This paper contains a numerical listing of working papers produced by the Policy, Planning, and External Affairs Complex. Each citation contains a brief abstract, and the contact point for the paper.
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The author surveys recent growth models that try to explain the diversity among countries in rates of economic growth. The author finds that these models can generate differences in growth rates only in the absence of international capital markets.
... See More + Under these models, if there were free international capital mobility, the growth rate of consumption and GNP would quickly be equalized all over the world. The author describes a simple modification of standard preferences that eliminates this implausible equalization of growth and is consistent with the fact that the savings rate is lower in poor countries than in rich countries.
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This paper is a brief history of financial regulation. The removal and relaxation of controls on credit and interest rates in the 1980s and the growing emphasis on prudential controls is highlighted.
... See More + Three criteria for evaluating financial regulation and structure are discussed: (1) stability, (2) efficiency, and (3) fairness. As a result of massive losses suffered by financial institutions, stability is a significant concern. It can be enhanced by increasing capital requirements and strengthening financial supervision. In developing countries there is growing concentration and a spread of universal banking, suggesting economies of both scale and scope. Available evidence suggests that concentrated banking systems tend to have lower margins and operating costs as well as higher profits. However, large banks tend to be inefficient. Their size is the result of controls and restrictions on competition and entry rather than superior efficiency. Protecting users of financial systems from abusive behavior by the financial institutions, creating equality in the competition between banking institutions, and tackling the problems caused by potential conflicts of interest is the "fairness" issue. There are tradeoffs between these three criteria for evaluating financial regulation and structure. The answers must be sought on a country-by-country basis.
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The authors develop a simple, formal framework for clarifying the tradeoffs involved in choosing between a fixed and flexible exchange rate system.
... See More + They apply this framework to the countries of Africa's CFA Zone, which have maintained fixed parity with the French franc since independence. Because a few agricultural products and natural resources dominate their exports, member countries of Africa's CFA Zone have suffered frequent shocks in terms of trade. A flexible exchange rate could possibly have alleviated the costs of these external shocks. On the other hand, CFA member countries have managed to maintain lower inflation levels than their neighbors. The fixed exchange rate of the CFA Zone acts as a credible committment. The government "ties its own hands" so that it will not be tempted to use the exchange rate, thereby eliciting lower wage and price increases from the private sector. Weighing this benefit against the costs of nonadjustment to external shocks, the authors conclude that fixed exchange rates have been a bad bargain for the CFA member countries. These countries would have been better off having the ability to adjust to external shocks.
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This paper focuses on what determines labor redundancy in selected modes of transport (rails, ports, and buses) in six countries: Brazil, Chile, Ghana, Mauritius, Sri Lanka, and Yugoslavia.
... See More + It also analyzes different approaches for solving the problem, and concludes that analysis of the labor redundancy problem in public transportation enterprises has been neglected because conceptually it is not a simple, easily identifiable phenomenon and because its treatment is often politically controversial, as it affects social welfare. Governments tend to approach the problem only when circumstances are extreme (budget stress or near-complete breakdown of the transport system). Solutions are then hammered out in a tense environment, with no longer-term vision of the optimal employment and pay practices. This paper also presents a framework for identifying labor redundancy within different countries whose social welfare functions vary in the relative weight given to efficiency and equity . Redundancy-reduction schemes can have a high rate of return and still be socially acceptable. But, cash flow problems may necessitate the assistance of international donor agencies. Attention must be paid to how this compensation is administered, as it can make a difference to the workers' welfare.
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The term "excess liquidity" may refer to the share of liquid assets in bank portfolios (the result of a retrenchment in bank lending, or a "credit crunch") or to money holdings of the nonbank public.
... See More + Excess liquidity may be voluntary or nonvoluntary. In response to excess liquidity, policymakers tend to take steps to drain off the excess so it will not lead to a surge in inflation. In this paper, the authors examine the appropriateness of conventional policy instruments for tightening money in two common cases: 1) when there is a voluntary credit crunch because of a rise in perceived risk of default, and 2) when individuals rationed in the goods market in reforming socialist economies accumulate savings involuntarily ("money overhang"). The authors conclude that neither excess liquidity in the banking systems of the developing world nor the money overhang of the reforming planned economies calls for a response of restrictive monetary policy. A more appropriate policy might be a prudent but not overly restrictive monetary policy and reservation of some part of credit for the emerging private sector.
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A significant domestic counterpart of Morocco's vigorous external adjustment in the eighties was a decline in fixed capital formation, of which the private sector bore a sizable share.
... See More + The authors focus on the causes of declining private investment and on the policies required to reverse this trend. Using an eclectic framework, they econometrically determine the main determinants of private investment in Morocco. They conclude that the main causes of the decline in the eighties were great uncertainty about policy (proxied by foreign debt), a rapid rise in the cost of capital, a more stringent credit policy, and reduced public capital. They further conclude that fiscal stabilization, a consistent foreign debt policy, more investment in public infrastructure, and a reform of investment codes would increase private investment and growth in Morocco. Moreover, reform of the financial sector could significantly improve the efficiency of financial intermediation and therefore the quality of investment in Morocco.
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Antidumping actions by importing countries do not protect their consumers. What protects domestic consumers is competition. It is Korean consumers who are paying for the development of the Korean electronics industry, not consumers in the countries that import Korean goods.
... See More + A key element of Korea's industrial development strategy has been to maintain stringent import restrictions while promoting the development of a few large domestic firms. The author strongly stresses the need to implement progressive import liberalization policies that will allow foreign competition in the Korean market. Import policy regimes in exporting countries have played a critical role in creating an environment that makes it possible for profit-maximizing firms to follow a price-discriminating marketing strategy. Progressive liberalization will eliminate the incentive for following such a marketing strategy as monopoly profits are slowly eroded.
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The Volan units (previously unitary but now formally dismembered) provide public transport services for both passengers and freight, and make up the largest enterprise in Hungary's road transport industry.
... See More + Immediately after separation in 1989, the Volan group of units employed 67,000 persons and operated 12,672 trucks and 8,010 buses. In 1989 Volan carried 34 percent of Hungary's professional road haulage tonne-kilometers. This report focuses on options for restructuring the Volan group. It therefore also considers the content and implementation of Hungary's overall road transport policy as well as related questions of finance and taxation, all of which define the conditions under which the Volan successor enterprises, however transformed, will have to prove themselves.
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Economic stability, sound macroeconomic policies, and appropriate microeconomic incentives hold down a country's external debt burden. Most of the Asian countries pursued prudent macroeconomic policies, paid attention to price stability, and minimized price distortions.
... See More + These countries avoided the overvalued exchange rates and uncompetitive interest rates that caused massive capital flight from Latin American and some African countries. The author contrasts Asian country debt crisis behavior with that of 12 highly indebted Latin American and African countries.
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This paper discusses the magnitude of external resources that sub-Saharan Africa may require during the 1990s. There can be no firm projections because requirements are affected both by the growth and efficiency targets chosen and by a wide range of factors, both internal and external to sub-Saharan Africa, which often interact to reinforce or offset one another.
... See More + However, the specific projects provided by this paper offer a point of departure for further discussions. It also provides a qualitative framework for considering how various factors affect resource requirements. The conceptual framework used in this paper for estimating external resource requirements is based essentially on the two-gap model, in which the gap between domestic savings and gross investment must equal the difference between imports and exports, which is financed by external capital or foreign savings. To provide a context for the discussions, this paper starts with a section on the economics history and evolution of sub-Saharan Africa. A section on savings, investment and efficiency of capital follows, dealing with the feasibility of achieving the desired growth targets, the policy instruments available to attain them, and the policy reforms that African countries should implement to boost the demand for investment as well as private and public savings. The final section analyzes the external resource requirements and discusses implications for other related economic and financial variables.
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Policy Research Working Paper WPS764 OCT 31, 1991
Culagovski, Jorge; Gabor, Victor; Germany, Maria Cristina; Humphreys, Charles P.
Analysis of decade-long growth rates in all countries shows a striking regularity: episodes of rapid growth are limited largely to a middle range of initial income; neither very poor nor very rich countries experienced rapid growth.
... See More + Episodes of negative growth are limited to low and middle-income countries. This paper develops a simple model that sheds light on this experience. The model has two familiar elements from the growth literature: (1) a Stone-Gearly utility function (saving is low at low income), and (2) fixed factors with the marginal product of capital bounded away from zero. The second property is derived by assuming an elasticity of substitution greater than one between an exogenous labor input and a broad concept of capital. The paper extends the model to consider multiple capital goods and public capital. It finds that stagnation is consistent with an array of statistical evidence because of fixed factors. Economic policies - not initial conditions - determine whether countries stagnate. Results confirm that initial income and policy variables have a different effect on whether a country stagnates than they do on the rate of growth once it starts growing, as expected from the distinction between steady-state and transitional effects. These results suggest that cross-section growth regressions may be misspecified because of the nonlinearity inherent in the possibility of steady-state stagnation.
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Agriculture's share in an economy invariably declines as per capita income rises and as the economy develops. The literature on its causes has focused on the relative price effects arising from demand factors--especially Engel's Law (that the proportion of income spent on food declines as incomes rise)--rather than on such supply-side influences as changes in relative factor endowments and different rates of technical change.
... See More + Engel's Law is convincing at the global level but it does not explain why agriculture's share should decline sharply in small open economies that experience rapid economic growth. A simple structural model of the transformation of the Indonesian economy, applying the Error Correction Mechanism to capture the dynamics resulting from disequilibria and costs of adjustment is developed. The authors develop an econometric model of the economy's supply side so they can explain agriculture's decline by the three theoretical factors: relative price changes, technical change, and factor accumulation. Based on the model's results, the authors conclude that the decline in the relative price of agricultural output contributed relatively little to the decline in agriculture's share. Technical change actually had a positive effect on agriculture's share, retarding the pressures for a decline in its share over time. By far the most important influence appears to have been the rapid accumulation of capital relative to labor over the period studied (1960-87).
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Dumping accurs when a firm charges a price in the foreign market below its price in the domestic market when it supplies the indentical good to both markets.
... See More + Provisions within the GATT allow member countries to impose antidumping (AD) duties to counteract this behavior and return the price of the dumped goods to its "fair value". The increasing incidence of dumping allegations and imposition of AD duties indicate the dumping of exports in foreign markets is a growing concern in international trade and policy discussions. The other studies of this volume have presented in quite impressive detail the evolution and present ubiquity of AD investigations and duties in import-competing countries, and have also addressed the issue of whether these trends truly indicate a rise in dumping activity. In this paper the authors focus on a separate, more theoretical issue: what is the impact of widespread dumping and use of AD duties on the exporting and importing economies?
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The agricultural transition is an essential part of stabilization and adjustment in Eastern and Central Europe because agricultural sectors are large and food is important.
... See More + The supply response that many within and outside the region expected to emerge early and expeditiously is complicated by the removal of consumer subsidies and constrained export demand. In an atmosphere of acute economic uncertainty and declining farm incomes, the distribution of agricultural land is proceeding. The author traces the liberalization of food prices and the distribution of agricultural land to date. The essence of the agricultural transition is the state's withdrawal from its traditional role as residual claimant of rents for the use of agricultural resources. This role will pass in stages to owners of land. The author concludes that an agricultural transition when demand is constrained is more difficult to manage than one in which the fruits of institutional change and productivity growth find ready outlets. Moreover, although price movements are not yet clear, it appears that removing subsidies on feed, credit, fertilizer, machinery, and energy will move the terms of trade against agriculture - particularly against the large livestock sector. The need to increase productivity will thus be even greater than in the past. Any progress on the demand side will thus give a major impetus to the institutional changes needed on the supply side.
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This paper models a dynamic bargaining game between a highly indebted country and its commercial bank consortium, to analyze the determinants of the resulting re-scheduling agreements and the net transfer of resources over time.
... See More + The bargaining game is based on the simple paradigm that if no agreement is reached for a current payment, the banks would apply default sanctions. The author found that under general conditions settlements would be reached and default sanctions would not be applied in equilibrium. But the default sanctions would be a credible threat underlying the negotiations and determining the equilibrium payments. These equilibrium payments in turn would determine the credit ceiling and the later commercial discounts on the debt market. Unlike other bargaining games, this one explicitly models the debtor country's economic structure, featuring an import-dependent economy subject to foreign exchange and fiscal constraints. Moreover, the model is truly dynamic in the sense that the future negotiating environment is endogenously determined by current bargaining outcomes. Under plausible refinements and assumptions, the author obtains a closed-form solution for net transfers, dependent on various structural and policy parameters.
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When agricultural production is taxed, the system of producer prices, transport logistics, and decisions on investments in transport for exports must be considered together.
... See More + Many African states raise revenue by taxing export crops. A common tool for this purpose is marketing boards. Marketing boards purchase crops at depots established near areas of cultivation, at prices that yield a profit to the board. The boards also arrange for processing and the transport of the product from depots to port. The cost of transport to the farmer, given the price offered for his crop at the depot, will affect his decision on production and on the use of his own transport resources. The author evaluates the benefits available from alternative uses of the instruments available to the marketing board. Returns to transport investments are largest under pan-territorial pricing, lower under optimal pricing, and the least under a pure export tax. The author also examines different patterns of depot location. Unless depots are densely spaced, farmers may deliver their crops to the depot nearest to them. The paper demonstrates the interdependence of agricultural pricing policy and marketing board logistics with transport use and the demand for transport investments.
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The objective of this paper is to examine the role of fiscal policy in the management of Indonesia's environment. The aim is to develop a framework that will allow an examination of possible fiscal instruments and their relevance to Indonesia's context.
... See More + It is important to note that fiscal policy is one possible area of policy intervention. Regulatory policies would also continue to play a major role. A comprehensive environmental management strategy will need to be based on a balanced combination of regulatory and fiscal policy instruments. Furthermore, a critical element underlying the successful implementation of this strategy will be the availability of an appropriate institutional mechanism. The paper provides an overview of Indonesia's key environmental issues followed by the framework for fiscal policy instruments. The Indonesian Government's progress on environmental management policies is examined briefly to provide background for the discussion of possible fiscal policy options. Finally, the paper provides a summary and conclusions.
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Reform is often flawed by delayed implementation and, after initial acceptance, sudden reversals in public reaction. In recent years, many attribute these delays and reversals to reform dynamics because reform, particularly when comprehensive, rarely takes place all at once.
... See More + In designing reform, it is important to determine what the best sequencing of reform would be, under what conditions that sequence is feasible, and how expectations will affect the success of alternative reform strategies. In the literature on second-best reform strategies, misperceptions about the prospective costs and benefits of reform add another intertemporal distortion to the many already identified. Bold moves, such as pre-announced institutional changes, are often suggested as a way to signal the beginning of a new policy regime. The author advocates a more cautious approach when a government has been discredited by a history of policy failures.
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Most health professionals who have worked in rural areas have had the experience of being supervised badly: the flying visit by a superior who inspects the records, delivers a critical speech, and disappears without ever finding out what is really going on in the health center area.
... See More + Such visits seem designed more to demonstrate the supervisor's authority than to help the field worker to serve local people better. This manual is designed to help field supervisors supervise in a way that deepens insights into local situations, supports health workers, and focuses on improving the quality of service to the poor. The checklist of questions is not intended to be definitive or rigidly applied. Depending on the needs of a given program, some areas may need to be probed more deeply, and others shortened or omitted altogether. The author provides guidelines for: planning visits to a program area; visiting villages and talking with mothers; visiting health care workers; visiting nutrition workers; and using findings to make changes in program design or implementation, to reorient the way supervision is done, and to change worker behavior. He also provides a sample field visit report.
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