can work to solve problems inherent in restructur- ing by facilitating institution building, both from above Social Capital in Transition and from below. This project aims to identify the role of social capital The cornerstone of the transformation of formerly social- in the creation and functioning of institutions to solve ist economies into market economies is the creation of a problems of contract enforcement in Mongolia. This tran- class of entrepreneurs who are willing to use markets and sition economy is a fitting subject for research on social market institutions to support their transactions. These capital because it is in many respects a traditional soci- entrepreneurs must guide their firms through a process ety in which social arrangements can be expected to of restructuring, a process in which relationships formed play an important economic role. But it is also a country under socialism must change to meet the demands of the aggressively pursuing economic reform and thus one in market. The ability of entrepreneurs to effect such changes which firms are seeking ways to ease transactions with is inextricably linked to the composition of social capi- new trading partners. This suggests that Mongolian firms tal in the economy. might have discovered innovative ways to use social cap- Social capital consists of shared values and rules for ital to solve problems of contract enforcement. social conduct, which enable a society to solve problems The analysis will be based on a survey of 250 firms in of collective action and to find cooperative solutions to the three largest cities in Mongolia-Ulaanbaatar, Darhan, difficult social and economic problems. Little is known and Erdenet-as well as in surrounding towns and vil- about the creation of social capital, although it is believed lages for contrast. to require habituation to the moral norms of society and Responsibility: Policy Research Department, Finance to be transmitted by cultural mechanisms such as reli- and Private Sector Development Division-Randi gion, tradition, or historical habit. Ryterman (rryterman@worldbank.org). With Peter Two distinct and somewhat complementary aspects Murrell, University of Maryland. of social capital are especially relevant in transition Completion date: June 1999. 138 PRIVATE SECTOR DEVELOPMENT AND PUBLIC SECTOR MANAGEMENT The Policy Effects of Political and Electoral University; John Carey and Lisa Baldez, Washington Institutions in Developing Countries University, St. Louis; Greg Noble, University of California at Berkeley; and Tun-Jen Cheng. Ref. no. 680-41C Completion date: June 1997. Even when optimal economic policies are known, Report: governments often do not adopt them. What part might Haggard, Stephan, and Mathew McCubbins, eds. Forthcoming. institutions play in this? This research project explored Political Institutions and the Determinants of Public Policy: When some of the political and electoral institutions that Do Institutions Matter? shape government policy responses and affect their credibility. The project first synthesized the policy effects of a Cross-Country Indicators broad range of political and electoral institutions, tak- of Institutional Uncertainty ing into account for the first time the interactions among these institutions in generating policy outcomes. It then Ref. no, 680-51 examined the influence of electoral and political institu- The original aim of this project was to develop and test, tions on electric utility rates and regulatory structures in on a small scale, a method for conducting cross-country Argentina, Chile, and Taiwan (China), on budgetary out- surveys of the institutional framework in developing comes in Argentina, Chile, Mexico, and Taiwan (China), countries as perceived by private entrepreneurs. An and on the pace and modalities of state enterprise reform opportunity to implement the method on a large scale in the Czech Republic and Poland. has reversed the sequence: to provide background infor- The research found that the following institutional mation for the World Bank's World Development Report factors have an important effect on policy outcomes 1997: The State in a Changing World (New York: Oxford in the areas analyzed: the president's ability to control University Press, 1997), the project used a shorter ver- the agenda for policy initiatives, the possibility of sion of the questionnaire it has developed for a survey reversion in policy if no decision is reached, the extent in a large number of countries to get comparable results to which electoral rules lead to governments with on institutional climate. Detailed analysis of the result- divided authority, and the resource demands placed on ing data set-drawn from more than 3,600 questionnaires political competitors by the electoral system. The study from 69 countries-was the main focus of the project's provides advice on how to adapt policy recommenda- work in fiscal 1997. tions in these areas to the institutional framework of a The original aim of the project has notbeen abandoned. country, and, more generally, it provides a framework One survey method-a mailed survey of private firms for analyzing the constraints imposed by institutions on in developing countries-has been applied. The project policy reform. will also experiment with a promising and lower-cost The project used a case study approach, taking advan- alternative that takes advantage of the comparative expe- tage of the considerable variation in both institutions and rience of executives in multinational firms. To test this policies across the countries considered. The case stud- method, executives will be asked to rank countries in ies also benefited from some time-series variation within which they operate with respect to the major categories the sample of countries. of institutional uncertainty compiled for the World Results have been disseminated through a talk at the Development Report survey. These rankings will then be Bank. A small conference or workshop to disseminate the compared with those obtained from that survey. The results is also possible. project will also attempt to broaden the geographic Responsibility: Policy Research Department, Finance coverage. and Private Sector Development Division-Philip Keefer Responsibility: International Finance Corporation, (pkeefer@worldbank.org) and Mary Shirley. With Mathew Economics Department-Guy P. Pfeffermann McCubbins, Stephan Haggard, Matthew Shugart, and (gpfeffermann@worldbank.org). WithAymo Brunetti and Gary Cox, University of California at San Diego; William Beatrice Weder, University of Basel. Heller, Stanford University; Mark Jones, Michigan State Completion date: December 1997. 139 Private Sector Development and Public Sector Management Reports: issues through collaboration with sector and project activ- Brunetti, Aymo, Gregory Kisunko, and Beatrice Weder. 1997. ities. By subcontracting research activities to local con- "Credibility of Rules and Economic Growth: Evidence from a sultants, the project also is expected to build capacity in Worldwide Survey of the Private Sector." Policy Research client countries to address regulatory issues. Working Paper 1760. World Bank, Office of the Senior Vice Results from both the pilot project and this project President, Development Economics and Chief Economist, are being disseminated through participation in opera- Washington, DC. tional missions (the work made an important contribu- . 1997. "Institutional Obstacles to Doing Business: Region- tion to the design of an agricultural sector adjustment by-Region Results from a Worldwide Survey of the Private program in Romania) and through workshops at head- Sector." Policy Research WorkingPaper 1759. World Bank, Office quarters and in the field. of the Senior Vice President, Development Economics and Chief Responsibility: Europe and Central Asia, Country Economist, Washington, DC. Department II, Agriculture and Regional Development Operations Division-John Nash (jnashl@worldbank. org). With David Gisselquist; Carl Pray, Rutgers Regulating Technology Transfer University; Rashid Harun-Ar; and Joseph Rusike. The in Agriculture: Impact on Technical International Crops Research Institute for the Semi-Arid Change, Productivity, and Incomes Tropics (ICRISAT) is participating in the research. Completion date: December 1997. Ref. no. 680-61 Reports: This research continues work, begun in a pilot project, Gisselquist, David. 1996. "AStrategy for ModernizingAgricultural on regulatory barriers thatblock private technology trans- Technology in Ghana." Paper presented at the World Bank and fer in agriculture. The pilot research developed a method- Ghana Ministry of Food and Agriculture seminar Agricultural ology to estimate the effect of regulatory reforms for Inputs, Regulations, and Technology Transfer, Ghana, February. countries that have reformed and to project the effect of . 1997. "Constraints to Seed Multiplication and Distribution proposed regulatory reforms for countries that have not through Alternative Seed Systems." Paper presented at the con- yet reformed. Using this method, it studied the impact ference Seed Policy in Southern Africa, Harare, Zimbabwe, of Turkey's regulatory reforms in the 1980s, testing and March. confirming the hypothesis that removing barriers to pri- . 1997. "Technology Transfer, Competition, and Trade vate technology transfer accelerates technical change, LiberalizationforLow-RiskPestManagement."TradeExpansion boosting productivity and incomes. Program Occasional Paper. UNDP-World Bank Trade Expansion The results from Turkey are interesting and sugges- Program, Washington, DC. tive, but they cannot be convincingly applied to all devel- . "Toward a Competitive and Modern Seed Industry for oping countries. This research further tests the hypothesis Farmers in Southern Africa." World Bank, Southern Africa by investigating the effect of regulatory reforms in Department, Washington, DC. Bangladesh and India since the late 1980s and more Gisselquist, David, and CarlPray "DeregulatingTechnology Transfer recently in Zimbabwe. It has collected and is now ana- in Agriculture: Impact of Turkey's 1980s Reforms." lyzing information on the transfer of seed varieties, espe- Gisselquist, David, and Jitendra Srivastava, eds. Forthcoming. Easing cially through private seed companies, to support Barriers to Movement ofPlant VarietiesforAg?icultural Development. projections about the effect of regulatory reform on crop World Bank Discussion Paper. Washington, DC. yields. Drawing on country studies and other sources, . "Reform of Seed Regulations: Easing Barriers to Better Seed the study will propose and discuss options for regula- Variety." Agriculture Technology Note 12. World Bank, tory reforms that remove obstacles to private technology Agriculture and Natural Resources Department, Washington, transfer while strengthening policies and programs that DC. limit externalities. Further confirmation of the hypothe- sis that removing regulatory barriers blocking private technology transfer in agriculture boosts productivity Efficiency and Equity Implications would suggest a need to focus more attention on reform of Argentina's Privatization of Utilities of such regulations. The project's research activities have been designed Ref no. 680-65C on the basis of discussions with Bank operational staff. Initiated in 1989, Argentina's privatization program has The project is expected to help improve Bank agricultural been impressive in both speed and coverage. The pro- policy advice in general and for specific countries and gram has been intensively analyzed in the economics to build capacity within the Bank to address regulatory literature from two basic perspectives: the macroeco- 140 Private Sector Development and Public Sector Management nomics-how it affected the public sector's financial posi- Brazil (November 1996,20 participants), and at the Inter- tion and the current account-and the process-how pri- American Development Bank (June 1997,38 participants). vatization was implemented. The literature has also Responsibility: Economic Development Institute, assessed its impact on efficiency, but only in terms of Regulatory Reform and Private Enterprise Division- some general technical indicators. No study has addressed Antonio Estache (aestache@worldbank.org). With Omar the effects of the reform on other sectors and factor mar- Chisari and Carlos Romero, Universidad Argentina de kets and on income distribution. la Empresa. This research looked at these neglected issues, through Completion date: November 1996. simulations of a computable general equilibrium model Reports: capturing the full effect of relative changes in goods and Chisari, Omar, Antonio Estache, and CarlosRomero. 1997. "Winners factor prices on resource allocation and welfare. The model and Losers from Utility Privatization in Argentina: Lessons from is based on a social accounting matrix prepared in 1993, a General Equilibrium Model." Policy Research Working Paper the first year in which the new prices had stabilized. 1824. World Bank, Economic Development Institute, Washington, The model includes five income brackets, 21 produc- DC. tion sectors, the government, and a foreign sector. The Chisari, Omar, and Carlos Romero. 1997. "Descripci6n de la SAM social accounting matrix divides utilities into several cat- de la Argentina en 1993 con Sectores de Infraestructura." World egories: gas, power, telecommunications, and water and Bank, Latin America and the Caribbean, Country Department sanitation. The separation of these sectors is an innova- I, Washington, DC. tion in Argentina, made possible because the new regu- latory agencies generate most of the necessary information for each sector. The study complemented this informa- African Politics and African Development tion through private surveys used to estimate the decom- position of each sector's costs into their components. Ref. no. 680-86 Another contribution of the research was its explicit mod- This research is developing a database to analyze how eling of the effect of regulatory policies on the prices of African political systems have been changing in order each utility service. to investigate how politics might influence Africa's pol- The simulation results suggest three main lessons: icy choices. These data will enable the study to address * When regulators are effective, operational gains (in such crucial questions as these: efficiency, productivity, quality, and tariff cuts) clearly * Do different forms of government lead to different benefit all sectors (except agriculture, forestry, and fish- rates of investment and growth? For example, are mili- eries) and all income classes-and the poorest tend to tary governments less likely than single-party regimes gain relatively more than other income groups. The gains to attract capital and growth? Are governments installed add up to about 1.25 percent of GDP a year. by coup less likely to preside over high rates of growth * When regulators are ineffective-that is, when they than governments installed by election? do not ensure that the quasi rent generated by pivatiza- * Do different forms of government choose different tion is redistributed throughout the economy rather than forms of economic policy? For example, are politically retained by the owners of the privatized utilities- open policies more likely tobe economically open as well? more sectors lose, and although all income classes still The research is developing detailed information about gain, they gain less than when regulators are effective. the political systems in 46 African states for 1975, 1980, Thus ineffective regulation reduces the gains from 1991, and 1995. It will discern and describe patterns of privatization. political and economic variation across countries and * The gains that resulted from the macroeconomic over time. It will explore the impact of causal factors on effects of privatizing utilities were not strong enough to the rates and magnitudes of variation, both political and offset the negative efficiency and distributional effects economic. In particular, it will examine the effect of polit- that resulted from the tequila effect. ical differences on variations in economic performance In sum, the simulations suggested high rates of return and the effect of variations in economic performance on for the privatization project, but they also showed a high political change. Among the possible explanatory vari- shadow price for the regulatory activity, which is often ables it will explore are the size of the middle class, dif- neglected in utility privatizations. How serious govern- ferences in measures of instability and violence, and ments are about the fair distribution of gains from reform differences in levels of external dependence (measured is revealed by how serious they are about regulation. by rate of external indebtedness). Once the research has The study's findings have been presented at semi- identified overall patterns, it will collect qualitative infor- nars in Argentina (November 1996, 30 participants), in mation on six cases that provide greater insight into the 141 Private Sector Development and Public Sector Management dynamics of the patterns and illustrate the causal mech- returns on assets, returns on equity, and ratio of market anisms that generated them. to book value. There is a positive and significant corre- The data set and a numerical and graphical depiction lation between ownership concentration and profitabil- of the patterns will be published. There will be a series ity. The effect of ownership concentration is stronger for of working papers and articles exploring the findings and companies dominated by legal person shareholders than the cases and their broader implications for African pol- for those dominated by the state. Firms' profitability is icymakers and Bank staff. positively correlated with the proportion of legal per- This research will provide insights to Bank operational son shares; it is either negatively correlated or uncorre- staff working on Africa thatwill help them to design polit- lated with the proportion of state shares and of tradable ically feasible reforms. A deeper understanding of how A shares, which are held mostly by individuals. Labor politics affects policy and how growth affects politics is productivity tends to decline as the proportion of state useful for assessing the riskiness of projects and putting shares increases. The study's descriptive analysis shows reforms into a broader institutional context. that legal person owners are able to monitor manage- Responsibility: Policy Research Department, Finance ment effectively through their control over the board of and Private Sector Development Division-Mary Shirley directors, the selection of corporate officers, and the com- (mshirley@worldbank.org). With Robert Bates, Harvard pensation of chief corporate officers. University. These findings suggest the importance of large insti- Completion date: June 1998. tutional shareholders in corporate governance and per- formance, the inefficiency of state ownership, and the potential problems of an overly dispersed ownership Ownership Structure, Corporate structure. Comparative studies show that in OECD coun- Governance, and Firms' Performance: tries ownership and control rights are increasingly con- The Case of Chinese Stock Companies centrated in the hands of financial and nonfinancial institutions, a trend apparently driven by the benefits Ref no. 681-08C of ownership concentration as a means of corporate Restructuring state enterprises has been considered key control. to the success of China's economic reform. This study Responsibility: Economic Development Institute, Office investigated whether ownership structure significantly of the Director-Yan Wang (ywang2@worldbank.org). affects the performance of publicly listed companies in With Xiaonian Xu, Amherst College. China and, if so, in what way. Publicly listed stock corn- Completion date: May 1997. panies provide an opportunity to study this issue, because Report: it is possible to quantify the mix and concentration of Xu, Xiaonian, and Yan Wang. 1997. "Ownership Structure, Corporate their ownership. The recent literature on the role of large Governance, and Firms'Performance: The Case of Chinese Stock institutional shareholders in corporate governance pro- Companies." Policy Research Working Paper 1794. World Bank, vides the theoretical foundation of this study. Economic Development Institute, Washington, DC. More than 500 companies were listed on the two national stock exchanges in China at the end of 1996. This study used firm-level data for 1993-95 for more than Bureaucratic Structures and Economic 300 of these companies, drawn from their annual reports Performance in Developing Countries and from a sample survey. A typical listed company in China has a mixed ownership structure, with three pre- Ref. no. 681-16C dominant groups of shareholders-the state, legal per- Lack of institutional capacity is commonly cited as a sons (institutions), and domestic individuals-each principal reason for failure to adequately implement holding about 30 percent of total outstanding shares. economic policies conducive to development. The foun- Employees and foreign investors together hold less than dation of institutional capacity is public administration. 10 percent. Ownership is heavily concentrated: the five Attempts to improve institutional capacity have largest shareholders accounted for an average 58 percent therefore focused on professionalizing the public admin- of outstanding shares in 1995, compared with 58 per- istration. But there has been little evidence on how cent in the Czech Republic, 42 percent in Germany, and professionalization affects policy outcomes or economic 33 percent in Japan. performance more generally. Results from the study's empirical analysis show that This project measured the effect of bureaucratic struc- the mix and concentration of stock ownership signifi- ture on bureaucratic performance and economic growth. cantly affect a company's performance, as measured by It focused on two aspects of bureaucratic structure: the 142 Private Sector Development and Public Sector Management extent of meritocratic recruitment into agencies and the capital-asset ratio, all relative to corporations in other possibility for career building within agencies. Theory developing and ,ndustrial countries. The results will allow suggests that each of these, within certain limits, can characterization of the assets held by corporations in restrain corrupt behavior by public officials and encour- developing countries and the efficiency with which those age them to perform more efficiently. The research found assets are used. In addition, a multivariate analysis relat- that meritocratic recruitment is most important in reduc- ing investment performance to macroeconomic and ing corruption, followed by internal promotion and career microeconomic factors will explore the determinants of stability. These factors are also associated with higher corporate investment activity. rates of economic growth. The research will shed light on the nature and degree The analysis was based on data collected on multiple of competition facing firms in different countries and characteristics of civil service in 35 countries through at show how competition changes over time as a result of least three questionnaires for each country, completed by changes in the environment in which firms operate. The experts on that country. (The data are available from Peter results should help the International Finance Corporation, Evans, Department of Sociology, University of California a source of capital in these countries, to better understand at Berkeley.) the role of different factors in the private sector's ability The research is being disseminated in the Bank to staff to compete internationally. Results will be disseminated involved in public sector management issues. The study's through seminars held in academic and industry settings work in quantifying the impact of common public sec- and through a set of research papers that are expected to tor management reforms should make a significant con- be published and distributed internationally tribution to operations designed to improve public sector Responsibility: International Finance Corporation, management. Economics Department-Jack Glen (jglen@ifc.org). With Responsibility: Policy Research Department, Finance Ajit Singh and Rudolph Matthias, Cambridge University. and Private Sector Development Division-Philip Keefer Completion date: December 1997. (pkeefer@worldbank.org). With Peter B. Evans, University of California at Berkeley; and James E. Rauch, University of California at San Diego. Effectiveness of World Bank Completion date: June 1997. Nonlending Services Reports: Evans, Peter, and James Rauch. "Bureaucracy and Growth: ACross- Ref. no. 681-26 National Analysis of the Effects of 'Weberian' State Structures The increased private capital flows to developing coun- on Economic Growth." tries have led many to suggest that the Bank's compar- Rauch, James E., and Peter B. Evans. "Bureaucratic Structure and ative advantage will shift to nonlending services. Bureaucratic Performance in Less Developed Countries." Empirical evidence on the impact and effectiveness of Talbot, John. "A Description of the 'Weberian State' Comparative nonlending services is thin, however. This project exam- Data Set." ines the effect of nonlending services on the success of Bank lending and investigates whether nonlending ser- vices have an impact on changes in sectoral policies or Investment Performance the efficiency of government spending. in the Corporate Sector To address these issues, the project has constructed a large database from internal Bank sources that includes Ref no. 681-25 staff resources spent on nonlending services (economic Despite the pivotal role that the public sector plays in and sector work) and preparation and supervision of economic development, most observers would agree that lending projects; total loan commitments; project- private investment is a powerful source of economic specific disbursement profiles, dates of initiation, growth. This research will examine the investment activ- approval, effectiveness, and closure; and project evalu- ities and performance of a set of private sector corpora- ation ratings in the Annual Review of Portfolio tions in 10 developing countries. Using an updated Performance and by the Operations Evaluation corporate finance database compiled by the International Department. At the project level the study regresses ordi- Finance Corporation's Economics Department, the study nal or cardinal project success indicators on economic will compare the efficiency with which corporations use and sector work and many other Bank-related and coun- their physical and financial assets by analyzing the try-specific policy factors that might affect project suc- amount of capital used, the size of the operating mar- cess. At the country level the study, focusing on education gins that those assets produce, and the value of the policies, asks whether the Bank has lent more to coun- 143 Private Sector Development and Public Sector Management tries with better policies, thus "rewarding" good poli- Efficacy of Beneficiary Assessment cies; whether economic and sector work or lending, or both, have contributed to desirable policy changes; and Ref no. 681-38C whether economic and sector work has increased the effi- Recognizing the importance of consulting with stake- ciency of a given level of government spending. holders, the World Bank has increasingly used benefi- Results thus far indicate that economic and sector work ciary assessment, an approach entailing systematic has had a significant and positive impact on a number listening to the people affected by development projects of success indicators for Bank projects. Quantitative analy- to identify issues and constraints and obtain feedback. sis shows that the benefits from economic and sector work Has the use of beneficiary assessment had a measurable far outweigh the costs and that projects in countries and impact on Bank-supported project work? This project sectors where more economic and sector work had been investigated whether the value added of the approach performed require significantly fewer resources for prepa- could be measured and, if so, what the results would ration and supervision. show. The project is part of a departmentwide research effort The project combined qualitative and quantitative on aid effectiveness, and results are being disseminated approaches: interviews with a large sample of task man- within this context. Findings were presented at a Bank agers using beneficiary assessment to obtain their workshop in December 1996. The database is already perceptions of its value and before-and-after and com- being used in other activities in the Policy Research parator (with-and-without) regression analyses (data per- Department and by the Operations Evaluation mitting) to obtain more rigorous measures of its impact. Department. In addition to the interviews with task managers, the Responsibility: Policy Research Department, Office of project relied on information from World Bank project the Director-Klaus Deininger (kdeininger@worldbank. documents. org) and Lyn Squire. The research concluded that insufficient data exist Completion date: August 1997. for comparator analysis. But for 10 projects before-and- after data from task managers and project documents did reveal a measurable impact attributable to beneficiary State Action and Private Sector Development assessment. A significant majority (86 percent) of the 41 task managers interviewed stated that the benefi- Ref no. 681-34 ciary assessments for their projects were very cost- The goal of this project is to identify new ways to apply effective; roughly three-quarters stated that they were the new institutional analysis in order to add value to the very satisfied with the overall quality of the beneficiary policy work of the World Bank. The project is exploratory, assessments. eliciting the views of world experts in the field and their These findings show that gaining a more precise and reactions to Bank material. measurable understanding of the impact of consulta- The principal finding relates to the central importance tion on Bank work will require that task managers record of politics in shaping institutions and the difficult challenge the needed data more assiduously. But despite the dearth this poses for Bank staff seeking to provide advice that is of solid data, the overwhelmingly positive response of both welfare-enhancing and institutionally sensitive. task managers to beneficiary assessment suggests that a Some of the core ideas that emerged in this project drive to institutionalize the approach in the Bank merits served as input into the World Bank's World Development consideration. The research should give impetus to the Report 1997: The State in a Changing World (New York: move toward greater client feedback in Bank operations. Oxford University Press, 1997). A written synthesis that Responsibility: Environment Department, Social Policy juxtaposes the perspective of academic institutional ana- and Resettlement Division-Lawrence Salmen (Isalmen lysts with the imperatives of Bank operations is under @worldbank.org). With Seema Tikare, Debu Talukar, and preparation. Judith Tendler, Massachusetts Institute of Technology; Responsibility: Office of the Senior Vice President, Misgana Amelga; Sarah Keener; and Karin Kapadia, Development Economics and Chief Economist-Brian London School of Economics. Levy (blevy@worldbank.org), Sanjay Pradhan, and Alison Completion date: June 1997. Evans. With Ken Shepsle and Robert Bates, Harvard Report: University; Matthew McCubbins, University of California Salmen, Lawrence. 1997. "Toward a Listening Bank: A Review of at San Diego; Pablo Spiller, University of California at Best Practices and the Efficacy of Beneficiary Assessment." Berkeley; and Michael Laver, Trinity College, Dublin. World Bank, Environment Department, Washington, Completion date: December 1997. DC. 244 Private Sector Development and Public Sector Management Science Parks and Firm-Level Indicators of Government Quality Productivity in China as Perceived by the Private Sector Ref. no. 681-43 Ref. no, 681-52C Like many countries, China has established national-level Increasingly it is recognized that the quality of govern- science parks in recent years as part of a strategy to boost ment-credibility and the quality of service delivery- economic and technological development. Its 52 science matters a great deal for a country's economic performance. parks, called new and high-technology development But measuring this quality is difficult. Case studies on zones, are designed to attract foreign direct investment the quality of service delivery have been done, as well and high-technology domestic companies and to create as surveys of multinational corporations on the quality an environment conducive to technological development. of institutional frameworks. But the results do not fully The zones are characterized by dense networks of firms reflect the concerns of local firms and are imperfect mea- with informal channels for exchanging information and sures of the quality of institutions that affect private invest- technology, close ties to research institutions, special tax ment and growth. and trade incentives, and a large pool of scientific per- This study compiled indicators of the quality of sonnel and skilled labor. government in 69 countries through surveys of local How effective are these zones in accelerating firms' businesspeople. Drawing on the survey results, the study technological development and productivity growth? To developed an indicator of government credibility, mea- address this question, this study has developed panel suring such characteristics as corruption, property rights, data for 1992-95 on a sample of firms drawn from all the the reliability of the judiciary, and the predictability of laws zones and on a control group of firms located outside and policies. The study contributed to the development the zones. One line of analysis is comparing the perfor- of indicators of bureaucratic discretion to help in under- mance of these two groups of firms. The control group standing the causes and consequences of corruption. The is far from ideal for such a comparison, because it con- survey also yielded indicators of the quality of service sists of firms that are designated as "high-technology"and delivery (such as roads, ports, and communications). that therefore enjoy the same incentives as firms in the Together, these results provided powerful insights zones, though not the presumed benefits of location in a on the obstacles faced by private business, the impact of zone. While productivity in this control group is higher credibility on private investment and growth, the com- than among firms in the zones, the study has found that ponents of credibility and their policy implications, and rates of total factor productivity growth are faster for the relative efficiency of delivery in different services and firms in the zones than for those outside the zones. regions. The study also provided insights on region- A second line of analysis is comparing the performance specific obstacles to private sector development and of firms across zones and investigating the economic and investment. policy factors that explain differences in performance. The study was carried out to provide empirical analy- The study has found significant differences in firm per- sis for the World Bank's World Development Report 1997: formance across zones, but analyses to explain them are The State in a Changing World (New York: Oxford still at an early stage. University Press, 1997). The study's findings on the differential performance Responsibility: World Development Report Office- of China's development zones and the economic Sanjay Pradhan (spradhan@worldbank.org) and Gregory correlates should provide guidance on policies that gov- Kisunko. With Aymo Brunetti; and Beatrice Weder, ernments can use to enhance technological development University of Basel. and industrial performance-guidance useful not only Completion date: June 1997. for China but also for other developing countries that Reports: have established or are considering establishing science Brunetti, Aymo, Gregory Kisunko, and Beatrice Weder. 1997. parks. "Credibility of Rules and Economic Growth: Evidence from a Responsibility: Private Sector Development Department Worldwide Survey of the Private Sector." Policy Research -Hong Tan (htan@worldbank.org) and Xiaomin Chen. Working Paper 1760. World Bank, Office of the Senior Vice With Lan Xue, George Washington University; and Chen President, Development Economics and Chief Economist, Zhao-Ying, National Research Center for Science and Washington, DC. Technology for Development, Beijing. The research is . 1997. "Institutional Obstacles to Doing Business." Policy being conducted jointly with China's National Research Research Working Paper 1759. World Bank, Office of the Senior Center for Science and Technology for Development. Vice President, Development Economics and Chief Economist, Completion date: March 1998. Washington, DC. 145 Private Sector Development and Public Sector Management - 1997. "Institutions in Transition: Reliability of Rules and icy alternatives in privatizing infrastructure and the insti- Economic Performance in Former Socialist Countries." Policy tutional environment in which these alternatives exist. Research Working Paper 1809. World Bank, Office of the Senior This project, in line with the recommendations of the Vice President, Development Economics and Chief Economist, Bank's World Development Report 1994: Infrastructure for Washington, DC. Development (New York: Oxford University Press, 1994), will develop a database of variables crucial to the under- standing of experience in infrastructure privatization, Decentralization and Participatory enabling policymakers and Bank staff to learn from the Planning in Bolivia successes and failures of infrastructure reform. The accel- eration in infrastructure privatization and the rapid dis- Ref. no. 681-62 appearance from the Bank's shelves and institutional Proponents of decentralization argue that it can over- memory of much of the information on utilities' perfor- come the problems of poor information and skewed incen- mance as these entities are privatized make the need for tives that undermine public spending decisions because this effort especially pressing. it makes decisionmakers more accountable to the gov- The data to be collected will include information on erned. While the theoretical basis of this argument is clear, performance before and after sale, the terms and condi- empirical studies of the effects of decentralization are still tions of the privatization transaction, and details on the few innumber, and general patterns have notyet emerged. regulatory framework. The database will cover sales in This study examines the effects of decentralization in electricity, telecommunications, and, resources permit- Bolivia, which has gone from highly centralized to highly ting, gas. This database will fill important gaps in the decentralized provision of public services. Reforms in Bank's institutional memory and allow staff preparing 1994 doubled the share of national tax revenues going to and supervising infrastructure projects to quickly com- municipalities, transferred to municipalities title to and pare performance measures and regulatory frameworks responsibility for local infrastructure, and set up grass- with those for successful and unsuccessful privatized roots committees to oversee municipal spending. Before firms. Subsequent analysis using the data will develop the reforms citizens had an opportunity to help decide detailed guidelines on what worked and what failed in investment priorities for each municipality through privatizing infrastructure. provincial-level "town meetings." Responsibility: Policy Research Department, Finance The study addresses such questions as these: Is decen- and Private Sector Development Division-Mary Shirley tralization improving allocative efficiency-that is, are (mshirley@worldbank.org) and Luke Haggarty. With citizens getting what they want? How do the stated needs Roger Noll, Stanford University. of citizens compare with the "objective" needs (assumed Completion date: September 1999. to be primary education and health care and infrastruc- ture)? Is service provision more cost-effective after decen- tralization? The research also examines decentralization Managing Micro and Macro Risks more closely through case studies of up to 10 munici- for Private Participation in Infrastructure palities, evaluating how democratic and representative local goverment is. Ref no. 681-81 The study is now collecting data for the analysis, from Recognizing the importance of infrastructure for eco- national sources. nomic development and the constraints on public pro- Responsibility: Policy Research Department, Public vision, many governments are trying to attract private Economics Division-Gunnar Eskeland (geskeland participation in infrastructure sectors. But private @worldbank.org) and Shantayanan Devarajan. With Jean- investors usually seek, and often receive, extensive gov- Paul Faguet. ernment guarantees to cover project risks relating to, for Completion date: June 1998. example, exchange rates, demand for the service, and changes in regulation. There is a danger that these guarantees will come back Infrastructure Privatization Database to haunt governments, blunting incentives and even triggering fiscal crises, and thus undermining the very Ref no. 681-66 purpose of involving the private sector. While there has Lack of data about infrastructure privatization has been much work on how to attract private participation severely constrained the Bank's ability to carry out a in infrastructure, there has been only limited analytical systematic analysis of the relationship between the pol- work on which risks governments should be willing to 146 Private Sector Development and Public Sector Management assume and how they should reduce and manage the and economic restructuring policies. The comparative risks they do take on. design will allow empirical testing of the research This study is summarizing the existing knowledge hypotheses. Original field research will be conducted in on how governments should approach risk allocation all three countries. Secondary materials will be collected, and risk management in relation to private infrastruc- and in-depth, semistructured interviews will beheld with ture, attempting to advance the conceptual thinking, and the major economic actors associated with the consulta- developing concrete policy proposals. It addresses these tive mechanisms in each country. After the country case questions: Which risks, if any, should a government be studies are completed, theoretical generalizations will be willing to guarantee either explicitly or implicitly? What cross-checked through a review of a broader range of attitude should it take toward risks related to changes in national experiences with consultative mechanisms. exchange and interest rates? What can be done to address This research will help clarify for the Bank when and political and regulatory risks? How can concessions (or how to promote consultative mechanisms, identifying franchises) be designed so as to encourage private par- the national contexts that are promising for the promo- ticipation without requiring the government to bear com- tion of these mechanisms and the organizational and mercial risks? How should a government's exposure to institutional forms that characterize effective ones. infrastructure project risks be tracked and valued? And Responsibility: Private Sector Development Depart- how can decisions on guarantees be integrated with fis- ment-Andrew Stone (astone@worldbank.org). With cal accounting and appropriations mechanisms? Jessie Biddle, Pennsylvania State University; Vedat Milor, Responsibility: Latin America and the Caribbean, Office Brown University; Michael Lofchie, University of of the Chief Economist-Guillermo Perry (gperry California at Los Angeles; Joseph Ayee, University of @worldbank.org). Ghana; Jomo Kwame Sundaram, University of Malaysia; Completion date: December 1997. and Matilda Lunas, Autonomous University of Mexico. Completion date: June 1999. Government-Business Consultative Mechanisms and Economic Governance: Political Credibility and Economic Reform A Three-Country Comparison Ref. no. 681-85 Ref. no. 681-83 The objective of this research is to develop a new frame- The central objective of this research project is to con- work to help analysts draw reliable judgments about a tribute to the understanding of how different organiza- country's readiness for reform. The underlying ques- tional practices and institutional structures influence tion it addresses is, What are the necessary political con- the effectiveness of business-government consultative ditions for successful reform? Extending the analysis in mechanisms. The study will test four hypotheses: the World Bank's Policy Research Report Bureaucrats in * The effectiveness of a consultative mechanism is pos- Business (New York: Oxford University Press, 1995), the itively related to the formation (supply) of an organiza- study will investigate whether policymakers feel that tion explicitly designed to facilitate economic reform and reform is in their interests, whether they are capable of restructuring by institutionalizing dialogue among eco- passing and implementing reform that is in their inter- nomic stakeholders. ests, and whether they can sustain reform once it is passed. * The effectiveness of a consultative mechanism is pos- The second question the research addresses is, What itively related to the credibility of commitments under- evidence can be used to determine whether those con- taken by stakeholders. ditions are met? In particular, under what conditions can * The effectiveness of a consultative mechanism is pos- the desirability of reform be inferred from the statements itively related to the creation of mutual monitoring mech- of policymakers? The second phase of the research will anisms for the commitments undertaken by stakeholders. involve systematic and rigorous empirical work to apply * The effectiveness of a consultative mechanism is pos- the theory to case study countries. itively related to a membership that legitimately and This work is part of a broad effort to improve the abil- authoritatively represents the major economic stake- ity of the World Bank to design projects that are appro- holders. priate to the institutional conditions in countries and to The study will undertake a comparative analysis of assess more rigorously and transparently countries'readi- three countries-Ghana, Malaysia, and Mexico-that ness for reform. have recently experimented with consultative mecha- Responsibility: Policy Research Department, Finance nisms as a means to enhance their regulatory reform and Private Sector Development Division-Mary Shirley 147 Private Sector Development and Public Sector Management (mshirley@worldbank.org), Philip Keefer, and Luke the results of the reform, looking at different indicators Haggarty. With Arthur Lupia and Mathew McCubbins, of performance. The study will also measure the welfare University of California at San Diego; and Roger Noll effects of each reform compared with the publicly owned and Barry Weingast, Stanford University. and operated counterfactual (using the methodology Completion date: June 1998. developed by Ahmed Galal and others, Welfare Consequences of Selling Public Enterprises: An Empirical Analysis, New York: Oxford University Press, 1994). Institutions, Politics, and Contracts: Private The study aims to provide Bank task managers and Sector Participation in Urban Water Supply client governments with a better set of tools for thinking through when and how best to involve the private sec- Ref no. 681-87 tor in the reform of water and sanitation utilities, includ- Reforms promoting private sector participation in the ing guidelines for the design and implementation of a provision of urban water supply are often cited as suc- successful reform. It will also provide a methodology cess stories, but these reforms have followed many dif- for assessing the welfare effects of reforms involving ferent approaches, including leases, concessions, and private sector participation in urban water supply. This management contracts. Lacking has been a rigorous analy- methodology will also be useful for assessing the impact sis of outcomes that would enable development practi- of privatization in other sectors. tioners to choose the most efficient form of private The findings of the case studies will be disseminated participation for their circumstances. through working papers and a synthesis paper on the This study will analyze the effect of political and con- policy and operational lessons of the research. tracting institutions on the design and performance of Responsibility: Policy Research Department, Finance contracts for private sector participation in urban water and Private Sector Development Division-Mary Shirley supply. First, it will determine under what conditions the (mshirley@worldbank.org) and George Clarke. private sector may be more efficient than the government. Completion date: June 1999. Second, it will identify what privatization schemes are feasible and efficient in specific institutional settings. Third, it will provide guidance on how to implement Delay in Disposition: Judicial Performance the privatization reforms and how to obtain the desired in Developing Countries results (improved performance and increased welfare) in different institutional and political settings. Ref no. 681-92 The research will use a case study approach, system- The general objective of this study is to provide an inter- atically analyzing experience with private sector partic- national comparative analysis of the performance of courts ipation in the provision of urban water services in six by developing performance indicators that measure time countries: Argentina (concession in 1992), C8te d'Ivoire and cost of litigation and by analyzing how reform pro- (lease in 1962 and concession in 1987), Guinea (lease in grams affect time and cost. The study will review the effi- 1989), Mexico (management contract in 1993), and Chile ciency and effectiveness of courts in about a dozen and Peru (continued public operation). The sample rep- developing and industrial countries. resents the main contracting options used in water sup- The study will determine a court system's efficiency ply, provides significant variation in the institutional on the basis of the clearance rates (cases resolved as a per- setting, and allows comparison with countries that have centage of those filed) and the ability to provide quality not used private participation. at a minimum cost. Indicators will be used that show The study will divide the analysis in three parts. The the change over time in caseload, backlogs, time to dis- first part will analyze the political issues that may deter- pose of a case, and cost of supplying court services. The mine the design and performance of reform. It will ana- measure of cost will include not only operational costs lyze the political motivation for and feasibility of reform, but also the capital expenditures and opportunity costs the commitment to reform, and the role played by the of financing the system. These indicators will allow the political importance of water. The second part will ana- study to compare the relative improvement or deterio- lyze contracting issues in the design and performance of ration of courts. reform (including the process of selecting the contrac- Effectiveness will be assessed on the basis of the court's tor, the design of the contract, and the regulatory frame- capacity to resolve conflicts for a reasonable cost and work). It will look at how the different types of contracts within a reasonable time as well as objective and sub- address possible problems of incentives, information jective perceptions that justice is being delivered by the asymmetries, and credibility. The third part will assess court system. The subjective perception of the quality of 148 Private Sector Development and Public Sector Management justice will be based in part on information collected on the effectiveness of service delivery in the current through a questionnaire administered to a stratified sam- setting, and that mechanisms that elicit and use such ple of judges and court personnel in the courts that deal information could improve service delivery. with the most common types of cases reaching the judi- The third study asked what institutional mechanisms cial system. The objective measure of effectiveness will around an environmental protection agency are con- be determined by a weighted index that will include sev- ducive to its effectiveness. An environmental agency may eral objective variables capturing the capacity of the courts easily be obstructed by entities around it that are inter- to satisfy the public's demand for court services. ested in fiscal savings or in giving industries breaks. Most of the data for the study will be obtained from One solution is to establish a rapport with the benefi- judges, through the questionnaire that the study has devel- ciaries of environmental protection, so that obstruction oped. The information on types of cases and litigants will becomes detectable and thus riskier. be obtained from the statistical office of the supreme court The fourth study expanded the normative model for or ministry of justice. The study is now collecting pre- project appraisal to allow for appraisal costs, so that it liminary information on court structure, case statistics, will provide pointers for funding agencies on how to allo- procedural steps, and the like, and is developing a method cate resources. The study also included incentive prob- for cataloguing, publicizing, and distributing the data lems associated with appraisal costs. collected. Responsibility: Policy Research Department, Public Responsibility: Legal Department, Operations Front Economics Division-Gunnar S. Eskeland (geskeland Office-Maria Dakolias (mdakolias@worldbank.org). @worldbank.org). With Ed Buscaglia, Stanford University and Washington Completion date: August 1996. College; Javier Said; Valerie Helbronner; Hans Korb; Neil Reports: Gold, University of Windsor; Isabel Atencio; Flor de Maria Eskeland, Gunnar S. 1996. "Environmental Protection and Revenue Meza Tananta; and Yasuhei Taniguchi, Kyoto University. Generation: A Delegation Result." World Bank, Policy Research Completion date: February 1998. Department, Washington, DC. Draft. . "Rural Health Services in El Salvador: A Managerial Perspective." World Bank, Policy Research Department, Information and the Organization Washington, DC. of Government This research assumed that the key to effective organi- Private Means, Public Ends: Private Sector zation of government activity hinges on the alignment Participation in Caribbean Water Systems of incentives and control with information. The per- spectives it applied are particularly relevant for reforms As in many developing countries, the water supply enti- involving decentralization. The project consisted of four ties in the Caribbean are poorly managed and inefficient. studies. The price of providing water and sewerage services bears The first study, a theoretical investigation, looked at no relationship to the cost, with the government usually environmental protection and revenue generation. The making up the financial shortfall. But fiscal crises have starting point was a global optimization problem for gov- rendered governments unable to support the increasing ernment in which all problems are solved at once. The operational costs of producing and distributing water study asked whether optimal policies can be implemented and the investments required for rehabilitating and by two agencies that do not closely coordinate their poli- expanding the systems. The water supply entities also cies. The "delegation" result involves a rule for each face a serious backlog in water pollution control invest- agency that is similar to rules that apply if there is only ments. The tourism sector, the main income earning sec- one problem and only one agency: pollution is taxed indis- tor for most of these countries, will suffer if water supply criminately according to pollution damages, commodity and pollution control do not improve, undermining long- taxes refer to demand elasticities only, and both agencies term economic growth. refer to the same shadow price of public revenues. Some countries in the Caribbean have embarked on The second study looked at the effectiveness of health reforms. But many are still plagued by poor performance service delivery in rural El Salvador, particularly services and low productivity. There is an urgent need for new delivered by nongovernmental organizations. And it approaches to the problems of water supply and sewer- asked what institutional and incentive mechanisms could age services in the Caribbean. be useful in governing resource use in the sector. The objective of this study was to provide the Preliminary findings show that there is little information Caribbean countries with an overview of how water 149 Private Sector Development and Public Sector Management sector reforms around the world are addressing the inter- period up to December 31, 1995. In addition, it under- linked problems of improving the sector's performance took field studies in 10 countries (Benin, Burkina Faso, and obtaining financing for investments. It showed that Ghana, Kenya, Madagascar, Mozambique, Nigeria, Togo, private sector participation in the provision of water Uganda, and Zambia). The field studies consisted of and sewerage services can help solve the kinds of prob- surveys of a sample of privatized enterprises to obtain lems faced by these countries, information on the privatization process and postpriva- The study assessed recent private activity in the water tization performance; interviews with government sector, focusing on the advantages and disadvantages departments and divestiture agencies to learn how the of different options for private sector participation. It pro- programs were developed and are being implemented, duced a water and sewerage inventory of all countries what issues have arisen, and how these issues have been in the Caribbean to develop a prototype of the basic char- tackled; and interviews with other relevant stakehold- acteristics of the sector. And from case studies of private ers, particularly private sector bodies, to learn about their participation in water utilities in the Caribbean, it experience and their perceptions of the divestiture process. extracted lessons to guide countries in the region. The study also reviewed Bank reports and external pub- The study showed how private sector participation lications and maintained a continuous dialogue with promotes the operational efficiency and commercial via- Bank task managers in the region. bility of water utilities. The models of private participa- The main findings of the research are as follows: tion adopted by countries in the Caribbean demonstrate * Obtaining consistent and reliable data has been dif- broadly successful attempts at risk sharing between the ficult, even within the Bank. Reported data have been public and private partners. The public sector's role is unreliable, with many inconsistencies. now more regulatory and protects consumers against * Privatization has been adopted reluctantly and abuses of monopoly power. The private sector's role is slowly, but it has become more generally accepted and to provide stable management, higher efficiency, and the pace of divestiture has picked up. Divestiture activ- improved access to capital. Cooperation between the pub- ity is greater than is generally known. lic and private sectors increases population coverage, * Privatization has had a small impact on govern- improves the quality of service, and reduces water pol- ment finances, foreign direct investment, and employ- lution and public health hazards. ment, mainly because of the general policy of first Responsibility: Private Sector Development Depart- divesting small, relatively insignificant enterprises. This ment, Private Sector Development and Privatization picture is expected to change as the larger, "strategic" Group-Helen Nankani (hnankani@worldbank.org). enterprises come on stream. At the enterprise level pri- Completion date: December 1996. vatization has shown encouraging results; despite some Report: business failures, there is evidence of improving perfor- Nankani, Helen. Forthcoming. "Private Means, Public Ends: Private mance. But governments have not yet done much to meet Sector Participation in Caribbean Water Systems." World Bank, the aim of broadening ownership. Private Sector Development Department, Washington, DC. * Governments have not always divested for the stated reasons. Generally, there has been a lack of con- sensus in favor of privatization, so governments have Africa Privatization Study tended to adopt programs because of a need for finan- cial support from the World Bank, the International This study examined privatization in Sub-Saharan Africa, Monetary Fund, and donors. As a result, programs have addressing several questions: First, what has been hap- lacked ownership. But this is changing as privatization pening in privatization in Africa? How many transac- becomes more widespread and is increasingly regarded tions have occurred, of what type and value, and in what as inevitable. sectors? How much competition is there in the process? * Governments have adopted many different And how much progress has been made? Second, what approaches for planning and implementing divestiture has been the impact of privatization in Africa? Third, and a variety of institutional models. Many programs are what has been the driving force behind the privatization? characterized by poor design and preparation. Most suc- Fourth, how has privatization been implemented? And cessful appears to be the model used in Zambia, where finally, what lessons can be drawn from the African pri- the program was carefully planned, the program and the vatization experience for policymakers, practitioners, and privatization agency have full legal backing, the private donors? sector plays a dominant role in privatization, capital mar- To answer these questions, the study developed a data- ket development was planned and implemented along- base of privatization transactions in Africa covering the side the divestiture program, the government is fully 150 Private Sector Development and Public Sector Management divesting its equity interests, and transactions are han- ers may be laying the groundwork for long-term change. dled and reported transparently. This study was designed to deepen the understand- What are the lessons for Bank operational staff, national ing of innovation in local government. The study docu- policymakers, and donors? The findings suggest that pri- mented more than 20 cases of best practice at the city vatization programs work best when attention is paid to and regional levels, primarily through information pro- building consensus through public information and vided by city and regional authorities responsible for debate; privatization activities are centrally coordinated innovations. These case studies and the analyses carried and the implementing agency has the necessary legal out in the study examined how good practice is born, mandate and authority; the process is transparent, which where ideas come from, how they are introduced in a extensive private sector involvement can help ensure; new context and successfully propagated, and what preparation for transactions is thorough; priority is given donors can do to advance the dynamics of change. to privatizing major enterprises to achieve visible bene- Unlike the many studies that merely document best fits; and government, Bank, IMF, and donor efforts and practice, this work focused on the origins-the political assistance are well coordinated. The findings also point and institutional preconditions-of best practice, as well to the importance of improved data collection and report- as the process of launching innovation and change at ing, and of monitoring large privatized enterprises to the local level. How do local authorities learn? How do track the effects of privatization. And they suggest that they identify good and best practices and then adapt them more could be done to ensure that ownership is broad- to solve problems at the local level? And what is the expe- ened, to help meet the need for investment capital and rience with replication? The lessons it found cover such improved corporate governance. areas as the scale and nature of first-time innovations, The findings are being disseminated through the pub- the modes of incorporating public participation, the lication of a report and the case studies, a series of work- importance of leadership and crises, the tremendous shops throughout Africa, and workshops in the Bank. efforts needed-and the poor tools available-to foster The Africa privatization database will be made avail- communication to sell a new idea or product to the able to interested researchers. public, and the methods used to disseminate and dif- Responsibility: Africa Technical Families, Private fuse innovations. Sector Finance Division-Oliver Campbell White The study's findings suggest that the Bank can pro- (ocampbellwhite@worldbank.org), and Best Practice and ductively shift the focus in public sector reform to the Technology Division-Anita Bhatia; Legal Department, local level. The Bank and donors can help encourage inno- Africa Division-Roal Toro; and Private Sector vation in subnational governments by rewarding reform- Development Department-Anne Castle and Syed ers with projects and technical assistance, participating Mahmood. With Michel Cramer, Charles Vellutini, in the incubation of innovations, and delving further into Richard Thompson, and Herv6 Dandois, IDC; and Robert the process of public education as an important part of Laslet, Moazzim Malik, Noah Mututi, Gil Yaron, Kwabia public choice making. They can also do more to pro- Boateng, Alistair Milne, Pierre Bide, and Symphorien mote past and potential innovators as an engine of change Akangah, London Economics. The Overseas by highlighting success, evaluating impacts, and dis- Development Administration, United Kingdom, con- seminating results. tributed funding for the research. Findings have been disseminated at the City Completion date: June 1997. Symposium at the Inter-American Development Bank's annual meetings in 1997, at various forums in the Bank, and on Bank missions (for example, the Philippines in Decentralization in Latin America and the June 1997 and Guatemala in July 1997). In addition, three Caribbean: Best Practice and Policy Lessons international workshops, each sponsored by several agen- cies, were held for practitioners and country and Bank Decentralization, reform of the state, and democratiza- officials during the study. A book of cases and analysis tion in Latin America and the Caribbean are creating a is under preparation. new institutional environment for local authorities and In Bank operations lessons from the study have been have triggered spontaneous reforms in governance at the adopted in programs of urban administration reform in subnational level. A new generation of elected leaders two major cities, La Paz and Asunci6n. An urban strat- has produced a wave of innovations-upgrading pro- egy now under preparation for Latin America and the fessional staffs, raising taxes and user fees, delivering Caribbean is also incorporating the findings. better services, and mobilizing participation in public Responsibility: Latin America and the Caribbean choice making. With little help from outside, these lead- Technical Department, Advisory Group-Malcolm Rowat 151 Private Sector Development and Public Sector Management (mrowat@worldbank.org), Tim Campbell, Harald Fuhr, America and the Caribbean Technical Department, Washington, and Marcela Huertas, and Office of the Director-Sri- DC. Ram Aiyer. With Florence Eid, Massachusetts Institute Navarro,Zandor. 1996. "Participatory Budgeting: The Caseof Porto of Technology; Fernando Rojas, Harvard University; Alegre (Brazil)." World Bank, Latin America and the Caribbean Rafael de la Cruz, Instituto de Estudios Superiores de Technical Department, Washington, DC. Administraci6n, Caracas; Alberto Maldonado and staff, Pinto, Augusto. 1996. "El Programa de Pavimentaci6n por Departamento Nacional de Planeaci6n, Colombia; Zandor Autogesti6n en el Municipio de Valledupar." World Bank, Latin Novarro, University of Porto Alegre, Brazil; and Ariana America and the Caribbean Technical Department, Washington, Legovini. The Economic Commission for Latin America DC. and the Caribbean, Inter-American Development Bank, . 1996. "Popular Election of Police Inspectors in Valledupar, Instituto de Estudios Superiores de Administraci6n, Colombia." World Bank, Latin America and the Caribbean German Agency for Technical Cooperation, government Technical Department, Washington, DC. of Spain, and Inter-American Foundation provided fund- Rojas, Fernando. 1996. "Administrative Decentralization and ing for the research and conference facilities. The gov- Management: Private Park Provision in Cali." World Bank, Latin ernment of Colombia provided support for five America and the CaribbeanTechnical Department, Washington, Colombian case studies and conference facilities. DC. Completion date: June 1997. Reports: Campbell, Tim. 1995. "Mendoza Provincial Program for Basic Social Project Evaluation and Public Expenditure Infrastructure (MENPROSIF)." World Bank, Latin America and the Caribbean Technical Department, Washington, DC. What is the proper role for project evaluation in today's - 1997. Innovations and Risk Taking: The Engine of Reform in world, where countries have reduced major economic Local Government in Latin America and the Caribbean. World Bank distortions and are reconsidering the role of the state? Discussion Paper 357. Washington, DC. (Also published in This change in circumstances calls for a shift in the empha- Spanish.) sis of project evaluation away from a concern with pre- Campbell, Tim, with Travis Katz. 1996. "The Politics of Participation cise rate of return calculations and toward a broader in Tijuana, Mexico-Inventing a New Style of Governance." examination of the rationale for public provision. Three World Bank, Latin America and the Caribbean Technical considerations critical to proper project appraisal are Department, Washington, DC. the counterfactual private sector supply response, the fis- de la Cruz, Rafael. 1996. "State Governments in Venezuela." World cal impact of the project, and the fungibility of lending. Bank, Latin America and the Caribbean Technical Department, This project produced papers applying a method of Washington, DC. project analysis that incorporates these considerations to Eid, Florence. 1996. "Implementing Municipal Policy Reforms: the health and education sector and is preparing a paper The Fondo de Desarrollo Vecinal of Conchali, Chile (The applying it to the infrastructure sector. Work on the fis- Neighborhood Development Fund in Conchali, Chile) and the cal impact centers on estimating the marginal cost of pub- Problem of 'Elite Control' in Promoting Participation." World lic funds and is being undertaken by another research Bank, Latin America and the Caribbean Technical Department, project (Estimating the Marginal Cost of Public Funds Washington, DC. in Developing Countries, ref. no. 680-69). Katz, Travis, and Tim Campbell. 1996. "Manos a la Obra." World Responsibility: Policy Research Department, Public Bank, Latin America and the Caribbean Technical Department, Economics Division-Shantayanan Devarajan Washington, DC. (sdevarajan@worldbank.org) and Sethaput Suthiwart- Leitman, J., R. Santoro, and Tim Campbell. 1996. "Transport System Narueput. in Curitiba: A Successful Challenge to Conventional Wisdom." Completion date: July 1997. World Bank, Latin America and the Caribbean Technical Reports: Department, Washington, DC. Devarajan, Shantayanan, Lyn Squire, and Sethaput Suthiwart- Maldonado, Alberto. 1996. "Creaci6n del Instituto de Capacitaci6n Narueput. 1997. "Beyond Rate of Return: Reorienting Project Municipal de Manizales." World Bank, Latin America and the Appraisal." World Bank Research Observer 12(1):35-46. Caribbean Technical Department, Washington, DC. Hammer, Jeffrey S. 1997. "Economic Analysis for Health Projects." . 1996. "Fortalecimiento fiscal del municipio de Manizales." World Bank Research Observer 12(1):47-71. World Bank, Latin America and the Caribbean Technical Jimenez, Emmanuel, Elizabeth M. King, and Jee-Peng Tan. Department, Washington, DC. 1996. "Whither Economic Analysis of Education Investments?" Moore, Richard. 1996. "Community and Municipal Management World Bank, Policy Research Department, Washington, of Decentralized Education in El Salvador." World Bank, Latin DC. 152 Private Sector Development and Public Sector Management Private Provision of Water and Sanitation infrastructure, financial markets, conflict resolution, and the use of business support services. This study reviews recent experience with private ini- Second, it is carrying out a series of case studies of tiative and capital in the water and sanitation sector. It firms focusing on selected aspects of the research agenda, addresses two main questions: What is the extent of pri- such as finance, business strategy, and technological capa- vate involvement in water and sanitation? And what fac- bility. These case studies are selected from a stratified tors make private involvement in the sector productive subsample of the panel firms and are conducted to com- and successful? plement quantitative information gathered in the broader The study finds that there is a surprisingly large survey exercise. amount of private activity in water and sanitation in Third, it is conducting cross-country studies and stud- developing countries-despite the serious regulatory ies of issues related to firm dynamics over time. These challenges in the sector. Through case studies in both issues include labor markets, business strategy, finan- industrial and developing countries (includingArgentina, cial markets, technological capabilities, the nature and Australia, Guinea, Malaysia, Mexico, Turkey, and the determinants of entrepreneurship, the impact of infra- United Kingdom), the study identifies the many risks structure on firm operations and growth, regulation and associated with investment and service provision in the the extent to which firms perceive regulation as con- sector. It also identifies pragmatic solutions that many straining their operations and growth, and how firms countries are adopting to mitigate these risks. The huge grow in these economies and why. The analyses of these growth in demand for water and sanitation services will issues should contribute to evaluations of the impact of require continuing institutional, regulatory, and finan- structural adjustment programs in Africa. cial innovations to manage the risks in the sector. The program has been extended for an additional three Responsibility: Cofinancing and Project Finance years. By allowing more panel data collection and analy- Department, Project Finance and Guarantees Group- sis, the extension will permit further assessment of the Ashoka Mody. With David Haarmeyer. impact of structural reform programs in Africa at the Completion date: September 1997. microeconomic level. In addition to assessing the impact Report: of policy reforms, the extended program aims to build Mody, Ashoka, and David Haarmeyer. 1997. "Tapping the Private local capacity to continue gathering information after the Sector: Approaches to Managing Risks in Water and Sanitation." program ends. A local base for continued monitoring of World Bank, Cofinancing and Project Finance Department, the microeconomic effects of structural adjustment would Washington, DC. make a significant contribution to the Bank's operational programs. The program's extension also allows addi- tional analysis of African private sector growth problems Regional Program on Enterprise and further dissemination of the findings of this work. Development in Africa The program links its findings to the Bank's opera- tional work in Africa through regular seminars at the One of the lessons emerging from structural adjustment Bank, the Findings newsletter, and participation in regional efforts in Africa is that macroeconomic reform is a nec- and country private sector development strategies and essary but not a sufficient condition for private sector program designs. Outside the Bank, the program has growth. There are enterprise-level constraints that inhibit hosted seminars and conferences in Cameroon, C8te the growth of existing firms and impede the entry of new d'Ivoire, Ghana, Kenya, Tanzania, Zambia, and ones. This research is designed to get a better under- Zimbabwe, as well as in Belgium, Canada, Denmark, standing of the constraints that inhibit enterprise devel- Finland, France, Germany, the Netherlands, Norway, opment in Africa and to make recommendations to ease Sweden, Switzerland, the United Kingdom, and the those constraints. United States. In addition to the publications listed below, The research is investigating these issues in three ways. the program has produced many country studies, ana- First, it is collecting survey data through interviews, con- lytical reports, case studies, and discussion papers. ducted annually, of a panel of 200 large and small man- Responsibility: Africa Technical Families, Private Sector ufacturing firms in Cameroon, C8te d'Ivoire, Ghana, Development and Economics Division-Tyler Biggs Kenya, Tanzania, Zambia, and Zimbabwe. The survey (tbiggs@worldbank.org) and Melanie Mbuyi. With Manju focuses on four manufacturing sectors: food processing, Kedia Shah; Mayank Raturi; Vijaya Ramachandran; woodworking, metal working, and textiles and garments. Tilahun Temesgen; Alfred Robinson; Mark Gersovitz, Survey questions seek general information on the firm Johns Hopkins University; Dipak Mazumdar; Howard and on issues relating to labor, technology, regulation, Pack; Christina Paxon; and Gerald Tyler. The Ecole des 153 Private Sector Development and Public Sector Management Hautes Etudes Commerciales, Canada; Centre the Overseas Development Administration, United Universitaire de Douala, Cameroon; Centre d'Etudes et Kingdom, are providing funding for the research. de Recherches sur le D6veloppement International, Completion date: June 2001. France; CIRES and ORSTROM (Abidjan), C6te d'Ivoire; Reports: Oxford University; University of Ghana; University of Biggs, Tyler, Margaret Miller, Caroline Otto, and Gerald Tyler. Goteborg, Sweden; University of Nairobi; Catholic 1996. Africa Can Compete! Opportunities and Challengesfor Garments University, Leuven, Belgium; University of Burundi; and Home Products in the European Market. World Bank Discussion Helsinki School of Economics; University of Dar es Paper 300. Washington, DC. Salaam; Foundation for Research in Economics and Biggs, Tyler, Gail R. Moody, Jan-Hendrik van Leeuwen, and E. Diane Business Administration, Norway; University of Zambia; White. 1994. Africa Can Compete! Opportunities and Challenges for Free University of Amsterdam; and University of Garments and Home Products in the U.S. Market. World Bank Zimbabwe assisted in the field surveys and country Discussion Paper 242. Washington, DC. reports. The Belgian Administration for Development Biggs, Tyler, Manju Shah, and Pradeep Srivastava. 1995. Technological Cooperation; the Canadian International Development Capabilities and Learning in African Enterprises. World Bank Agency; the Danish International Development Agency; Technical Paper 288. Washington, DC. the Finnish International Development Agency; the Biggs, Tyler, and Pradeep Srivastava. 1996. Structural Aspects of Ministry of Cooperation and the Ministry of Foreign Manufacturing in Sub-SaharanAfrica:Findingsfroma Seven-Country Affairs, France; the Federal Ministry of Economic Enterprise Suroey. World Bank Discussion Paper 346. Washington, Cooperation, Germany; the Ministry of Foreign Affairs, DC. Italy; the Ministry of Foreign Affairs, the Netherlands; Lall, Sanjaya, Giorgio Barba Navaretti, Simon Teitel, and Ganeshan the Norwegian Agency for Development Cooperation; Wignaraja. 1994. Technology and Enterprise Development: Ghana the Swiss Development Cooperation; the Swedish under Structural Adjustment. London: Macmillan; and New York: International Enterprise Development Cooperation; and St. Martin's Press. 154 BANK RESEARCH OUTPUT Below are listed various types of research output arising staff, though some copies are circulated to interested from research and policy review activities at the Bank. researchers outside the Bank. To provide maximum coverage of such output, research G. Other Bank working papers. These papers are pro- is defined for the purposes of this list in a broader rather duced and distributed by departments, some divisions, than a narrower sense. Copies of Bank publications (cat- and a vice presidency. They disseminate quickly findings egories A and E) can be purchased or ordered from the of departmental research and are targeted primarily to Bank's bookstore or distributors (see list on last page of specialists in the Bank. this volume). Copies of working papers and background H. Background papers to World Development Report papers (categories F-H) can be obtained from the authors 1997. These papers are commissioned from researchers or the associated Bank departments. Reprints of articles inside and outside the Bank. Some also come out as Policy from the Bank's research journals (category C) may be Research Working Papers or in other forms. requested from the authors; other published material can be purchased from the publishers (categories B and D). The following types of fiscal 1997 research output are A. Books by Bank Researchers listed: A. Research-oriented books written by Bank staff and Bray, Mark. 1996. Counting the Full Cost: Parental and published either by the Bank or by other publishers. Community Financing of Education in East Asia. This list also includes periodic data publications, such Directions in Development Series. Washington, DC: as Global Development Finance, that feed subsequent World Bank. research. _ . 1996. Decentralization of Education: Community B. Researchby Bank staff published as part of collected Financing. Directions in Development Series. volumes of research papers. Washington, DC: World Bank. C. Articles appearing in the Bank's two economics Bruno, Michael. 1996. Deep Crises and Reform: What Have journals, the World Bank Economic Review and World Bank We Learned? Directions in Development Series. Research Observer. Washington, DC: World Bank. D. Articles related to Bank research and published in Bruno, Michael, and Boris Pleskovic, eds. 1997. Annual non-Bank professional journals. World Bank Conference on Development Economics 1996. E. World Bank Discussion Papers, Technical Papers, Washington, DC: World Bank. and other Bank series publications. Caprio, Gerard, and Dimitri Vittas, eds. 1997. Reforming * World Bank Discussion Papers. This series provides Finance: A Historical Perspective. Cambridge: Cambridge an outlet in the public domain for a broad range of Bank University Press. output that provides detailed results of interest to devel- Commander, Simon, Qimiao Fan, and Mark E. Schaffer. opment practitioners-from work on narrow research 1996. Enterprise Restructuring and Economic Policy in topics or country-specific studies. Russia. EDI Development Study. Washington, DC: * World Bank Technical Papers. This series provides an World Bank. outlet in the public domain for research and studies that Deaton, Angus. 1997. The Analysis of Household Surveys: are highly technical and aimed at a narrower audience. A Microeconometric Approach to Development Policy. * Other published series. Papers in such series as the Baltimore: Johns Hopkins University Press. Living Standards Measurement Study Working Paper del Rosso, Joy Miller, and Tonia Marek. 1996. Class Action: and Economic Development Institute series typically Improving School Performance in the Developing World focus on a specialized topic and are designed to give through Better Health and Nutrition. Directions in prominence to Bank work on that topic or to work by a Development Series. Washington, DC: World Bank. particular Bank unit. Denizer, Cevdet. 1997. Stabilization, Adjustment, and Growth F. Policy Research Working Papers. These working Prospects in Transition Economies. London and New papers are a vehicle for quick dissemination, sometimes York: Macmillan. in an incompletely polished format, of findings of work Faiz, Asif, Christopher S. Weaver, and Michael Walsh, under way in the Bank. The primary audience is Bank with Surhid Gautam and Lit-Mian Chan. 1997. Air 155 Bank Research Output Pollution from Motor Vehicles: Standards and Technologies Rivera, Daniel. 1996. Private Sector Participation in the Water for Controlling Emissions. Washington, DC: World Bank. Supply and Wastewater Sector: Lessons from Six Developing Finger, J. Michael, Merlinda D. Ingco, and Ulrich Reincke. Countries. Directions in Development Series. Washing- 1996. The Uruguay Round: Statistics on TariffConcessions ton, DC: World Bank. Given and Received. Washington, DC: World Bank. Roberts, Mark J., and James R. Tybout. 1997. What Makes Fiske, Edward. 1996. Decentralization of Education: Politics Exports Boom? Directions in Development Series. and Consensus. Directions in Development Series. Washington, DC: World Bank. Washington, DC: World Bank. Roberts, Mark J., and James R. Tybout, eds. 1996. Industrial Gabor, Halasz. 1997. As Oktatas Minosege es as Evolution in Developing Countries: Micro Patterns of Onkormanyzati Oktatasiranyitas (Quality of Education Turnover, Productivity, and Market Structure. New York: and Local Governmental School Administration). Oxford University Press. Budapest: OKKER Kiado. Schiff, Maurice, with C. Sapelli, eds. 1996. Chile en el Greaney, Vincent, and Thomas Kellaghan. 1996. NAFTA: Acuerdos de libre comercio versus liberalizaci6n Monitoring the Learning Outcomes ofEducation Systems. unilateral. Santiago, Chile, and San Francisco: Directions in Development Series. Washington, DC: International Center for Economic Growth. World Bank. Subbarao, Kalanidhi, Aniruddha Bonnerjee, Jeanine Grootaert, Christiaan. 1996. Analyzing Poverty and Policy Braithwaite, Soniya Carvalho, Kene Ezemenari, Carol Reform: The Experience of C6te d'Ivoire. Avebury, U.K.: Graham, and Alan Thompson. 1997. Safety Net Aldershot. Programs and Poverty Reduction: Lessons from Cross- -_. 1996. Riformes economiques et analyse de la pauv- Country Experience. Directions in Development Series. ret6: L'exp6rience de la C6te d'Ivoire. Paris: I'Harmattan. Washington, DC: World Bank. Guislain, Pierre. 1996. The Privatization Challenge: A Wang, Yan. 1996. Management of Commercial Banks and Strategic, Legal, and Institutional Analysis ofInternational Other Financial Institutions. Shanghai: People's Publish- Experience. World Bank Regional and Sectoral Study. ing House. (In Chinese.) Washington, DC. Warford, Jeremy, Mohan Munasinghe, and Wilfrido Cruz, Haddad, Lawrence, John Hoddinott, and Harold eds. 1997. The Greening of Economic Policy Reform. Vol. Alderman, eds. 1997. Intrahousehold Resource Allocation 2, Case Studies. Washington, DC: World Bank. in Developing Countries: Methods, Models, and Policy. . 1997. The Greening of Economic Policy Reform. Vol. Baltimore: Johns Hopkins University Press. 1, Principles. Washington, DC: World Bank. Haggard, Stephan, and Steven B. Webb. 1996. Voting for Webster, Leila, and Peter Fidler, eds. 1996. The Informal Reform: Democracy, Political Liberalization, and Structural Sector and Microfinance Institutions in West Africa. World Adjustment: An Overview. Sector Study 12. San Bank Regional and Sectoral Study. Washington, DC. Francisco: International Center for Economic Growth (Also published in French.) and the World Bank. World Bank. 1996. Involving Workers in East Asia's Growth. Hoekman, Bernard M., and Petros C. Mavroidis, eds. Regional Perspectives on World Development Report 1997. Law and Policy in Public Purchasing: The WTO 1995. Washington, DC. Agreement on Government Procurement. Ann Arbor: . 1996. Livable Cities for the 21st Century. Directions University of Michigan Press. in Development Series. Washington, DC. Kaminski, Bartlomiej, ed. 1996. Economic Transition in . 1996. Rural Energy and Development: Improving Russia and the New States of Eurasia. Armonk, N.Y.: Energy Supplies for Two Billion People. Development in M. E. Sharpe. Practice Series. Washington, DC. Lutz, Ernst, and Julian Caldecott, eds. 1996. . 1996. Toward Environmentally Sustainable Decentralization and Biodiversity Conservation. A World Development in Sub-Saharan Africa: A World Bank Bank Symposium. Washington, DC. Agenda. Development in Practice Series. Washington, Martin, Will, and L. Alan Winters, eds. 1996. The Uruguay DC. Round and the Developing Countries. New York: . 1996. Trends in Developing Economies 1996. Cambridge University Press. Washington, DC. McCorkle, Constance M., E. Mathias, and Tjaart W. _ . 1996. Tunisia's Global Integration and Sustainable Schillhorn van Veen. 1996. EthnoveterinaryResearchand Development: Strategic Choices for the 21st Century. Development. London: IT Publications. Middle East and North Africa Economic Studies Series. Munasinghe, Mohan, ed. 1997. Environmental Impacts of Washington, DC. Macroeconomic and Sectoral Policies. Washington, DC: . 1997. Emerging Stock Markets Factbook 1997. World Bank. Washington, DC. 156 Bank Research Output . 1997. Global Development Finance 1997. 2 vols. Smith and Alison Harwood, eds., Sequencing Financial Washington, DC: World Bank. (Also available in Reform. Washington, DC: Brookings Institution. CD-ROM and diskette.) Claessens, Stijn, and Panos Varangis. 1997. "Portfolio . 1997. Primary Education in India. Development in Allocation and Commodity Risk Management in Practice Series. Washington, DC. Emerging Country Economies." In Michael .1997. The Road to Financial Integration: Private Capital Papaioannou and George Tsetsekos, eds., Emerging Flows to Developing Countries. World Bank Policy Market Portfolios: Diversification and Hedging Strategies. Research Report. New York: Oxford University Press. Chicago: Irwin Professional Publishing. .1997. Taking Action to Reduce Poverty in Sub-Saharan Commander, Simon, and Mark Schankerman. 1996. Africa. Development in Practice Series. Washington, "Enterprise Restructuring and the Efficient Provision DC. of Social Benefits." In D. Lippoldt, ed., The Changing . 1997. World Bank Atlas 1997. Washington, DC. Social Benefits in Russian Enterprises. Paris: OECD. (Also . 1997. The World Bank Group and the Environment, published in Russian.) Fiscal 1996: Environment Matters at the World Bank. Cukierman, Alex, Pedro Rodriguez, and Steven B. Webb. Washington, DC. 1996. "Central Bank Autonomy and Exchange Rate . 1997. World Development Indicators 1997. Regimes: Their Effects on Monetary Accommodation Washington, DC. (Also available in CD-ROM and and Activism." In S. Effinger and H. Huizinga, eds., diskette.) Positive Political Economy: Theory and Evidence. . 1997. World Development Report 1997: The State in Cambridge: Cambridge University Press. a Changing World. New York: Oxford University Press. Devarajan, Shantayanan, Delfin S. Go, Jeffrey D. Lewis, Yeats, Alexander J., Azita Amjadi, Ulrich Reincke, and Sherman Robinson, and Pekka Sinko. 1997. "Simple Francis Ng. 1997. Did Domestic Policies Marginalize General Equilibrium Modeling." In J. Franqois and Africa in International Trade? Directions in Development K. Reinert, eds., Applied Methods for Trade Policy Series. Washington, DC: World Bank. Modeling. Cambridge: Cambridge University Press. Yusuf, Shahid, and Weiping Wu. 1997. The Dynamics of Haddad, Lawrence, John Hoddinott, and Harold Urban Growth in Three Chinese Cities. New York: Oxford Alderman. 1997. "The Scope of Intrahousehold University Press. Resource Allocation Issues." In Lawrence Haddad, John Hoddinott, and Harold Alderman, eds., Intrahousehold Resource Allocation in Developing B. Book Chapters by Bank Researchers Countries: Methods, Models, and Policy. Baltimore: Johns Hopkins University Press. Alderman, Harold, and Paul Gertler. 1997. "Family Hoddinott, John, Harold Alderman, and Lawrence Resources and Gender Differences in Human Capital Haddad. 1997. "Testing Competing Models of Investments: The Demand for Children's Medical Care Intrahousehold Allocation." In Lawrence Haddad, in Pakistan." In Lawrence Haddad, John Hoddinott, John Hoddinott, and Harold Alderman, eds., and Harold Alderman, eds., Intrahousehold Resource Intrahousehold Resource Allocation in Developing Allocation in Developing Countries: Methods, Models, and Countries: Methods, Models, and Policy. Baltimore: Johns Policy. Baltimore: Johns Hopkins University Press. Hopkins University Press. Alderman, Harold, Lawrence Haddad, and John Jimenez, Emmanuel, and Marlaine E. Lockheed. 1996. Hoddinott. 1997. "Policy Issues and Intrahousehold "Public and Private Secondary Schools in Developing Resource Allocation: Conclusions." In Lawrence Countries." In Bruce Fuller and Richard E Elmore with Haddad, John Hoddinott, and Harold Alderman, eds., Gary Orfield, eds., Who Chooses? Who Loses? Culture, Intrahousehold Resource Allocation in Developing Institutions, and the Unequal Effects of School Choice. New Countries: Methods, Models, and Policy. Baltimore: Johns York: Teachers' College Press. Hopkins University Press. Kaminski, Bartlomiej. 1996. "Dziedzictwo przeszlosci a Alderman, Harold, and B. Rogers. 1997. "Science and the transformacja handlu zagranicznego" (The Legacy Policy Process: Does Economics Differ from of the Past and Foreign Trade Transformation). In M. Nutrition?" In Jean-Pierre Habicht and David Pelletier, Okolski and U. Sztanderska, eds., Studia nad refor- eds., Beyond Nutritional Recommendations: Implementing mowana gospodarka: Aspekty instytucjonalne (Studies of Science for Healthier Populations. Ithaca, N.Y.: Cornell an Economy in Reform: Institutional Aspects). Warsaw: University Press. Wydawnictwa Naukowe PWN. Caprio, Gerard. 1997. "Financial Reform in Developing Kaminski, Bartlomiej, and Z.K. Wang. 1997. "External Countries: A Case of the Missing Model?" In Bruce Finance, Policy Conditionalities, and Transition from 157 Bank Research Output Central Planning." In K. Dawisha, ed., The International Implications for the Asia Pacefc Region. Singapore: Pacific Dimension of Post-Communist Transitions in Russia and Economic Cooperation Council. the New States of Eurasia. Armonk, N.Y.; M. E. Sharpe. .1997. "The Economics of 'Catching Up' Revisited." Konan, Denise, and Keith Maskus. 1997. "A Computable In G. Biffl, ed., Migration, Free Trade, and Regional General Equilibrium Analysis of Egyptian Trade Integration in Central and Eastern Europe. Paris: OECD Liberalization Scenarios." In Ahmed Galal and Bernard Hoekman, eds., Regional Partners in Global Markets: Limits and Possibilities ofthe Euro-Med Initiative. London: C. Articles Published in the World Bank Centre for Economic Policy Research. Economic Review and World Bank Moser, Caroline. 1996. "Pobreza urbana, politicas sociales Research Observer y g4nero en un contexto de crisis econ6mica." In H. Ducci, V. Fernandez, and M. Saborido, eds., Asienta- Aryeetey, Ernest, Hemamala Hettige, Machiko Nissanke, mientos humanos pobrezay g6nero. Santiago, Chile: GTZ- and William Steel. 1997. "Financial Market Frag- MINVU-PGU. mentation and Reforms in Ghana, Malawi, Nigeria, Schiff, Maurice. 1996. "Trade Policy and International and Tanzania." World Bank Economic Review 11(2): Migration: Substitutes or Complements." InJ.E. Taylor, 195-218. ed., Development Strategy, Employment, and Migration. Assaad, Ragui. 1997. "The Effects of Public Sector Hiring Paris: OECD. and Compensation Policies on the Egyptian Labor . 1997. "Regional Agreements and the GATT: Market." World Bank Economic Review 11(1):85-118. Implementation Issues for Agriculture in Latin Banerji, Arup, and Hafez Ghanem. 1997. "Does the Type America." In J.L. Cordeu, Alberto Vald6s, and F. Silva of Political Regime Matter for Trade and Labor Market P., eds., Implementation ofthe Uruguay Round Agreement Policies?" World Bank Economic Review 11(1):171-94. in Latin America: The Case of Agriculture. Proceedings Buckley, Robert M., and Eugene N. Gurenko. 1997. of an FAO-World Bank Workshop, Santiago, "Housing and Income Distribution in Russia: Chile. Zhivago's Legacy." World Bank Research Observer Schiff, Maurice, and Alberto Vald6s. 1996. "Agricultural 12(1):19-32. Incentives and Growth in Developing Countries: A Campos, Jos6 Edgardo, and Hadi Salehi Esfahani. 1996. Cross-Country Perspective." In J. Antle and D. Sumner, "Why and When Do Governments Initiate Public eds., The Economics ofAgriculture. Vol. 2, Papers in Honor Enterprise Reform?" World Bank Economic Review ofD. Gale Johnson. Chicago: University of Chicago Press. 10(3):451-85. Schmidt-Hebbel, Klaus, and Luis Serv6n. 1996. "Adjuste Carnoy, Martin. 1997. "Is Privatization through Education fiscal y tipo de cambio bajo expectivas racionales en Vouchers Really the Answer? A Comment on West." Chil." In F. Morande and R. Vergara, eds., Andlisis World Bank Research Observer 12(1):105-16. empirico del tipo de cambio en Chilg. Santiago, Chile: Chomitz, Kenneth M., and David A. Gray. 1996. "Roads, Centro de Estudios P6blicos. Land Use, and Deforestation: ASpatial ModelApplied Schmidt-Hebbel, Klaus, Luis Serv6n, and Andr6s to Belize." World Bank Economic Review 10(3):487-512. Solimano. 1996. "Saving, Investment, and Growth in Deininger, Klaus, and Lyn Squire. 1996. "A New Data Set Developing Countries: An Overview." In Andr6s Measuring Income Inequality." World Bank Economic Solimano, ed., Road Maps to Prosperity: Essays on Growth Review 10(3):565-91. and Development. Ann Arbor: University of Michigan de Melo, Martha, Cevdet Denizer, and Alan Gelb. 1996. Press. "Patterns of Transition from Plan to Market." World Thomas, Vmod, and Yan Wang. 1997. "East Asian Lessons Bank Economic Review 10(3):397-424. from Economic Reforms." In Wing Thye Woo, Stephen Devarajan, Shantayanan, Hafez Ghanem, and Karen Parker, and Jeffrey Sachs, eds., Economies in Transition: Thierfelder. 1997. "Economic Reform and Labor Comparing Asia and Europe. Cambridge, Mass.: MIT Unions: A General-Equilibrium Analysis Applied to Press. Bangladesh and Indonesia." World Bank Economic Winters, L. Alan. 1996. "Structural Reform in OECD Review 11(l):145-70. Countries: Critical Interactions with the Rest of the Devarajan, Shantayanan, Lyn Squire, and Sethaput World." In Macroeconomic Policies and Structural Reform. Suthiwart-Narueput. 1997. "Beyond Rate of Return: OECD Proceedings. Paris. Reorienting Project Appraisal." World Bank Research . 1996. "The Uruguay Round: A Milestone for the Observer 12(1):35-46. Developing Countries." In B. Bora and M. Pangestu, Diwan, Ishac, and Michael Walton. 1997. "How eds., Priority Issues in Trade and Investment Liberalization: International Exchange, Technology, and Institutions 158 Bank Research Output Affect Workers: AnIntroduction." World Bank Economic Stiglitz, Joseph E., and Marilou Uy. 1996. "Financial Review 11(1):1-15. Markets, Public Policy, and the East Asian Miracle." Faruqee, Rashid, Jonathan R. Coleman, and Tom Scott. World Bank Research Observer 11(2):249-76. 1997. "Managing Price Risk in the Pakistan Wheat Tan, Hong, and Geeta Batra. 1997. "Technology and Firm Market." World Bank Economic Review 11(2):263-92. Size-Wage Differentials in Colombia, Mexico, and Gray, Cheryl W. 1996. "In Search of Owners: Privatization Taiwan (China)." World Bank Economic Review 11(1): and Corporate Governance in Transition Economies." 59-83. World Bank Research Observer 11(2):179-97. Tsur, Yacov, and Ariel Dinar. 1997. "The Relative Efficiency Gray, Cheryl W., Sabine Schlorke, and Miklos Szanyi. and Implementation Costs of Alternative Methods for 1996. "Hungary's Bankruptcy Experience, 1992-93." Pricing Irrigation Water." World Bank Economic Review World Bank Economic Review 10(3):425-50. 11(2):243-62. Hammer, Jeffrey S. 1997. "Economic Analysis for Health Vittas, Dimitri, and Yoon Je Cho. 1996. "Credit Policies: Projects." World Bank Research Observer 12(1):47-71. Lessons from Japan and Korea." World Bank Research Harberger, Arnold C. 1997. "New Frontiers in Project Observer 11(2):277-98. Evaluation? A Comment on Devarajan, Squire, and West, Edwin G. 1997. "Education Vouchers in Principle Suthiwart-Narueput." World Bank Research Observer and Practice: A Survey." World Bank Research Observer 12(1):73-79. 12(1):83-103. Henderson, J. Vernon, and Ari Kuncoro. 1996. "Industrial Wood, Adrian. 1997. "Openness and Wage Inequality in Centralization in Indonesia." World Bank Economic Developing Countries: The Latin American Challenge Review 10(3):513-40. to East Asian Conventional Wisdom." World Bank Hyde, William F., Gregory S. Amacher, and William Economic Review 11(1):33-57. Magrath. 1996. "Deforestation and Forest Land Use: Yitzhaki, Shlomo, and Jeffrey D. Lewis. 1996. "Guidelines Theory, Evidence, and Policy Implications." World on Searching for a Dalton-Improving Tax Reform: An Bank Research Observer 11(2):223-48. Illustration with Data from Indonesia." World Bank Isham, Jonathan, Daniel Kaufmann, and LantH. Pritchett. Economic Review 10(3):541-62. 1997. "Civil Liberties, Democracy, and the Performance of Government Projects." World Bank Economic Review 11(2):219-42. D. Articles Related to Bank Research and Mody, Ashoka, and Fang-Yi Wang. 1997. "Explaining Published in Non-Bank Professional Journals Industrial Growth in Coastal China: Economic Reforms ... and What Else?" World Bank Economic Review Abadzi,H. 1996. "Does Age Diminish the Ability to Learn 11(2):293-325. Fluent Reading?" Educational Psychology Review Pissarides, Christopher A. 1997. "Learning by Trading 8(4):373-95. and the Returns to Human Capital in Developing Adamolekun, L., N. Kulemeka, and M. Laleye. 1997. Countries." World Bank Economic Review 11(1):17-32. "Political Transition, Economic Liberalization, and Rama, Martin. 1997. "Organized Labor and the Political Civil Service Reform in Malawi." Public Administration Economy of Product Market Distortions." World Bank and Development 17(2):209-22. Economic Review 11(2):327-55. Adeyi, 0., G. Chellaraj, E. Goldstein, A. Preker, and Ravallion, Martin. 1996. "How Well Can Method D. Ringold. 1997. "Health Status during the Transition Substitute for Data? Five Experiments in Poverty in Central and Eastern Europe: Development Analysis." World Bank Research Observer 11(2):199-221. in Reverse?" Health Policy and Planning 12(2): Ravallion, Martin, and Shaohua Chen. 1997. "What Can 132-45. New Survey Data Tell Us about Recent Changes in Afsah, Shakeb, Benoit Laplante, and David Wheeler. 1996. Distribution and Poverty?" World Bank Economic Review "Recent Research on Industrial Pollution Control in 11(2):357-82. Developing Countries." Newsletter of the Association Roberts, Mark J., and James R. Tybout. 1997. "Producer of Environmental and Resource Economists 16(2):13-16. Turnover and Productivity Growth in Developing Alberini, Anna, Gunnar S. Eskeland, Alan Krupnick, and Countries." World Bank Research Observer 12(1):1-18. Gordon McGranahan. 1996. "Determinants of Squire, Lyn, and Sethaput Suthiwart-Narueput. 1997. Diarrheal Disease in Jakarta." Water Resources Research "The Impact of Labor Market Regulations." World Bank 32(7):2259-69. Economic Review 11(l):119-43. Alderman, Harold. 1996. "Saving and Economic Shocks Stiglitz, Joseph E. 1996. "Some Lessons from the East Asian in Rural Pakistan." Journal of Development Economics Miracle." World Bank Research Observer 11(2):151-77. 51(2):343-65. 159 Bank Research Output Alwang,J., P.B. Siegel, and S.L. Jorgensen. 1996. "Seeking Bryant, C. 1996. "Strategic Change through Sensible Guidelines for Poverty Reduction in Rural Zambia." Projects." World Development 24(9):1539-50. World Development 24(11):1711-23. Burnett, Nicholas. 1996. "Priorities and Strategies for Anderson, Kym, Betina Dimaranan, Tom Hertel, and Will Education: A World Bank Review-The Process and Martin. 1997. "Asia-Pacific Food Markets and Trade the Key Messages." International Journal of Educational in 2005: A Global, Economywide Perspective." Development 16(3):215-20. Australian Journal ofAgricultural and Resource Economics Burnett, Nicholas, and Harry Anthony Patrinos. 1997. 41(1):19-44. "Education and the Changing World Economy: The Atkinson, G., and K. Hamilton. 1996. "Accounting for Imperative of Reform." Prospects 27(2). Progress: Indicators for Sustainable Development." Burnside, Craig, and Martin Eichenbaum. 1996. "Factor- Environment 38(7). Hoarding and the Propagation of Business- Bach, Christian E, Will Martin, and J.A. Stevens. 1996. Cycle Shocks." American Economic Review 86(5): "China and the WTO: Tariff Offers, Exemptions, and 1154-74. Welfare Implications." Weltwirtschaftliches Archiv _ . 1996. "Small Sample Properties of GMM-Based 132(3):409-31. Wald Tests." Journal of Business and Economic Statistics Baffes, John. 1997. "Estimating Stationary Variables with 14(3):294-308. Nonstationary Regressors." Applied Economics Letters Byerlee, Derek, and P.W. Heisey. 1996. "Past and Potential 4(1):69-75. Impacts of Maize Research in Sub-Saharan Africa: Barnes, Douglas F., and Willem M. Floor. 1996. "Rural A Critical Assessment." Food Policy 21(3):255-77. Energy in Developing Countries: A Challenge for Calle, E.E., and others. 1996. "Breast Cancer and Hormonal Economic Development." Annual Review ofEnergy and Contraceptives: Further Results." Contraception the Environment 21:497-530. 54(3):PS1-S106. Barros, Ricardo, Louise Fox, and R. Mendonca. 1997. Campos, Jos6 Edgardo, and Sanjay Pradhan. 1997. "Female-Headed Households, Poverty, and the Welfare "Evaluating Public Expenditure Management Systems: of Children in Urban Brazil." Economic Development An Experimental Methodology with an Application and Cultural Change 45(2):231-57. to the Australia and New Zealand Reforms." Journal Bartone, Carl R., and Livia Benavides. 1997. "Local of Policy Analysis and Management 16(3):423-45. Management of Hazardous Wastes from Small-Scale Caprio, Gerard, Michael Dooley, Danny Leipziger, and and Cottage Industries." Waste Management and Carl Walsh. 1996. "The Lender of Last Resort Function Research 15(1):3-21. Under a Currency Board: The Case of Argentina." Open Basilico, N., D. Monti, P. Olliaro, and D. Taramelli. 1997. Economies Review 7(July):617-42. "Non-Iron Porphyrins Inhibit Beta-Haematin (Malaria Carrington, W.J., E. Detragiache, and T. Vishwanath. 1996. Pigment) Polymerisation." FEBS Letters 409(2): "Migration with Endogenous Moving Costs."American 297-99. Economic Review 86(4):909-30. Beckerman, Paul. 1997. "Central Bank Decapitalization Cernea, M.M. 1996. "The Experience of Sociological in Developing Economies." World Development Work." Sotsiologicheskie Issledovaniya 11:67-73. 25(2):167-78. Chaudhuri, K. 1997. "Stock Returns in Emerging Markets: Bender, W., and M. Smith. 1997. "Population, Food, and ACommon Trend Analysis." Applied Economics Letters Nutrition." Population Bulletin 51(4). 4(2):105-08. Bergmann, H. 1996. "Quality of Education and the Chu, H.Q., and Wafik Grais. 1996. "Energy Supply Shocks: Demand for Education: Evidence from Developing Macroeconomic Consequences for Ukraine." Journal Countries." International Review of Education 42(6): of Policy Modeling 18(6):643-88. 581-604. Cox, Donald, Emmanuel Jimenez, and W. Okrasa. 1997. Bertaud, Alain, and Bertrand Renaud. 1997. "Socialist "Family Safety Nets and Economic Transition: AStudy Cities without Land Markets." Journal of Urban of Worker Households in Poland." Review of Income Economics 41(1):137-51. and Wealth 2(June):191-209. Bidani, Benu, and Martin Ravallion. 1997. "Decomposing Cropper, Maureen L., Shreekant Gupta, and George Van Social Indicators Using Distributional Data." Journal Houtven. 1996. "Paying for Permanence: An Economic of Econometrics 77(1):125-39. Analysis of EPA's Cleanup Decisions at Superfund Brada, J.C., A. Hess, and I. Singh. 1996. "Corporate Sites." RAND Journal of Economics 27:563-82. Governance in Eastern Europe: Findings from Case de Melo, Martha, and Alan Gelb. 1996. "A Comparative Studies." Post-Soviet Geography and Economics 37(10): Analysis of 28 Transition Economies in Europe and 589-614. Asia." Post-Soviet Geography and Economics 37(5). 160 Bank Research Output Desai, R.M. 1996. "Reformed Banks and Corporate Giugale, Marcelo M., and M.J. Knudsen. 1996. "Protecting Governance in the Czech Republic, 1991-96." Post- Jobs or Protecting Rents: Back-of-the-Envelope." World Soviet Geography and Economics 37(8):463-94. Economy 19(5):545-53. Devarajan, Shantayanan. 1997. "Real Exchange Rate Glewwe, Paul. 1996. "The Relevance of Standard Misalignment in the CFA Zone." Journal of African Estimates of Rates of Return to Schooling for Education Economies 6(1):35-53. Policy: A Critical Assessment." Journal of Development Dinar, Ariel, and R.E. Howitt. 1997. "Mechanisms for Economics 51(2):267-90. Allocation of Environmental Control Cost: Empirical . 1997. "Estimating the Impact of Peer Group Effects Tests of Acceptability and Stability." Journal of on Socioeconomic Outcomes: Does the Distribution Environmental Management 49(2):183-203. of Peer Group Characteristics Matter?" Economics of Dinar, Ariel, and A. Keck. 1997. "Private Irrigation Education Review 16(1):39-43. Investment in Colombia: Effects of Violence, Macro- . 1997. "A Test of the Normality Assumption in the economic Policy, and Environmental Conditions." Ordered Probit Model." Econometric Reviews 16(1):1-19. Agricultural Economics 16(1):1-15. Goodland, R., and H. Daly. 1996. "Environmental Dollar, David. 1996. "Economic Reform, Openness, and Sustainability: Universal and Nonnegotiable." Vietnam's Entry into ASEAN." ASEAN Economic Ecological Applications 6(4):1002-17. Bulletin 13(2):169-84. .1996. "If Tropical Log Export Bans Are So Perverse, D'Silva, Emmanuel. 1997. "Why Institutional Reforms in Why Are There So Many?" Ecological Economics Forestry? Lessons from International Experience." 18(3):189-96. Natural Resources Forum 21(1):51-60. Gooptu, Sudarshan. 1996. "Emerging Policy Issues in Duda, A., and M. Nawar. 1996. "Implementing the World Development Finance." Quarterly Review ofEconomics Bank's Water Resources Management Policy: APriority and Finance 36(NSI):85-100. on Toxic Substances from Nonpoint Sources." Water Govindaraj, R., G. Chellaraj, and C.J.L. Murray. 1997. Science and Technology 33(4-5):45-51. "Health Expenditures in Latin America and the Essama Nssah, B. 1997. "Impact of Growth and Caribbean." Social Science and Medicine 44(2):157-69. Distribution on Poverty in Madagascar." Review of Grais, Wafik, and Kangbin Zheng. 1996. "Strategic Income and Wealth 2(June):239-52. Interdependence in European East-West Gas Trade: A Evans, D.B., G. Azene, and J. Kirigia. 1997. "Should Hierarchical Stackelberg Game Approach." Energy Governments Subsidize the Use of Insecticide- Journal 17(3):61-84. Impregnated Mosquito Nets in Africa? Implications Gray, Cheryl W., and Arnold Holle. 1996. "Bank-Led of a Cost-Effectiveness Analysis." Health Policy and Restructuring in Poland: The Conciliation Process in Planning 12(2):107-14. Action." Economics of Transition 4(2):349-70. Fane, G., and Timothy Condon. 1996. "Trade Reform in . 1997. "Bank-Led Restructuring in Poland II: Indonesia, 1987-95." Bulletin of Indonesian Economic Bankruptcy and Its Alternatives." Economics of Studies 32(3):33-54. Transition 5(1):25-44. Figueroa, P.R., and H. Fuenzalida. 1996. "Bioethics in Grootaert, Christiaan, Ravi Kanbur, and Gi-Taik Oh. 1997. Ibero-America and the Caribbean." Journal ofMedicine "The Dynamics of Welfare Gains and Losses: An and Philosophy 21(6):611-27. African Case Study." Journal of Development Studies Foster, S.S.D., and D.R.C. Grey. 1997. "Groundwater 33(5):635-57. Resources: Balancing Perspectives on Key Issues Harrison, Glenn W., Thomas E Rutherford, and David Affecting Supply and Demand." Journal ofthe Chartered G. Tarr. 1997. "Economic Implications for Turkey of a Institution of Water and Environmental Management Customs Union with the European Union." European 11(3):193-99. Economic Review 41(3-5):861-70. Freinkman, Lev M., and Irina Starodubrovskaya. 1996. Hartman, Raymond S., David Wheeler, and Manjula "Restructuring of Enterprise Social Assets in Russia: Singh. 1997. "The Cost of Air Pollution Abatement." Trends, Problems, Possible Solutions." Communist Applied Economics 29(6):759-74. Economies and Economic Transformation 8(4):437-69. Hassan, Fareed M.A., and Zeljko Bogetic. 1996. "Effects Galloway, Rae, and Judith McGuire. 1996. "Daily versus of Personal Income Tax on Income Distribution: Weekly: How Many Iron Pills Do Pregnant Women Example from Bulgaria." Contemporary Economic Policy Need?" Nutrition Reviews 54(10):318-23. 14(4):17-28. Ghosh, A.R., and H.C. Wolf. 1996. "On the Mark(s): Heleniak, T. 1997. "Internal Migration in Russia during Optimum Currency Areas in Germany." Economic the Economic Transition." Post-Soviet Geography and Modelling 13(4):561-73. Economics 38(2):81-104. 161 Bank Research Output Hendley, Kathryn, Barry W. Ickes, Peter Murrell, and Kaminski, Bartlomiej, Zhen Kun Wang, and L. Alan Randi Ryterman. 1997. "Observations on the Use of Winters. 1996. "Export Performance in Transition Law by Russian Enterprises." Post-Soviet Affairs Economies." Economic Policy (October):423-42. 13(1):19-41. Kanellopoulos, C., and George Psacharopoulos. 1997. Hettige, Hemamala, Mainul Huq, Sheoli Pargal, and "Private Education Expenditure in a 'Free Education' David Wheeler. 1996. "Determinants of Pollution Country: The Case of Greece." International Journal of Abatement in Developing Countries: Evidence from Educational Development 17(1):73-81. South and Southeast Asia." World Development Khanna, A. 1996. "Equity Investment Prospects in 24(12):1891-1904. Emerging Markets." Columbia Journal of World Business Higgins, Paul, and Harold Alderman. 1997. "Labor and 31(2):32-39. Women's Nutrition: The Impact of Work Effort and Knack, Stephen, and Philip Keefer. 1997. "Does Inequality Fertility on Nutritional Status in Ghana." Journal of Harm Growth Only in Democracies? A Replication Human Resources 33(3):577-95. and Extension." American Journal of Political Science Hoekman, Bernard, and Carlos Primo Braga. 1997. 41(1):323-32. "Protection and Trade in Services: A Survey." Open Krishna, Kala, Will Martin, and Ling Hui Tan. 1997. Economies Review 8(3):285-308. "Imputing License Prices: Limitations of a Cost-Based Hoekman, Bernard, and Simeon Djankov. 1996. "The Approach." Journal of Development Economics European Union's Mediterranean Free Trade 52(2):355-74. Initiative." World Economy 19(4):387-406. Kumari, Kanta. 1996. "Sustainable Forest Management- . 1997. "Effective Protection and Investment Myth or Reality? Exploring the Prospects for Incentives in Egypt and Jordan during the Transition Malaysia." Ambio 25(7):459-67. to Free Trade with Europe." World Development Lacey, Robert. 1997. "Internal Marketsinthe Public Sector: 25(2):281-91. The Case of the British National Health Service." Public Humplick, Frannie, and Azadeh Moini-Araghi. 1996. Administration and Development 17(1):141-59. "Optimal Structures for Decentralized Provision of Lakshminarayan, P.G., A. Bouzaher, and J.F. Shogren. Roads." Journalfor Infrastructure Systems (September): 1996. "Atrazine and Water Quality: An Evaluation of 127-38. Alternative Policy." Journal of Environmental Hurley, S.F., J.M. Kaldor, S. Gardiner, J.B. Carlin, R.M. Management 48(2):111-26. Assuncao, and D.B. Evans. 1996. "Lifetime Cost of Lakshminarayan, PG., P.W. Gassman, A. Bouzaher, and Human Immunodeficiency Virus: Related Health R.C. Izaurralde. 1996. "A Metamodeling Approach to Care." Journal ofAcquired Immune Deficiency Syndrome Evaluate Agricultural Policy Impact on Soil and Human Retrovirology 12(4):371-78. Degradation in Western Canada." Canadian Journal of Husein, M.H., M. Talaat, M.K. Elsayed, A. Elbadawi, and Agricultural Economics 44(3):277-94. D.B. Evans. 1996. "Who Misses Out with School-Based Laplante, Benoit, and Paul Rilstone. 1996. "Environmental Health Programs? A Study of Schistosomiasis Control Inspections and Emissions of the Pulp and Paper in Egypt." Transactions of the Royal Society of Tropical Industry in Quebec." Journal ofEnvironmental Economics Medicine and Hygiene 90(4):362-65. and Management 31(1):19-36. Ickes, Barry W., Peter Murrell, and Randi Ryterman. 1997. Larson, Donald, and Yair Mundlak. 1997. "On the "End of the Tunnel? The Effects of Financial Intersectoral Migration of Agricultural Labor." Stabilization in Russia." Post-Soviet Affairs 13(2). Economic Development and Cultural Change 45(2): Ingco, Merlinda D. 1996. "Tariffication in the Uruguay 295-319. Round: How Much Liberalization?" World Economy Levine, Ross. 1997. "Financial Development and 19(4):425-46. Economic Growth: Views and Agenda." Journal of Jacoby, Hanan. 1997. "Self-Selection and the Redistributive Economic Literature 35:688-726. Impact of In-Kind Transfers." Journal of Human Levinson, D.M., and A. Kumar. 1997. "Density and the Resources 32(2):233-49. 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PS162-75. Maredia, M.K., R. Ward, and Derek Byerlee. 1996. Pargal,Sheoli. 1996. "Do Incompatible NetworkStandards "Econometric Estimation of a Global Spillover Matrix Lead to Domestic Benefits? The Case of Color for Wheat Options." Agricultural Economics 14(3): Television." Information Economics and Policy 8(4): 159-73. 205-28. Mayo, Stephen, and S. Sheppard. 1996. "Housing Supply Pargal, Sheoli, and David Wheeler. 1996. "Informal under Rapid Economic Growth and Varying Regulation of Industrial Pollution in Developing Regulatory Stringency: An International Comparison." Countries." Journal ofPolitical Economy 104(6):1314-27. Journal of Housing Economics 5(3):274-89. Pichon, F.J. 1996. "Settler Agriculture and the Dynamics McGuire, Judith S., and Donald Bundy. 1997. "Nutrition, of Resource Allocation in Frontier Environments." Cognitive Development, and Economic Progress." Human Ecology 24(3):341-71. Society for Research in Child Development Social Policy _. 1997. "Settler Households and Land-Use Patterns Report 10(5). in the Amazon Frontier: Farm-Level Evidence from Meirik, 0., and G. Benagiano. 1996. "20 Years of Ecuador." World Development 25(1):67-91. Epidemiology in Fertility Regulation." Revue Poulter, N.R., C.L. Chang, T.M.M. Farley, 0. Meirik, and d'Epidbmiologie et de Santg Publique 44(6):577-87. M.G. Marmot. 1996. "Hemorrhagic Stroke, Overall Montes-Negret, Fernando. 1997. "The Polish Experience Stroke Risk, and Combined Oral Contraceptives: in Bank and Enterprise Restructuring." MOCT-MOST Results of an International, Multicenter, Case Control Economic Policy in Transitional Economies 7(1):79-104. Study." Lancet 348(9026):505-10. Moorthy, S., B.T. Ratchford, and D. Talukdar. 1997. . 1996. "Ischemic Stroke and Combined Oral "Consumer Information Search Revisited: Theory and Contraceptives: Results of an International, Empirical Analysis." Journal of Consumer Research Multicenter, Case-Control Study." Lancet 348(9026): 24(4):263-77. 498-505. Muthukumara, Mani. 1996. "Environmental Tariffs on Pritchett, Lant, and Larry M. Summers. 1996. "Wealthier Polluting Imports: An Empirical Study." Environmental Is Healthier." Journal ofHuman Resources 31(4):841-68. and Resource Economics 7:391-412. Psacharopoulos, George. 1996. "Designing Educational Myers, R., and Robert Lacey. 1996. "Consumer Policy: A Mini-Primer on Values, Theories, and Tools." Satisfaction, Performance, and Accountability in the International Journal of Educational Development Public Sector." International Review of Administrative 16(3):277-79. Sciences 62(3):331-50. . 1996. "Economics of Education: A Research Ng, Francis, and AlexanderYeats. 1997. "Open Economies Agenda." Economics of Education Review 15(4): Work Better!" World Development (June). 339-44. Ogunbekun, I., 0. Adeyi, A. Wouters, and R.H. Morrow. Psacharopoulos, George, J. Valenzuela, and M. Arends. 1996. "Costs and Financing of Improvements in the 1996. "Teacher Salaries in Latin America: A Review." Quality of Maternal Health Services through the Economics of Education Review 15(4):401-06. Bamako Initiative in Nigeria." Health Policy and Rajagopal, D., and A. Shah. 1997. "Taxation and Corporate Planning 11(4):369-84. Investment in Physical and Knowledge Capital: Tests Olliaro, P., C. Nevill, J. Lebras, P. Ringwald, P. Mussano, of Perfect Competition versus Market Power." Public P. Garner, and P. Brasseur. 1996. "Systematic Review Finance Review 25(2):182-212. of Amodiaquine Treatment in Uncomplicated Rajapatirana, Sarath. 1996. "Trade Policies, Macro- Malaria." Lancet 348(9036):1196-1201. economic Adjustment, and Manufactured Exports: Olliaro, P., and D. Wirth. 1997. "New Targets for The Latin American Experience." Weltwirtschaftliches Antimalarial Drug Discovery." Journal ofPharmacy and Archiv 132(3):558-85. Pharmacology 49(2):29-33. Rama, Martin. 1997. "Labor Market Institutions and the Ortiz-Monasterio, J.I., K.D. Sayre, S. 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Expanding the Measure of Wealth: Indicators of Costs and 'Natural' Integration in Mercosur." Policy Environmentally Sustainable Development. Environ- Research Working Paper 1742. World Bank, Inter- mentally Sustainable Development Studies and national Economics Department, Washington, DC. Monographs Series 17. Washington, DC. Andriamananjara, Shuby, and John Nash. 1997. "Have __ . 1997. Hashemite Kingdom of Jordan: Health Sector Trade Policy Reforms Led to Greater Openness in Study. World Bank Country Study. Washington, DC. Developing Countries?" Policy Research Working . 1997. India: Five Years ofStabilization and Reform and Paper 1730. World Bank, International Economics the Challenges Ahead. World Bank Country Study. Department, Washington, DC. Washington, DC. Baffes, John, and Madhur Gautam. 1996. "Is Growth in --. 1997. A Mining Strategy for Latin America and the Bangladesh's Rice Production Sustainable?" Policy Caribbean. World Bank Technical Paper 345. Washing- Research Working Paper 1666. World Bank, ton, DC. International Economics Department, Washington, __ . 1997. Republic of Kazakstan: Transition of the State. DC. World Bank Country Study. Washington, DC. Baffes, John, and Jacob Meerman. 1997. "From Prices to . 1997. Russia: Forest Policy during Transition. World Incomes: Agricultural Subsidization without Bank Country Study. Washington, DC. Protection?" Policy Research Working Paper 1776. World Bank Operations Evaluation Department. 1997. World Bank, International Economics Department, 1995 Evaluation Results. Washington, DC. Washington, DC. Young, Robert A. 1996. Measuring Economic Benefits for Barbone, Luca, and Lorenzo Forni. 1997. "Are Markets Water Investments and Policies. World Bank Technical Learning? Behavior in the Secondary Market for Brady Paper 338. Washington, DC. Bonds." Policy Research Working Paper 1734. World Yusuf, Shahid, and Praveen Kumar. 1996. Developing the Bank, Europe and Central Asia, Country Department Nonfarm Sector in Bangladesh: Lessons from Other Asian II, Washington, DC. Countries. World Bank Discussion Paper 340. Barbone, Luca, Domenico Marchetti Jr., and Stefano Washington, DC. Paternostro. 1996. "Structural Adjustment, Ownership Transformation, and Size in Polish Industry." Policy Research Working Paper 1624. World Bank, Europe F. Policy Research Working Papers and CentralAsia, Country Departmentll, Washington, DC. Afsah, Shakeb, Benoit Laplante, and David Wheeler. 1996. Barbone, Luca, and Juan Zalduendo. 1997. "EU Accession "Controlling Industrial Pollution: A New Paradigm." of Central and Eastern Europe: Bridging the Income Policy Research Working Paper 1672. World Bank, Gap." Policy Research Working Paper 1721. World Policy Research Department, Washington, DC. Bank, Europe and Central Asia, Country Department Agrawal, Nisha. 1996. "The Benefits of Growth for II, Washington, DC. Indonesian Workers." Policy Research Working Paper Belli, Pedro. 1996. "Is Economic Analysis of Projects Still 1637. World Bank, East Asia and Pacific, Country Useful?" Policy Research Working Paper 1689. World Department III, Washington, DC. Bank, Operations Policy Department, Washington, Alderman, Harold, Jere R. Behrman, Victor Lavy, and DC. Rekha Menon. 1997. "Child Nutrition, Child Health, Binswanger, Hans P., and Klaus Deininger. 1997. and School Enrollment: A Longitudinal Analysis." "Explaining Agricultural and Agrarian Policies in Policy Research Working Paper 1700. World Bank, Developing Countries." Policy Research Working Policy Research Department, Washington, DC. Paper 1765. World Bank, Agriculture and Natural Alexander, Ian, and Colin Mayer. 1997. "Creating Resources Department and Policy Research Incentives for Private Infrastructure Companies to Department, Washington, DC. 170 Bank Research Output Blomstr6m, Magnus, and Ari Kokko. 1997. "How Foreign Canagarajah, Sudharshan, and Saji Thomas. 1997. Investment Affects Host Countries." Policy Research "Ghana's Labor Market (1987-92)." Policy Research Working Paper 1745. World Bank, International Working Paper 1752. World Bank, Human Economics Department, Washington, DC. Development 3, Africa Technical Families, Washington, . 1997. "Regional Integration and Foreign Direct DC. Investment: A Conceptual Framework and Three Caprio, Gerard, Jr. 1997. "Safe and Sound Banking in Cases." Policy Research Working Paper 1750. World Developing Countries: We're Not in Kansas Anymore." Bank, International Economics Department, Policy Research Working Paper 1739. World Bank, Washington, DC. Policy Research Department, Washington, DC. Bond, Eric. 1997. "Using Tariff Indices to Evaluate Caprio, Gerard, Jr., and Ash Demirgiiq-Kunt. 1997. "The Preferential Trading Arrangements: An Application Role of Long-Term Finance: Theory and Evidence." to Chile." Policy Research Working Paper 1751. World Policy Research Working Paper 1746. World Bank, Bank, International Economics Department, Policy Research Department, Washington, DC. Washington, DC. Caprio, Gerard, Jr., Michael Dooley, Danny Leipziger, Brahmbhatt, Milan, T.G. Srinivasan, and Kim Murrell. and Carl Walsh. 1996. "The Lender of Last Resort 1996. "India in the Global Economy." Policy Research Function under a Currency Board: The Case of Working Paper 1681. World Bank, International Argentina." Policy Research Working Paper 1648. Economics Department, Washington, DC. World Bank, Policy Research Department, Washington, Broadman, Harry G., and Xiaolun Sun. 1997. "The DC. Distribution of Foreign Direct Investment in China." Caprio, Gerard, Jr., and Daniela Klingebiel. 1996. "Bank Policy Research Working Paper 1720. World Bank, Insolvencies: Cross-Country Experience." Policy China and Mongolia Department, Washington, DC. Research Working Paper 1620. World Bank, Policy Brock, Philip L. 1996. "High Real Interest Rates, Guarantor Research Department, Washington, DC. Risk, and Bank Recapitalizations." Policy Research Chiswick, Barry R. 1997. "Interpreting the Coefficient of Working Paper 1683. World Bank, Office of the Senior Schooling in the Human Capital Earnings Function." Vice President, Development Economics and Chief Policy Research Working Paper 1790. World Bank, Economist, Washington, DC. Human Development Department, Washington, DC. Brunetti, Aymo, Gregory Kisunko, and Beatrice Weder. Chomitz, Kenneth M., and Charles Griffiths. 1997. "An 1997. "Credibility of Rules and Economic Growth: Economic Analysis of Woodfuel Management in the Evidence from a Worldwide Survey of the Private Sahel: The Case of Chad." Policy Research Working Sector." Policy Research Working Paper 1760. World Paper 1788. World Bank, Policy Research Department, Bank, Office of the Senior Vice President, Development Washington, DC. Economics and Chief Economist, Washington, DC. Chuhan, Punam, Gabriel Perez-Quiros, and Helen Popper. -. 1997. "Institutional Obstacles to Doing Business: 1996. "International Capital Flows: Do Short-Term Region-by-Region Results from a Worldwide Survey Investment and Direct Investment Differ?" Policy of the Private Sector." Policy Research Working Paper Research Working Paper 1669. World Bank, Inter- 1759. World Bank, Office of the Senior Vice President, national Economics Department, Washington, DC. Development Economics and Chief Economist, Claessens, Stijn. 1996. "Banking Reform in Transition Washington, DC. Countries." Policy Research Working Paper 1642. Burnside, Craig, and David Dollar. 1997. "Aid, Policies, World Bank, Office of the Senior Vice President, and Growth." Policy Research Working Paper 1777. Development Economics and Chief Economist, World Bank, Policy Research Department, Washington, Washington, DC. DC. Claessens, Stijn, Simeon Djankov, and Gerhard Pohl. 1997. Campos, Ed, and Sanjay Pradhan. 1996. "Budgetary "Ownership and Corporate Governance: Evidence Institutions and Expenditure Outcomes: Binding from the Czech Republic." Policy Research Working Governments to Fiscal Performance." Policy Research Paper 1737. World Bank, Office of the Regional Vice Working Paper 1646. World Bank, Policy Research President, East Asia and Pacific, and Europe and Department, Washington, DC. Central Asia, and Middle East and North Africa Canagarajah, Sudharshan, John Ngwafon, and Saji Technical Department, Washington, DC. Thomas. 1997. "The Evolution of Poverty and Welfare Cohen, Daniel. 1996. "The Sustainability of African Debt." in Nigeria, 1985-92." Policy Research Working Paper Policy Research Working Paper 1621. World Bank, 1715. World Bank, Africa Technical Families, International Economics Department, Washington, Washington, DC. DC. 171 Bank Research Output Commander, Simon, Hamid R. Davoodi, and Une J. Lee. Research Working Paper 1738. World Bank, Policy 1997. "The Causes of Government and the Conse- Research Department, Washington, DC. quences for Growth and Well-Being." Policy Research Datt, Gaurav, and Martin Ravallion. 1996. Working Paper 1785. World Bank, Office of the Senior "Macroeconomic Crises and Poverty Monitoring: A Vice President, Development Economics and Chief Case Study for India." Policy Research Working Paper Economist, Washington, DC. 1685. World Bank, Policy Research Department, Commander, Simon, and Andrei Tolstopiatenko. 1996. Washington, DC. "Restructuring and Taxation in Transition Economies." de Crombrugghe, Alain. 1997. "Wage and Pension Policy Research Working Paper 1625. World Bank, Pressure on the Polish Budget." Policy Research Economic Development Institute, Washington, DC. Working Paper 1793. World Bank, Office of the Senior Considine, Timothy J., and Donald F. Larson. 1996. Vice President, Development Economics and Chief "Uncertainty and the Price for Crude Oil Reserves." Economist, and Research Advisory Staff, Washington, Policy Research Working Paper 1655. World Bank, DC. International Economics Department, Washington, de Melo, Martha, and Cevdet Denizer. 1997. "Monetary DC. Policy during Transition: An Overview." Policy Coolidge, Jacqueline, and Susan Rose-Ackerman. 1997. Research Working Paper 1706. World Bank, Policy "High-Level Rent-Seeking and Corruption in African Research Department, Washington, DC. Regimes: Theory and Cases." Policy Research Working Demirgilg-Kunt, Ash, and Vojislav Maksimovic. 1996. Paper 1780. World Bank, Private Sector Development "Financial Constraints, Uses of Funds, and Firm Department, Washington, DC. Growth: An International Comparison." Policy Cropper, Maureen, Charles Griffiths, and Muthukumara Research Working Paper 1671. World Bank, Policy Mani. 1997. "Roads, Population Pressures, and Research Department, Washington, DC. Deforestation in Thailand, 1976-89." Policy Research . 1996. "Institutions, Financial Markets, and Firms' Working Paper 1726. World Bank, Policy Research Choice of Debt Maturity." Policy Research Working Department, Washington, DC. Paper 1686. World Bank, Policy Research Department, Cuddington, John T. 1997. "Analyzing the Sustainability Washington, DC. of Fiscal Deficits in Developing Countries." Policy DeRosa, Dean A. 1997. "Agricultural Trade and Rural Research Working Paper 1784. World Bank, Development in the Middle East and North Africa: International Economics Department, Washington, Recent Developments and Prospects." Policy Research DC. Working Paper 1732. World Bank, International Dasgupta, Susmita, Mainul Huq, and David Wheeler. Economics Department, Washington, DC. 1997. "Bending the Rules: Discretionary Pollution Devarajan, Shantayanan, Delfin Go, Maurice Schiff, and Control in China." Policy Research Working Paper Sethaput Suthiwart-Narueput. 1996. "The Whys and 1761. World Bank, Policy Research Department, Why Nots of Export Taxation." Policy Research Washington, DC. Working Paper 1684. World Bank, Policy Research Dasgupta, Susmita, Mainul Huq, David Wheeler, and Department and International Economics Department, Chonghua Zhang. 1996. "Water Pollution Abatement Washington, DC. by Chinese Industry: Cost Estimates and Policy Dinar, Ariel, Mark W. Rosegrant, and Ruth Meinzen-Dick. Implications." Policy Research Working Paper 1630. 1997. "Water Allocation Mechanisms: Principles and World Bank, Policy Research Department, Washington, Examples." Policy Research Working Paper 1779. DC. World Bank, Agriculture and Natural Resources Dasgupta, Susmita, Ashoka Mody, and Sarbajit Sinha. Department, and International Food Policy Research 1996. "Japanese Multinationals in Asia: Capabilities Institute, Washington, DC. and Motivations." Policy Research Working Paper Dion, Catherine, Paul Lanoie, and Benoit Laplante. 1997. 1634. World Bank, East Asia and Pacific, Office of the "Monitoring Environmental Standards: Do Local Regional Vice President, Washington, DC. Conditions Matter?" Policy Research Working Paper Dasgupta, Susmita, and David Wheeler. 1997. "Citizen 1701. World Bank, Policy Research Department, Complaints as Environmental Indicators: Evidence Washington, DC. from China." Policy Research Working Paper 1704. Djankov, Simeon, and Bernard Hoekman. 1997. "Trade World Bank, Policy Research Department, Washington, Reorientation and Productivity Growth in Bulgarian DC. Enterprises." Policy Research Working Paper 1707. Datt, Gaurav, and Dileni Gunewardena. 1997. "Some World Bank, International Economics Department, Aspects of Poverty in Sri Lanka: 1985-90." Policy Washington, DC. 172 Bank Research Output Djankov, Simeon, and Gerhard Pohl. 1997. "The Research Working Paper 1647. World Bank, Europe Restructuring of Large Firms in Slovakia." Policy and Central Asia, Country Department IV, Washington, Research Working Paper 1758. World Bank, Europe DC. and Central Asia Technical Department, Washington, Fox, William, and Christine Wallich. 1997. "Fiscal DC. Federalism in Bosnia-Herzegovina: The Dayton Duraisamy, P., Estelle James, Julia Lane, and Jee-Peng Challenge." Policy Research Working Paper 1714. Tan. 1997. "Is There a Quantity-Quality Tradeoff as World Bank, Europe and Central Asia, Central Europe Enrollments Increase? Evidence from Tamil Nadu, Department, Washington, DC. India." Policy Research Working Paper 1768. World Freinkman, Lev M., and Irina Starodubrovskaya. 1996. Bank, Policy Research Department and Human "Restructuring of Enterprise Social Assets in Russia: Development Department, Washington, DC. Trends, Problems, Possible Solutions." Policy Research Easterly, William, Norman Loayza, and Peter Montiel. Working Paper 1635. World Bank, Europe and Central 1997. 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Policy Research Working Paper Washington, DC. 1744. World Bank, Policy Research Department, Gertler, Paul J., and Jeffrey S. Hammer. 1997. "Strategies Washington, DC. for Pricing Publicly Provided Health Services." Policy Faruqee, Rashid. 1997. "Using Economic Policy to Research Working Paper 1762. World Bank, Policy Improve Environmental Protection in Pakistan." Policy Research Department, Washington, DC. Research Working Paper 1757. World Bank, South Asia, Gray, Cheryl W., and Arnold Holle. 1996. "Bank-Led Country Department I, Washington, DC. Restructuring in Poland: An Empirical Look at the Faruqee, Rashid, and Kevin Carey. 1997. "Research on Bank Conciliation Process." Policy Research Working Land Markets in South Asia: What Have We Learned?" Paper 1650. World Bank, Policy Research Department, Policy Research Working Paper 1754. World Bank, Washington, DC. South Asia, Country Department I, Washington, DC. _ . 1996. "Bank-Led Restructuring in Poland: Feng, Yushu. 1997. "China and the Multilateral Investment Bankruptcy and Its Alternatives." Policy Research Guarantee Agency." Policy Research Working Paper Working Paper 1651. World Bank, Policy Research 1763. World Bank Group/MIGA, Office of the Vice Department, Washington, DC. President and General Counsel, Washington, DC. Grootaert, Christiaan. 1997. "Poverty and Social Transfers Ferreira, M. Luisa. 1996. "Poverty and Inequality dur- in Hungary." Policy Research Working Paper 1770. ing Structural Adjustment in Rural Tanzania." Policy World Bank, Environment Department, Washington, Research Working Paper 1641. World Bank, Policy DC. Research Department, Washington, DC. Guasch, J. Luis. 1997. "The Costs and Benefits of Figiel, Szczepan, Tom Scott, and Panos Varangis. 1997. Regulation: Implications for Developing Countries." "How Government Policies Affect the Relationship Policy Research Working Paper 1773. World Bank, between Polish and World Wheat Prices." Policy Office of the Senior Vice President, Development Eco- Research Working Paper 1778. World Bank, Inter- nomics and Chief Economist, and Latin America and national Economics Department, Washington, DC. the Caribbean Technical Department, Washington, DC. Filmer, Deon, and Lant Pritchett. 1996. "Environmental Harrison, Glenn W., Thomas F. Rutherford, and David Degradation and the Demand for Children: Searching G. Tarr. 1997. "Trade Policy Options for Chile: A for the Vicious Circle." Policy Research Working Paper Quantitative Evaluation." Policy Research Working 1623. World Bank, Policy Research Department, Paper 1783. World Bank, International Economics Washington, DC. Department, Washington, DC. Fleming, Alex, Lily Chu, and Marie-Ren6e Bakker. 1996. Hartman, Raymond S., Mainul Huq, and David Wheeler. "The Baltics-Banking Crises Observed." Policy 1997. "Why Paper Mills Clean Up: Determinants of 173 Bank Research Output Pollution Abatement in Four Asian Countries." Policy . 1996. "Is There an Optimal Structure for Research Working Paper 1710. World Bank, Policy Decentralized Provision of Roads?" Policy Research Research Department, Washington, DC. Working Paper 1657. World Bank, Policy Research Hernindez, Leonardo, and Saori N. Katada. 1996. "Grants Department, Washington, DC. and Debt Forgiveness in Africa." Policy Research Ingco, Merlinda D. 1997. "Has Agricultural Trade Working Paper 1653. World Bank, International Liberalization Improved Welfare in the Least- Economics Department, Washington, DC. Developed Countries? Yes." Policy Research Working Hoekman, Bernard. 1997. "Competition Policy and the Paper 1748. World Bank, International Economics Global Trading System: A Developing-Country Department, Washington, DC. Perspective." Policy Research Working Paper 1735. Jaffee, Dwight M., and Bertrand Renaud. 1996. "Strategies World Bank, International Economics Department, to Develop Mortgage Markets in Transition Washington, DC. Economies." Policy Research Working Paper 1697. Hoekman, Bernard, and Carlos A. Primo Braga. 1997. World Bank, Financial Sector Development Depart- "Protection and Trade in Services: A Survey." Policy ment, Washington, DC. Research Working Paper 1747. World Bank, Jalan, Jyotsna, and Martin Ravallion. 1996. "Are There International Economics Department, Washington, Dynamic Gains from a Poor-Area Development DC. Program?" Policy Research Working Paper 1695. Hoekman, Bernard, and Simeon Djankov. 1996. "Intra- World Bank, Policy Research Department, Washington, Industry Trade, Foreign Direct Investment, and the DC. Reorientation of Eastern European Exports." Policy James, Estelle. 1997. "New Systems for Old Age Security: Research Working Paper 1652. World Bank, Europe Theory, Practice, and Empirical Evidence." Policy and Central Asia, and Middle East and North Africa Research Working Paper 1766. World Bank, Policy Technical Department, Washington, DC. Research Department, Washington, DC. ___. 1997. "Competition Law in Bulgaria after Central _. 1997. "Pension Reform: Is There a Tradeoff between Planning." Policy Research Working Paper 1789. World Efficiency and Equity?" Policy Research Working Paper Bank, International Economics Department, 1767. World Bank, Policy Research Department, Washington, DC. Washington, DC. Holden, Paul, and Mateen Thobani. 1996. "Tradable Water Jaramillo, Fidel, and Fabio Schiantarelli. 1997. "Access to Rights: A Property RightsApproach to Resolving Water Long-Term Debt and Effects on Firms' Performance: Shortages and Promoting Investment." Policy Research Lessons from Ecuador." Policy Research Working Working Paper 1627. World Bank, Latin America and Paper 1725. World Bank, Policy Research Department, the Caribbean Technical Department, Washington, DC. Washington, DC. Honohan, Patrick, and Dimitri Vittas. 1996. "Bank Jones, Christine, and Xiao Ye. 1997. 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"How Prices and Macroeconomic Department, Washington, DC. Policies Affect Agricultural Supply and the Lanjouw, Jean Olson, and Peter Lanjouw. 1997. "Poverty Environment." Policy Research Working Paper 1645. Comparisons with Noncompatible Data: Theory and World Bank, Policy Research Department, Washington, Illustrations." Policy Research Working Paper 1709. DC. World Bank, PolicyResearch Department, Washington, Mani, Muthukumara, Sheoli Pargal, and Mainul Huq. DC. 1997. "Does Environmental Regulation Matter? Lanoie, Paul, Benoit Laplante, and Mait6 Roy. 1997. "Can Determinants of the Location of New Manufacturing Capital Markets Create Incentives for Pollution Plants in India in 1994." Policy Research Working Paper Control?" Policy Research Working Paper 1753. World 1718. World Bank, Policy Research Department, Bank, Policy Research Department, Washington, DC. Washington, DC. Larson, Donald F. 1996. "Indonesia's Palm Oil Subsector." Manning, Chris. 1997. "Regional Labor Markets during Policy Research Working Paper 1654. World Bank, Deregulation in Indonesia: Have the Outer Islands International Economics Department, Washington, Been Left Behind?" Policy Research Working Paper DC. 1728. World Bank, East Asia and Pacific, Country Leechor, Chad. 1996. "Reforming Indonesia's Pension Department III, Washington, DC. System." Policy Research Working Paper 1677. World Mason, Andrew D., and Jacqueline Baptist. 1996. "How Bank, East Asia and Pacific, Country Department III, Important Are Labor Markets to the Welfare of Washington, DC. Indonesia's Poor?" Policy Research Working Paper Levine, Ross. 1996. "Financial Development and 1665. World Bank, Poverty and Social Policy Economic Growth: Views and Agenda." Policy Department, and East Asia and Pacific, Country Research Working Paper 1678. World Bank, Policy Department III, Washington, DC. Research Department, Washington, DC. McMahon, Gary. 1997. "Applying Economic Analysis to Levine, Ross, and Sara Zervos. 1996. "Capital Control Technical Assistance Projects." Policy Research Liberalization and Stock Market Development." Policy Working Paper 1749. World Bank, Policy Research Research Working Paper 1622. World Bank, Policy Department, Washington, DC. Research Department, Washington, DC. Michalopoulos, Constantine, and David G. Tarr. 1997. . 1996. "Stock Markets, Banks, and Economic "The Economics of Customs Unions in the Growth." Policy Research Working Paper 1690. World Commonwealth of Independent States." Policy Bank, Policy Research Department, Washington, DC. Research Working Paper 1786. World Bank, Lewis, Jeffrey D., and Sherman Robinson. 1996. "Partners International Economics Department and Russia and or Predators? The Impact of Regional Trade Central Asia Department, Washington, DC. Liberalization on Indonesia." Policy Research Working Milanovic, Branko. 1996. "Nations, Conglomerates, and Paper 1626. World Bank, East Asia and Pacific, Country Empires: The Tradeoff between Income and Department III, Washington, DC. Sovereignty." Policy Research Working Paper 1675. Listfield, Robert, and Fernando Montes-Negret. 1996. World Bank, Policy Research Department, Washington, "Brazil's Efficient Payment System: A Legacy of High DC. Inflation." Policy Research Working Paper 1680. World Montes-Negret, Fernando, and Luca Papi. 1997. "The Bank, Financial Sector Development Department, Polish Experience with Bank and Enterprise Washington, DC. Restructuring." Policy Research Working Paper 1705. Loayza, NormanA. 1997. "The Economics of the Informal World Bank, Financial Sector Development Sector: A Simple Model and Some Empirical Evidence Department, Washington, DC. from Latin America." Policy Research Working Paper Navaretti, Giorgio Barba, and Carlo Carraro. 1996. "From 1727. World Bank, Policy Research Department, Learning to Partnership: Multinational Research and Washington, DC. 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Policy Its Marginalization in World Trade?" Policy Research Research Working Paper 1787. World Bank, Working Paper 1636. World Bank, International International Economics Department, Washington, Economics Department, Washington, DC. DC. Otsubo, Shigeru. 1996. "Globalization: A New Role for Queisser, Monika. 1996. "Pensions in Germany." Policy Developing Countries in an Integrating World." Policy Research Working Paper 1664. World Bank, Financial Research Working Paper 1628. World Bank, Sector Development Department, Washington, DC. International Economics Department, Washington, Queisser, Monika, Clive Bailey, and John Woodall. 1997. DC. "Reforming Pensions in Zambia: An Analysis of Otsubo, Shigeru, and Masahiko Tsutsumi. 1996. "Is the Existing Schemes and Options for Reform." Policy 'Japan Problem' Real? How Problems in Japan's Research Working Paper 1716. World Bank, Financial Financial Sector Could Affect Developing Regions." Sector Development Department, Washington, DC. Policy Research Working Paper 1682. World Bank, Rajapatirana, Sarath. 1996. "Evaluating Bolivia's Choices International Economics Department, Washington, for Trade Integration." Policy Research Working Paper DC.- 1632. World Bank, Operations Policy Department, Padoan, Pier Carlo. 1996. "Trade and the Accumulation Washington, DC. and Diffusion of Knowledge." Policy Research Rama, Martin. 1996. "The Consequences of Doubling the Working Paper 1679. World Bank, International Minimum Wage: The Case of Indonesia." Policy Economics Department, Washington, DC. Research Working Paper 1643. World Bank, Policy . 1997. "Technology Accumulation and Diffusion: Research Department, Washington, DC. Is There a Regional Dimension?" Policy Research Randolph, Susan, Zeljko Bogetic, and Dennis Hefley. 1996. Working Paper 1781. World Bank, International "Determinants of Public Expenditure on Infrastructure: Economics Department, Washington, DC. Transportation and Communication." Policy Research Panagariya, Arvind, Shekhar Shah, and Deepak Mishra. Working Paper 1661. World Bank, Europe and Central 1996. "Demand Elasticities in International Trade: Are Asia, Country Department I, Washington, DC. They Really Low?" Policy Research Working Paper Ravallion, Martin. 1996. "Famines and Economics." Policy 1712. World Bank, South Asia, Country Department Research Working Paper 1693. World Bank, Policy I, Washington, DC. Research Department, Washington, DC. Pangestu, Mari, and Medelina K. Hendytio. 1997. "Survey . 1997. "Can High-Inequality Developing Countries Responses from Women Workers in Indonesia's Textile, Escape Absolute Poverty?" Policy Research Working Garment, and Footwear Industries." Policy Research Paper 1775. World Bank, Policy Research Department, Working Paper 1755. World Bank, East Asia and Pacific, Washington, DC. Country Department III, Washington, DC. Ravallion, Martin, and Shaohua Chen. 1996. "What Can Pfaff, Alexander S.P. 1997. 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Government Liabilities in New Zealand." Policy Policy Research Working Paper 1731. World Bank, Research Working Paper 1703. World Bank, Europe Europe and Central Asia, Country Department IV, and Central Asia, Country Department II, Washington, Washington, DC. DC. Ruppert, Elizabeth. 1996. "Unemployment Insurance in Pritchett, Lant. 1996. "Mind Your P's and Q's: The Cost Algeria: Implications for a Labor Market in Transition." of Public Investment Is Not the Value of Public Policy Research Working Paper 1659. World Bank, Capital." Policy Research Working Paper 1660. World Middle East and North Africa, Country Department Bank, Policy Research Department, Washington, DC. I, Washington, DC. 176 Bank Research Output Samuel, Cherian. 1996. "Internal Finance and Investment: Shah, Hemant. 1997. "Toward Better Regulation of Private Another Look." Policy Research Working Paper 1663. Pension Funds." Policy Research Working Paper 1791. World Bank, Operations Policy Department, World Bank, Latin America and the Caribbean Washington, DC. Technical Department, Washington, DC. .1996. "The Investment Decision: A Re-Examination Shirley, Mary M., and Lixin Colin Xu. 1997. "Information, of Competing Theories Using Panel Data." Policy Incentives, and Commitment: An Empirical Analysis Research Working Paper 1656. World Bank, Operations of Contracts between Government and State Policy Department, Washington, DC. Enterprises." Policy Research Working Paper 1769. Satyanarayan, Sudhakar, and Eduardo Somensatto. 1997. World Bank, Policy Research Department, Washington, "Tradeoffs from Hedging Oil Price Risk in Ecuador." DC. Policy Research Working Paper 1792. World Bank, Stephanou, Constantinos. 1996. "Regulating Market Risk Latin America and the Caribbean, Country Department in Banks: A Comparison of Alternative Regulatory m, Washington, DC. Regimes." Policy Research Working Paper 1692. World Schiantarelli, Fabio, and Alessandro Sembenelli. 1996. Bank, Financial Sector Development Department, "Form of Ownership and Financial Constraints." Policy Washington, DC. Research Working Paper 1629. World Bank, Policy Svensson, Jakob. 1997. "When Is Foreign Aid Policy Research Department, Washington, DC. Credible? Aid Dependence and Conditionality." Policy -. 1997. "The Maturity Structure of Debt: Deter- Research Working Paper 1740. World Bank, Policy minants and Effects on Firms'Performance-Evidence Research Department, Washington, DC. from the United Kingdom and Italy." Policy Research van der Meulen Rodgers. 1997. "A Reversal of Fortune Working Paper 1699. World Bank, Policy Research for Korean Women: Explaining 1983's Upward Turn Department, Washington, DC. in Relative Earnings." Policy Research Working Paper Schiantarelli, Fabio, and Vivek Srivastava. 1997. "Debt 1764. World Bank, Poverty and Social Policy Maturity and Firm Performance: A Panel Study of Department, Washington, DC. Indian Companies." Policy Research Working Paper van de Walle, Dominique. 1996. "Assessing the Welfare 1724. World Bank, Policy Research Department, Impacts of Public Spending." Policy Research Working Washington, DC. Paper 1670. World Bank, Policy Research Department, Schiavo-Campo, Salvatore, Giulio de Tommaso, and Washington, DC. Amitabha Mukherjee. 1997. "Government Employ- Varangis, Panos, and Don Larson. 1996. "Dealing with ment and Pay: A Global and Regional Perspective." Commodity Price Uncertainty." Policy Research Policy Research Working Paper 1771. World Bank, Working Paper 1667. World Bank, International Office of the Senior Vice President, Development Economics Department, Washington, DC. Economics and Chief Economist, and Europe and Vittas, Dimitri. 1996. "Private Pension Funds in Hungary: Central Asia, Middle East and North Africa Technical Early Performance and Regulatory Issues." Policy Department, Washington, DC. Research Working Paper 1638. World Bank, Financial Schiff, Maurice. 1996. "Small Is Beautiful: Preferential Sector Development Department, Washington, Trade Agreements and the Impact of Country Size, DC. Market Share, Efficiency, and Trade Policy." Policy Wang, Hua, and David Wheeler. 1996. "Pricing Industrial Research Working Paper 1668. World Bank, Interna- Pollution in China: An Econometric Analysis of the tional Economics Department, Washington, DC. Levy System." Policy Research Working Paper 1644. -. 1996. "South-North Migration and Trade: A World Bank, Policy Research Department, Washington, Survey." Policy Research Working Paper 1696. World DC. Bank, International Economics Department, Watkins, G.C., and Shane Streifel. 1997. "World Crude Washington, DC. Oil Resources: Evidence from Estimating Supply Serv6n, Luis. 1997. "Uncertainty, Instability, and Functions for 41 Countries." Policy Research Working Irreversible Investment: Theory, Evidence, and Lessons Paper 1756. World Bank, International Economics for Africa." Policy Research Working Paper 1722. World Department, Washington, DC. Bank, Policy Research Department, Washington, DC. Wiebe, Franck. 1996. "Income Insecurity and Under- Sewell, David. 1997. "Shifting Responsibility for Social employment in Indonesia's Informal Sector." Policy Services as Enterprises Privatize in Belarus." Policy Research Working Paper 1639. World Bank, East Asia Research Working Paper 1719. World Bank, Europe and Pacific, Country Department m, Washington, DC. and Central Asia, Technical Department and Country Winters, L. Alan. 1996. "Regionalism versus Multi- Department IV, Washington, DC. lateralism." Policy Research Working Paper 1687. 177 Bank Research Output World Bank, International Economics Department, Simoneti, Marko. 1997. "Issues in Regulating Post- Washington, DC. Privatization Securities Markets in Transitional Winters, L. Alan, and Won Chang. 1997. "Regional Economies." EDI Working Paper. Integration and the Prices of Imports: An Empirical Investigation." Policy Research Working Paper 1782. Environment Department World Bank, International Economics Department, Washington, DC. Lovei, Magda. 1996. "Phasing Out Lead from Gasoline: Xu, Lixin Colin. 1997. "How China's Government and Worldwide Experience and Policy Implications." State Enterprises Partitioned Property and Control Environment Department Paper 40. Rights." Policy Research Working Paper 1743. World Lovei, Magda, and Charles Weiss Jr. 1997. "Environmental Bank, Policy Research Department, Washington, DC. Management and Institutions in OECD Countries: -___. 1997. "The Productivity Effects of Decentralized Lessons from Experience." Environment Department Reforms: An Analysis of the Chinese Industrial Paper 46. Reforms." Policy Research Working Paper 1723. World Bank, Finance and Private Sector Development Human Capital Development Vice Presidency Department, Washington, DC. Xu, Xiaonian, and Yan Wang. 1997. "Ownership Structure, Bosch, Andrea. 1997. "Interactive Radio Instruction: Corporate Governance, and Corporate Performance: Twenty-Three Years of Improving Educational Qua- The Case of Chinese Stock Companies." Policy lity." Education and Technology Series vol. 1, no. 10. Research Working Paper 1794. World Bank, Economic Chiswick, Barry. 1996. "The Economics of Language: The Development Institute, Washington, DC. Roles of Education and Labor Market Outcomes." Yeats, Alexander. 1997. "Does Mercosur's Trade HCD Working Paper 70. Performance Raise Concerns about the Effects of Faruqee, Rashid, and Kevin Carey. 1996. "Agricultural Regional Trade Arrangements?" Policy Research Growth and Poverty in Pakistan." HCD Working Working Paper 1729. World Bank, International Paper 71. Economics Department, Washington, DC. Homedes, Nuria. 1996. "The Disability-Adjusted Life Year (DALY): Definition, Measurement, and Potential Use." HCD Working Paper 68. G. Other Bank Working Papers Human Capital Development Vice Presidency. 1996. "Human Capital Underdevelopment: The Worst Economic Development Institute Aspects." HCD Working Paper 76. Mason, Andrew D., and Shahidur R. Khandker. 1996. Adhar, Anuja. 1996. "Terms Used in Investment "Measuring the Opportunity Cost of Children's Time Decisionmaking: A Glossary." EDI Working Paper. in a Developing Country: Implications for Education Edward A. McNally, Grammer and Co. 1996. "Basic Topics Sector Analysis and Interventions." HCD Working in Sound Bank Management." EDI Working Paper. Paper 72. Faruqi, Shakil. 1997. "Macro-Financial Review: Policy Mingat, Alain, and Jee-Peng Tan. 1996. "The Full Social and Program Formulation-Tunisia, a Case Study and Returns to Education: Estimates Based on Countries' Training Guide." EDI Working Paper. (Also available Economic Growth Performance." HCD Working in Russian.) Paper 73. Langseth, Petter, Damian Kato, Mohammad Kisubi, and Musgrove, Philip. 1996. "Equitable Allocation of Ceilings Jeremy Pope. 1997. "Good Governance in Africa: A on Public Investment: A General Formula and a Case Study from Uganda." EDI Working Paper. Brazilian Example in the Health Sector." HCD Working Langseth, Petter, and Rick Stapenhurst. 1997. "National Paper 69. Integrity System: Country Studies." EDI Working Patrinos, Harry Anthony, and Eduardo Velez. 1996. "Costs Paper. and Benefits of Bilingual Education in Guatemala: A Langseth, Petter, Rick Stapenhurst, and Jeremy Pope. Partial Analysis." HCD Working Paper 74. 1997. "The Role of a National Integrity System in Potashnik, Michael. 1996. "Chile's Learning Network." Fighting Corruption." EDI Working Paper. Education and Technology Series vol. 1, no. 1. Listfield, Robert, and Fernando Montes-Negret. 1996. Potashnik, Michael, and Douglas Adkins. 1996. "Cost "Modernizing Payment Systems in Emerging Analysis of Information Technology Projects in Economies." EDI Working Paper. (Also available in Education: Experiences from Developing Countries." Russian.) Education and Technology Series vol. 1, no. 3. 178 Bank Research Output Potashnik,Michael,MariaGonzales,andWilliamMayville. . 1997. "Mozambique: Sample Survey of Low 1996. "Research on Education and Technology (1980- Voltage Electricity Customers." Energy Sector 96)." Education and Technology Series vol.1, no. 2. Management Assistance Programme Report 195/97. Picciotto, Robert. 1996. "What Is Education Worth? From Kubota, Shigeru. 1996. "Natural Gas Trade in Asia and Production Function to Institutional Capital." HCD the Middle East." TEN Occasional Paper 8. Working Paper 75. Wright, Patrick. 1996. "Regulation of Petroleum Product Pricing in Africa: AProposed System Based on Studies Industry and Energy Department of Four Sub-Saharan Countries." IEN Occasional Paper 7. Adamantiades, Achilles G., John E. Besant-Jones, and Mangesh Hoskote. 1996. "Power Sector Reform in Policy Research Department Developing Countries and the Role of the World Bank." IEN Occasional Paper 9. Dasgupta, Susmita, and David Wheeler. 1996. Bates, Robin W., and London Economics. 1997. "Bulk "Environmental Regulation via Citizen Protest in Electricity Pricing in Restructured Markets: Lessons Developing Countries: Evidence from China." Social for Developing Countries from Eight Case Studies." and Environmental Consequences of Growth-Oriented IEN Occasional Paper 10. Policies Working Paper. Energy Sector Management Assistance Programme and Deininger, Klaus, and Bart Minten. 1996. "Determinants United Nations Development Programme. 1996. of Forest Cover and the Economics of Protection: An "Bolivia: Preparation of Capitalization of the Hydro- Application to Mexico." Social and Environmental carbon Sector." 2 vols. Energy Sector Management Consequences of Growth-Oriented Policies Working Assistance Programme Report 191/96. Paper. . 1996. "Bulgaria: Natural Gas Policies and Issues." . 1996. "Poverty, Policies, and Deforestation: The Energy Sector Management Assistance Programme Case of Mexico." Social and Environmental Report 188/96. Consequences of Growth-Oriented Policies Working _ . 1996. "China: Energy for Rural Development: An Paper. Assessment Based on a Joint Chinese/ESMAP Study Easterly, William. 1997. "Life during Growth: A in Six Counties." Energy Sector Management Compendium of Political, Social, and Environmental Assistance Programme Report 183/96. Indicators of What Gets Better and What Gets Worse _ . 1996. "Egypt: Energy Sector Assessment." Energy from Low to High Income." Social and Environmental Sector Management Assistance Programme Report Consequences of Growth-Oriented Policies Working 189/96. Paper. _. 1996. "Ghana: Industrial Energy Efficiency Hoy, Michael, and EmmanuelJimenez. 1997. "Thelmpact Technical Assistance (Phase 2), Activity Completion on the Urban Environment of Incomplete Property Report." Energy Sector Management Assistance Rights." Social and Environmental Consequences of Programme Report 185/96. Growth-Oriented Policies Working Paper. _ . 1996. "Power Loss Reduction Study." Energy Sector Lanjouw, Peter. 1997. "Small-Scale Industry, Poverty, and Management Assistance Programme Report 186/96. Environment: A Case Study of Ecuador." Social and __ . 1996. "Romania: Natural Gas Development Environmental Consequences of Growth-Oriented Strategy." Energy Sector Management Assistance Policies Working Paper. Programme Report 192/96. Lucas, Robert. 1996. "Pollution Levies and the Demand - 1996. "A Synopsis of the Third Annual Roundtable for Industrial Labor: Panel Estimates for China's on Independent Power Projects: Rhetoric and Reality." Provinces." Social and Environmental Consequences Energy Sector Management Assistance Programme of Growth-Oriented Policies Working Paper. Report 187/96. Mamingi, Nlandu, Kenneth M. Chomitz, David A. Gray, _ . 1996. "Tunisie: Les potentiels de valorisation des and Eric Lambin. 1996. "Spatial Patterns of energies renouvelables." Energy Sector Management Deforestation in Cameroon and Zaire." Social and Assistance Programme Reports 190A/96 and 190B/96. Environmental Consequences of Growth-Oriented .1996. "Uganda: EnergyAssessment." Energy Sector Policies Working Paper. Management Assistance Programme Report 193/96. Muthukumara, Mani, Sheoli Pargal, and Mainul Huq. _ . 1997. "Elimination of Lead in Gasoline in Latin 1997. "Is There an Environmental 'Race to the Bottom'? America and the Caribbean." Energy Sector Manage- Evidence on the Role of Environmental Regulation in ment Assistance Programme Report 194/97. Plant Location Decisions in India." Social and 179 Bank Research Output Environmental Consequences of Growth-Oriented H. Background Papers to World Development Policies Working Paper. Report 1997 Muthukumara, Mani, and David Wheeler. 1997. "In Search of Pollution Havens? Dirty Industry in the Aiyar, Swaminathan. "Evolution of the Role of the State World Economy, 1960-95." Social and Environmental in India." Consequences of Growth-Oriented Policies Working Alesina,Alberto. 'Tolitics,Procedures, and Budget Deficits." Paper. Aron, Janine, Ibrahim Elbadawi, and Benno Ndulu. "The Ravallion, Martin. 1996. "Can High-Inequality State and Development in Sub-Saharan Africa." Developing Countries Escape Absolute Poverty?" Ball, Richard. "The Institutional Foundations of Monetary Social and Environmental Consequences of Growth- Commitment: A Comparative Analysis." Oriented Policies Working Paper. Braathen, Einar, and Harald Ekker. "The State and Ravallion, Martin, Mark Heil, and Jyotsna Jalan. 1997. "A National Reconstruction: Interdependency between Less Poor World, But a Hotter One?" Social and Central and Local Level." Environmental Consequences of Growth-Oriented Brautigam, Deborah. "The State and Ethnic Pluralism: Policies Working Paper. Managing Conflict in Multiethnic Societies." Wang, Hua, and David Wheeler. 1996. "Pollution Control Brunetti, Aymo, Gregory Kisunko, and Beatrice Weder. and Provincial Development in China: An Analysis of "Credibility of Rules and Economic Growth: Evidence the Levy System." Social and Environmental from a Worldwide Survey of the Private Sector." Consequences of Growth-Oriented Policies Working _ . "Institutional Obstacles for Doing Business: Paper. Region-by-Region Results from a Worldwide Survey of the Private Sector." Poverty and Social Policy Department Campos, Ed, and Sanjay Pradhan. "Building Institutions for a More Effective Public Sector." Castro-Leal,Florencia. 1996. "The Impact of Public Health Commander, Simon, Hamid Davoodi, and Une J. Lee. Spending on Poverty and Inequality in South Africa." "The Causes and Consequences of Government for PSP Discussion Paper 101. Growth and Well-Being." ___ 1996. "Poverty and Inequality in the Distribution de Silva, Migara. "War, Tax Revenue, and the Rise of the of Public Education Spending in South Africa." PSP Modern Public Administration in Western Europe." Discussion Paper 102. Disch, Arne. "The Scandinavian 'Model': Successes and __ . 1997. "Who Uses Basic Services in Rural El Limitations of the Activist State." Salvador?" PSP Discussion Paper 103. Guasch, J. Luis, and Robert W. Hahn. "The Costs and Castro-Leal, Florencia, and Vajeera Dorabawila. 1997. Benefits of Regulation: Some Implications for "Cost Recovery and the Poor: Lessons from Developing Countries." Experience." Basic Services for the Poor: A Good Jalali, Rita. "State and Ethnicity." Practice Series. Lee, Kyu Sik. "Cholla Region Catches Up with Korea: The Role of Local Governments." Transportation, Water, and Urban Molander, Per. "Public Sector Spending Control: Swedish Development Department Experiences." Ohno, Kenichi. "Creating the Market Economy: The Gwilliam, Kenneth M. 1996. "Transport in the City of Japanese View on Economic Development and Tomorrow: The Transport Dialogue at Habitat II." Systemic Transition." Summary of Proceedings TWU-28. Rose-Ackerman, Susan. "When Is Corruption Harmful?" Gwilliam, Kenneth M., and Richard Scurfield. 1996. Schiavo-Campo, Rino. "Civil Service and Economic "Constructing a Competitive Environment in Public Development-A Selective Synthesis of International Road Passenger Transport." Discussion PaperTWU-24. Facts and Experience." Mitric, Slobodan. 1997. "Approaching Metros as Potential Schiavo-Campo, Salvatore, Giulio de Tommaso, and Development." Discussion Paper TWU-28. Amitabha Mukherjee. "An International Statistical Shaw, L. Nicola, Kenneth M. Gwilliam, and Louis Survey of Government Employment and Wages." Thompson. 1996. "Concessions in Transport." Suhrke,Astri, and Kathleen Newland. "States and Refugees: Discussion Paper TWU-27. International Cooperation on Issues of Displacement." van Rijckeghem, Caroline, and Beatrice Weder. "Corruption and Rate of Temptation: Do Low Wages in the Civil Service Cause Corruption?" 180 Bank Research Output Webb, Douglas. "The Judiciary: The Arbiter of Rules . "The Role of Government in Public Health through and Resolver of Disputes." the Ages." World Health Organization. "Essential Public Health Func- . "The Role of State Action in Disease Eradication tions: A New Initiative in Support of Health for All." and Control." . "Redefining the Scope of Public Health Beyond the Year 2000." 181 INDEX OF STUDIES BY DEPARTMENT RESOURCE MOBILIZATION AND COFINANCING Cofinancing and Project Finance Department Project Finance and Guarantees Group Bond Spreads in Emerging Markets 119 The Financing of the Hub Project in Pakistan 72 Private Financing of Toll Roads 72 Private Power Study 73 DEVELOPMENT ECONOMICS Office of the Senior Vice President and Chief Economist State Action and Private Sector Development (681-34) 144 Economic Development Institute Office of the Director Ownership Structure, Corporate Governance, and Firm's Performance: The Case of Chinese Stock Companies (681-08C) 142 Human Resources and Poverty Division Costs and Effectiveness of In-Service Primary Teacher Education at a Distance: A Comparative Study (679-93C) 32 International Economics Department Office of the Director Implications of Financial Integration for Capital Market Reform: The Asian Experience (681-48C) 91 Managing Private Capital Flows in Asia: Lessons and New Challenges 104 Private Capital Flows to Developing Countries: The Path to Financial Integration 97 Commodity Policy and Analysis Unit Agricultural Trade Liberalization and Food Security 98 Commodity Marketing Systems 99 Commodity Models: A Method to Evaluate Commodity Projects 102 Derivatives Markets and Risks in Emerging Economies (680-45C) 114 The Determinants of Agricultural Growth: Country and Cross-Country Analysis (679-03C) 44 Energy Demand in Asian Developing Economies (679-19C) 45 An Evaluation of Cane Payment Systems in Selected Sugar Industries (681-30C) 54 Regionalism and Agricultural Trade 95 183 Index of Studies by Department Risk Management and Commodity Export Finance 101 Total Investment, Agricultural Investment, and Investment in Manufacturing (680-50C) 75 World Food Situation 61 World Price Signals, Policy Reforms, and Domestic Commodity Price Behavior (681-49) 92 Development Data Group Environmental Accounting 59 International Comparison Programme Analysis 107 International Economic Analysis and Prospects Division Global Economic Prospects-Related Research 103 The Implications of Rapid Growth in Large Developing Countries (681-75) 93 Measuring the Dynamic Gains from Trade 94 International Finance Division Determinants of Japanese Foreign Direct Investment: Policy Implications for Developing Countries (679-35C) 84 Internationalization of Emerging Capital Markets: Cross-Country Experience 118 Opening Domestic Debt Markets in Developing Countries 100 Private Capital Flows and the Role of Economic Fundamentals 103 International Trade Division Africa and the International Economy 94 African Trade Barriers 95 African Trade Policy 111 Components of Successful Commodity Exports 96 Controlling Recidivism 105 Developing Countries and Government Procurement 99 The Dynamic Impact of Trade Liberalization in Developing Countries (681-40) 89 Economic Integration: The Americas 101 Implementation of the Uruguay Round Agreement on Agriculture: New Issues and Progress in Post-Round Liberalization (681-69) 92 Monitoring and Implementation of the Uruguay Round 107 Poverty and the International Economy: What Are the Links? (681-83) 22 Regionalism and Development 109 Revenue Consequences of Trade Reform (680-93) 87 Tradable Services 109 Trade and Labor Standards 109 Trade Policy, Incentives, and Resource Allocation in Indian Agriculture 96 Trade Policy in Transition Economies 137 Trade Reform: Incentives on the Ground (681-33C) 89 The World Trade Organization and Developing Countries 109 184 Index of Studies by Department Policy Research Department Office of the Director AIDS and Development: The Role of Government (680-80C) 15 Does Schooling Expansion Equalize Income? (681-67) 21 Effectiveness of World Bank Nonlending Services (681-26) 143 Structural Adjustment Participatory Review Initiative 82 Environment, Infrastructure, and Agriculture Division Causes and Consequences of Tropical Deforestation (681-56) 57 The Economics of Industrial Pollution Control in Developing Countries (680-20) 49 Incentives for Pollution Control in Developing Countries: The Role of Capital Markets (680-76C) 52 Industrial Emissions and Abatement Costs 59 Measuring the Health Effects of Air Pollution in Developing Countries (679-96C) 46 Pollution Control by Electric Utilities (679-94C) 45 Prices, Policies, and Industrial Pollution 65 Spatial Environmental Processes (681-35) 54 Valuing Mortality Reductions in India: A Study of Compensating Wage Differentials (680-84C) 17 Finance and Private Sector Development Division African Politics and African Development (680-86) 141 Bank-Led Restructuring of Problem Enterprises in Poland 133 Bank Regulatory Regimes (680-36C) 113 Bureaucratic Structures and Economic Performance in Developing Countries (681-16C) 142 The Cultural Foundations of Economic Reform (681-18C) 128 Finance and Growth 117 Infrastructure Privatization Database (681-66) 146 Institutions, Politics, and Contracts: Private Sector Participation in Urban Water Supply (681-87) 148 The Policy Effects of Political and Electoral Institutions in Developing Countries (680-41C) 139 Political Credibility and Economic Reform (681-85) 147 The Reach of Law into the Enterprise in Transition (680-90) 127 Social Capital in Transition 138 Term Finance: Theory and Evidence (679-62C) 112 World Bank Financial Sector Adjustment Lending: The Experience to Date 119 Macroeconomics and Growth Division Analytical Perspectives on Aid Effectiveness in Africa (680-18C) 85 Applied Macroeconomic Models for Developing Countries 81 Economic Policies and the Effectiveness of Foreign Aid (681-70) 93 The Economics of the Informal Sector 80 Estimating Equilibrium Exchange Rates in Developing Countries 105 International Measures of Schooling Years and Schooling Quality (680-54C) 33 Latin American Growth Puzzle 79 Political Economy of Aid, Crises, and Growth (681-31C) 77 Progress in Transition 136 Real Exchange Rate Misalignment in Latin America 105 Saving in Developing Countries (681-36) 114 185 Index of Studies by Department A Unique Data Set to Test Hypotheses about Inflation and Stabilization (681-77C) 79 Poverty and Human Resources Division Changing Ideas about Poverty in Russia (681-42) 131 Child Diet and Academic Achievement in Cebu, Philippines (681-78) 41 Decentralizing Safety Nets: Community Choices and Their Impact on Households (680-98) 18 Dynamics of Rural Poverty in China (678-79C) 122 The Effects of Urban Land Titling and Tenure Security on Investments, Property Value, and Credit Access in Ecuador (681-80) 117 Explaining Gender Disparity in South Asia: A Cross-Sectional Approach (681-29) 40 Household Welfare Change during the Transition in Poland (681-21) 130 Impact Evaluation of Education Projects: Decentralization and Privatization Issues (679-18) 27 The Impact of Child Health and Nutrition on Education Outcomes in Cebu, Philippines (679-57) 31 The Impact of Labor Market Policies and Institutions on Economic Performance (680-96) 38 Impact of Market-Oriented Policy Reforms on Households in Rural China (677-16) 122 Improving Primary Education in Kenya: A Randomized Evaluation of Different Policy Options (681-14) 40 Improving the Policy Relevance of Living Standards Measurement Study Surveys (679-61) 11 Labor Market Adjustment in Estonia (679-71C) 123 The Measurement and Prediction of Poverty in an Aging World (681-73) 22 The Methodology of Poverty Assessments 25 Nutrition, Health, and Labor Productivity in Kenya (680-03C) 13 Policies for Poor Areas (681-39) 19 Poverty and Targeting of Social Assistance in Eastern Europe and the Former Soviet Union (680-33) 125 Public Sector Retrenchment and Efficient Compensation Schemes (679-51C) 30 Social and Environmental Consequences of Growth-Oriented Policies 62 Understanding the Rationale for Education Reform: Parents as Principals and Teachers as Agents (681-12C) 39 Welfare during the Process of Transition 135 World Poverty Monitoring 25 Public Economics Division Aid Allocation in a Federal System: A Case Study of India (681-41 90 Allocation of Public Expenditures 26 A Comparative Overview of Transition 134 Decentralization and Participatory Planning in Bolivia (681-62) 146 Estimating the Marginal Cost of Public Funds in Developing Countries (680-69) 76 Fiscal Decentralization and Fiscal Performance 79 Impact of Intergovernmental Grants (681-58) 78 Information and the Organization of Government 149 Infrastructure and Growth: A Multicountry Panel Study (680-89) 71 Infrastructure Productivity: Direct and Indirect Effects (681-54) 71 186 Index of Studies by Department Joint Policy Research Department-Africa Region Work Program on African Development 83 New Dimensions in Public Expenditure Analysis 80 Project Evaluation and Public Expenditure 152 Public Expenditures and Poverty 23 Reform along the Volga 136 Tools for Fiscal Analysis 82 A Volume on Subsidies Research 24 Welfare Impacts of Alternative Ways of Providing Rural Infrastructure (681-13C) 19 Research Advisory Staff Comparative Analysis of Growth (681-37) 78 World Development Report Office Indicators of Government Quality as Perceived by the Private Sector (681-52C 145 ENVIRONMENTALLY SUSTAINABLE DEVELOPMENT Office of the Vice President Contingent Valuation of the Rehabilitation of Cultural Heritage (681-98) 72 Agriculture and Natural Resources Department Office of the Director Decentralization, Fiscal Systems, and Rural Development (679-68) 74 The Determinants of Agri-Food Market Integration in the Transition Economies, Phase 2 (681-45) 131 Rural Poverty in Latin America: Analytics, New Empirical Evidence, and Policy (680-75C) 14 Agriculture and Forestry Systems Division The Catalytic Effect of Tree Plantings on the Rehabilitation of Native Forest Biodiversity on Degraded Tropical Land: An Exploratory Analysis (680-05C) 47 Improving the Quality of Teak Germination: A Study of Seed Dormancy and Germination (680-56C) 51 Land Tenure Insecurity in Honduras and Paraguay (678-74C) 43 Total Factor Productivity Growth in the Post-Green Revolution Agriculture of Pakistan and Northwest India (680-34C) 50 Sector Policy and Water Resources Division Environmental Change and Adaptive Resource Markets: A Computer-Assisted Market for Water Allocation 66 Land Tenure, Land Markets, and Land Productivity in Rural China (681-76) 58 187 Index of Studies by Department Measuring the Impact of Climate Change on Indian Agriculture (680-63C) 51 Water Management in Irrigation (681-50) 56 Environment Department Social Policy and Resettlement Division Efficacy of Beneficiary Assessment (681-38C) 144 Public Involvement in Industrial Pollution Control in Argentina and Brazil (681-46) 55 Transportation, Water, and Urban Development Department Transport Division Urban Transport Indicators (679-64C) 67 FINANCE AND PRIVATE SECTOR DEVELOPMENT Financial Sector Development Department Bank Reform, Concentration, and Costs (681-90) 117 Private Sector Development Department Foreign Direct Investment Spillovers in Developing Countries (680-07) 85 Government-Business Consultative Mechanisms and Economic Governance: A Three-Country Comparison (681-83) 147 Ownership, Labor Strategies, and Firm Performance in China (681-22C) 130 Science Parks and Firm-Level Productivity in China (681-43) 145 Private Sector Development and Privatization Group Best Practice in Postal Financial Services 121 Private Means, Public Ends: Private Sector Participation in Caribbean Water Systems 149 HUMAN CAPITAL DEVELOPMENT Human Development Department Maternal and Child Overweight and Obesity: A Global Comparison (680-83C) 17 Office of the Director The Economics of Early Child Development Programs (680-87C) 37 The Public-Private Mix and Equity in Health Care: An Exploratory Empirical Study (679-95) 12 Technology, Education Costs, and Distance Education (680-70C) 35 188 Index of Studies by Department Education Team Child Labor: What Role for Demand-Side Interventions? (680-64C) 34 The Effect of Education Decentralization Reforms on Resource Allocation, Quality, and Equity in Hungarian Schools (680-78C) 36 Putting Inputs to Work in Primary Schools: Four Experiments in the Philippines (679-01C) 27 Technology and Basic Education Reform: A Comparative Analysis in Chile and Costa Rica (680-68) 35 Health, Nutrition, and Population Team Quantifying the Net Economic Loss or Gain from Tobacco Use (681-95) 23 Poverty and Social Policy Department Gender, Property Rights, and Resource Management in Ghana (681-47) 56 Impact of Targeted Credit Programs on Consumption Smoothing and Nutrition in Bangladesh (681-09C) 18 OPERATIONS EVALUATION Operations Policy Department Operations Policy Group Economic Liberalization and Industrial Restructuring: The Sri Lanka Experience (681-03) 77 LEGAL Operations Front Office Delay in Disposition: Judicial Performance in Developing Countries (681-92) 148 AFRICA REGION Africa Technical Families Information and Technology Division Bank Restructuring in Sub-Saharan Africa 118 Macroeconomics 1 Exchange Rate Policy and Medium-Term Adjustment and Growth in South Africa (681-28) 89 Onchocerciasis I, Program Administration Assessing the Economic Impact of Nonocular Onchocerciasis (680-81C) 16 Private Sector Development and Economics Division Africa Privatization Study 150 Regional Program on Enterprise Development in Africa 153 189 Index of Studies by Department Water, Urban, and Energy 1 Division Performance Measures for Infrastructure and Environmental Resources, Phase 2 (680-88) 70 EUROPE AND CENTRAL ASIA REGION Country Department I Infrastructure Operations Division Reaching Turkey's Spontaneous Settlements (680-66C) 68 Country Department II Agriculture and Regional Development Operations Division Adjustment and Poverty in Mexican Agriculture: How Farmers' Wealth Affects Supply Response (679-50) 11 Regulating Technology Transfer in Agriculture: Impact on Technical Change, Productivity, and Incomes (680-61) 140 Country Department III Country Operations Division 2 Government Financial Transfers to the Largest Recipient Enterprises in Russia (679-98C) 123 Country Department IV Office of the Director Formal Employment and Survival Strategies under Economic Reform in the Former Soviet Union (680-52) 126 Europe and Central Asia, Middle East and North Africa Regions Technical Department Private Sector Development and Finance Group Enterprise Restructuring in Bulgaria and Romania (681-96) 132 EAST ASIA AND PACIFIC REGION Office of the Regional Vice President Dynamic Implications of "Return Migration" for Labor Markets (679-21C) 29 National and International Wage Differentials: Effects of Trade, Growth, and Education (679-26C) 29 Poverty and Income Distribution Dynamics in a High-Growth Economy: The Case of Chile, 1987-94 (681-59) 21 A Strategic Approach to Asset and Liability Management in Developing Countries (681-23) 88 190 Index of Studies by Department Country Department II Country Operations Division The Consequences of Large-Scale Privatization in Mongolia (680-27) 124 Rural and Social Development Division Potential Sources of Growth in Funding for Chinese Agricultural Research (681-19C) 129 Country Department III Population and Human Resources Operations Division Incentives for Doctor Placements in Rural and Remote Areas (681-56) 20 SouTH ASIA REGION Country Department I Infrastructure Operations Division Valuing Direct and Indirect Benefits of Water Supply and Sanitation Projects: Application to Project Investment Analysis (680-79) 68 Asia Technical Department Environment and Natural Resources Division Air Quality Measurement in Asia Using Passive Samplers 62 Analysis of Critical Loads for Acid Rain in Asia 62 Ash Management, Disposal, and Utilization in India 58 Common Property Resource Management Issues in World Bank Projects 60 Estimating the Extent of Corrosion Damage Caused by Acid Rain in China 61 Integrated Acidification Study in China 64 Resolution of River Basin Disputes on the Indian Subcontinent (680-85C) 69 Survey of the Impact of Acid Rain in China 62 Waste Imports for Recycling (680-71C) 52 Human Resources and Social Development Division Sustainable Banking with the Poor 120 LATIN AMERICA AND THE CARIBBEAN REGION Office of the Chief Economist Managing Micro and Macro Risks for Private Participation in Infrastructure (681-81) 146 Human and Social Development Group Child Labor and Schooling in Latin America (681-79) 41 Sector Leadership Group Gender and the Rural Economy: Evidence from Mexico (680-95) 37 191 Index of Studies by Department Country Department I Country Operations Unit I Evaluating Active Labor Market Programs in Europe and Central Asia (680-73) 127 Country Operations Unit 2 An Institutional Approach to the Promotion of Education Services in Brazil (680-38C) 32 Infrastructure and Urban Development Division Efficiency and Equity Implications of Argentina's Privatization of Utilities (680-65C) 140 Public Sector Modernization and Private Sector Development Division Is Finance a Barrier for Small and Medium-Size Enterprise Exports in Mercosur? 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