This paper evaluates the impact of market-oriented structural reforms, in particular labor market policies, social assistance programs, and trade liberalization on long run unemployment, wage inequality, and the distribution of employment across sectors in a small open economy with search frictions and idiosyncratic productivity shocks.
... See More + The paper builds a search and matching model of a labor market with a large informal sector and estimates the model using Colombian household-level data. Changes in labor taxes may have sizable aggregate, compositional, and distributional effects if workers associate high payroll taxes with more valuable and efficient social security services. The higher is the valuation of the services, the higher is the reduction in the log-wage gap. An expansion of public health insurance to informal sector workers has minor aggregate and distributional effects. Changes in relative prices that negatively affect the relative profitability of the formal sector have quite sizable aggregate effects, producing more long-run unemployment and informality, and increasing unemployment duration.
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Working Paper (Numbered Series) 129816 SEP 01, 2018
This study examines the relevance of trade facilitation reforms in maximizing the economic impactof infrastructure connectivity investments through the Belt and Road Initiative (BRI).
... See More + It providesan overview of trade facilitation performance in BRI economies, with a focus on those countriesinvolved in six key land corridors. This overview is based on three categories of data: international indicators for trade facilitation performance, notably Doing Business, the Logistics Performance Index, the Enabling Trade Index, and the OECD Trade Facilitation Indicators; publicly-available literature and analysis on the BRI corridors; and analysis conducted through World Bank projects involving BRI economies. A key finding is that, in a global context, trade facilitation along the BRI corridors is weak, with performance for most corridors below global averages according to most indicators. There is also wide variation in performance between countries along each corridor, providing a significant barrier to the efficient utilization of the corridors for predictable, timely cross-border transportation of goods. Based on the review of corridor performance, the study recommends priority trade facilitation reforms for the BRI economies, as well as recommendations on the implementation of these reforms, based on international experience.
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Working Paper (Numbered Series) 129935 SEP 01, 2018
The inequality of opportunity theory postulates that achievement gaps arising because of factors beyond the individual’s control are morally unacceptable and should therefore be compensated by society.
... See More + These factors or circumstances range from the individual’s social background to adverse shocks. Most studies have focusedon the contribution of social background and genetic and other childhood-related circumstances to inequalityof opportunity. Borrowing insights based on the impressionable years hypothesis in social psychology, this paper tests how exposure to adverse shocks, such as war, in early adulthood (ages 18–25) affects the individual’s future labor earnings and subsequently contributes to earnings inequality. The application to the Democratic Republic of Congo is associated with two significant takeaways. First, all else equal, individuals whoexperience intensely violent conflict at a young age earn significantly less than their counterparts. Second, aftercontrolling for the individual’s social background, the share of overall inequality in earnings accounted for bythe experience of adverse shocks in early adulthood is not negligible, ranging from 2.5 to 3.5 percent. These insights broaden our understanding in the discussion on inequality of opportunity and represent a new path inthe design of allocation policies that seek to reduce inequality and poverty.
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Working Paper (Numbered Series) 129595 AUG 01, 2018
Misreporting is a well-known challenge for researchers in social sciences. This issue is especially prevalent if incentives for misreporting exist, for example, to claim certain benefits or hide illegal behavior.
... See More + Internally displaced persons are a population that is highly dependent on aid receipts and, thus, have strong incentives to underreport consumption levels. To improve reporting for such vulnerable populations, this paper proposes to integrate “honesty primes” into the consumption module of the questionnaire. Honesty primes are unconscious stimuli that induce a certain cognition or behavior. The study assesses the effectiveness of a bundle of randomly assigned primes within a sample of internally displaced persons in South Sudan. In line with the main hypothesis, positive and significant effects arise for low consumption quantiles, especially consumption quantities that are more susceptible to manipulation. Hence, honesty primes can act as a cost-effective tool to induce more accurate reporting. Further research is needed to identify more effective primes for the respective population of interest.
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Working Paper (Numbered Series) 129598 AUG 01, 2018
This paper implements a machine learning approach to estimate intra-generational economic mobility using cross-sectional data. A Least Absolute Shrinkage and Selection Operator (Lasso) procedure is applied to explore poverty dynamics and household-level welfare growth in the absence of panel data sets that follow individuals over time.
... See More + The method is validated by sampling repeated cross-sections of actual panel data from Peru. In general, the approach performs well at estimating intra-generational poverty transitions; most of the mobility estimates fall within the 95 percent confidence intervals of poverty mobility from the actual panel data. The validation also confirms that the Lasso regularization procedure performs well at estimating household-level welfare growth between two years. Overall, the results are sufficiently encouraging to estimate economic mobility in settings where panel data are not available or, if they are, to improve panel data when they suffer from serious non-random attrition problems.
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Working Paper (Numbered Series) 129600 AUG 01, 2018
Infrastructure development is critical to delivering growth, reducing poverty, and addressing broader development goals. This paper surveys the literature on the linkages between infrastructure investment and economic growth, discusses the role of infrastructure in participation in global value chains and supporting economic upgrades, highlights the challenges that the least developed countries face, and provides policy recommendations.
... See More + It suggests that addressing the bottlenecks in infrastructure is a necessary condition to provide a window of opportunity for an economy to develop following its comparative advantage. With the rightconditions, good infrastructure can support an economy, particularly a less developed economy, to reap the benefits of participation in global value chains to upgrade the economic structure.
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Working Paper (Numbered Series) 129601 AUG 01, 2018
Despite the well-known positive impact of tobacco taxes on health outcomes, policy makers hesitate to use them because of their possible regressive effect, that is, poorer deciles are proportionally more negatively affected than richer ones.
... See More + Using an extended cost-benefit analysis to estimate the distributional effect of white and clove cigarettes in Indonesia, this study finds that the long-run impact may be progressive. The final aggregate effect incorporates the negative price effect, but also changes in medical expenditures and additional working years. The analysis includes estimates of the distributional impacts of price rises on cigarettes under various scenarios using 2015–16 Indonesia National Socioeconomic Surveys. One contribution is to quantify the impacts by allowing price elasticities to vary across consumption deciles. Overall, clove cigarette taxes exert an effect that depends on the assumptions of conditional price elasticity. If the population is more responsive to tobacco price changes, then people would experience even more gains from the health and work benefits. More research is needed to clarify the distributional effects of tobacco taxation in Indonesia.
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Working Paper (Numbered Series) 129602 AUG 01, 2018
Fuchs Tarlovsky,Alan; Del Carmen Hasbun,Giselle EugeniaDisclosed
This paper proposes a model-based approach to estimate income boundaries for identifying the middle class in Kazakhstan over 2003–15. The approach exploits the subjective evaluation of Kazakhstan households about their social status, relating self-declared social class membership to income.
... See More + Income data come from the Kazakhstan Household Budget Survey, which also includes a specific module on quality of life and perceived social status. As social status is intrinsically an ordinal response, the paper estimates a proportional odds model with income as the key explanatory variable. Although other factors influence the self-perception of being in the middle class, income is by far the most important determinant. Benchmarking on 2013, the estimated middle class lower bound is $14 at 2011 purchasing power parity and the upper bound is $52. The Kazakhstan middle class has increased massively in size and income concentration. The increase is essentially due to a growth effect rather than a redistributive cause.
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Working Paper (Numbered Series) 129806 AUG 01, 2018
The combined effect of taxes and social spending in Romania helps to reduce inequality, although less so than in other European Union countries.
... See More + However, the combination of direct and indirect taxes and transfers leads to an increase in poverty, as direct cash transfers to poor households are not large enough to compensate them for the burden of indirect taxes. This is especially important for rural households and families with children. Moreover, recent reductions in the rates for personal income and value-added taxes are expected to have led to an increase in inequality, as most of the tax relief accrued to the top of the income distribution. Although these changes likely helped to reduce poverty, they were an expensive way to achieve a small decline in the poverty rate. Higher and better targeted social assistance spending could have achieved better distributional results at a much lower fiscal cost. These results call for greater use of simulation tools that could inform policy makers and the public of the fiscal costs and redistributive impacts of proposed reforms.
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Working Paper (Numbered Series) 129808 AUG 01, 2018
Somalia’s economy grew by 2.3 percent in 2017. The economy remains vulnerable to recurrent shocks. Between 2013 and 2017, real annual GDP growth averaged 2.5 percent.
... See More + Growth occurred despite adverse weather conditions that severely reduced agricultural output in late 2016 and early 2017. For Somalia to enhance and sustain economic growth and escape chronic poverty, it must increase its resilience to shocks. Growth recovery is set to continue beyond 2018, lifted by gains from ongoing reforms as well as improved security. Rising domestic demand, remittances, and donor inflows and consolidation of peace and security are expected to drive growth in 2019–20. Achieving higher growth will require acceleration of structural reforms, particularly in three areas: fiscal policy and public financial management, provision of basic services (to promote human development and inclusion), and improved resilience to weather shocks particularly in the agriculture sector. Mobile money is an essential part of Somalia’s economic ecosystem. Almost three-quarters of the population aged 16 and above use mobile money on a regular basis. It is now the main transaction instrument used by both individuals and businesses across the country: presenting an opportunity to increase access to finance, spur inclusive growth, and promote resilient communities. However, with increasing dependence on mobile money as a medium of exchange comes increased vulnerabilities.
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Working Paper (Numbered Series) 129780 AUG 01, 2018
Kazakhstan’s cities are hubs of economic opportunity and prosperity. But despite the government’s ambitious targets, the pace of urbanization remains slow.
... See More + This study focuses on two key constraints: (i) the very high costof living in Kazakhstan’s cities, and (ii) the near absence of a rental housing market outside the capital, Astana.The findings show that the two urban centers of Almaty and Astana are 190 and 240 percent more expensiveto live in than the national average. Housing is the primary driver of the disparity: after adjusting for inflation,housing costs tripled in Astana and quadrupled in Almaty between 2001 and 2015. As a result, housing costsfor the local population in these areas are more unaffordable than famously exclusive cities such as SanFrancisco and Vancouver. Demand elasticities from 2015 imply that in the current environment, rural and low income households are especially unlikely to relocate to high-priced areas where employment prospects are better and average incomes are higher. Regional convergence in wage rates remains slow, but appears to be proceeding most quickly in Astana, where rental housing is most prevalent. The findings suggest that high rates of home ownership and the high cost of living in cities lead to exclusion of lower-income households and restrain economic growth.
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Working Paper (Numbered Series) 129593 JUL 31, 2018
This paper draws on unique datasets – the World Bank Labor Content of Exports (LACEX) and Export Value Added (EVA) databases – to explore how different varieties of trade integration through global value chains (GVCs) may result in different outcomes in the labor market.
... See More + It highlights five key findings: (i) The net association between trade integration and labor demand is positive, suggesting that while high shares of GVC integration is negatively correlated with labor demand, this is overcome by the larger aggregate output that results; (ii) Exporting (including intermediates) shows a positive correlation with the labor share in the direct export sector, while buying in GVCs is associated with positive returns to labor in the supplying sectors; (iii) Greater use of foreign inputs as a buying-side GVC integrator has overall benefits in terms of the returns to labor (relative to capital), but is likely to be associated with greater polarization of those returns, with skilled workers benefiting over unskilled; (iv) While results generally hold across sectors and income levels, we find evidence of a U-shaped relationship, whereby low and (especially) high income countries appear to have a stronger association between trade integration and labor market outcomes relative to middle income countries; and, (v) trade policy appears to play a significant role in mediating the relationship between trade and labor demand, while the mediating role of labor policy varies across the trade.
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Working Paper (Numbered Series) 129143 JUL 16, 2018
What is the real character of fiscal policy? Is it expansionary or restrictive? Is it pro-cyclical or does it have stabilization effects?
... See More + Policymakers and economic analysts need to be able to ascertain fiscal policy effort. As the actual budget balances are affected both by cyclical factors and structural measures, they may not, in general, be very useful when seeking to assess the stance of the fiscal policy. To understand the true nature of fiscal policy, it is therefore fundamental to remove cyclical effects of general government budget balances. The cyclically-adjusted budget balance (CAB) indicator plays this role in the fiscal surveillance framework as a means of analyzing the fiscal situation and changes in policy that result from the intentional actions of the government. This paper, for the first time, provides detailed calculations of the cyclically-adjusted budget balances in BiH, following a commonly agreed method by the European Commission and assesses the character of the fiscal policy in BiH from 2008 to 2019. The analysis showed that in earlier years BiH had led stabilizing expansionary fiscal policy, while in more recent years the fiscal policy was mostly restrictive and procyclical
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Working Paper (Numbered Series) 128335 JUL 01, 2018
Violent conflict and instability affect men and women in heterogeneous ways, including differentiated impacts on economic, social, physical, and mental well-being.
... See More + This study assesses the impact of the post-2013 conflict in South Sudan on adolescent girls and young women. The analysis uses data from the Adolescent Girls Initiative end line survey and the Armed Conflict Location & Event Data to measure conflict exposure using constructed cluster-level, self-reported, and external conflict exposure variables. The impact of conflict exposure is then estimated on a set of socioeconomic outcomes of adolescent girls by comparing exposed and non-exposed clusters before and after the conflict. The results suggest that girls from clusters more affected by the conflict had statistically different outcomes compared with girls from less affected clusters. Specifically, there is strong evidence that the conflict negatively affected outcomes related to income opportunities, aspirations, marriage, and household characteristics, but increased self-reported empowerment and entrepreneurial potential scores. The results indicate that impacts on labor supply, personal motivation, household conditions, and other forms of victimization are important channels through which conflict negatively impacts adolescent girls.
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Working Paper (Numbered Series) 129599 JUL 01, 2018
Rwanda's economy rebounded in the second half of 2017. The rebound, driven by improved exportperformance and revitalized agriculture, pushed annual growth to 6.1 percent and led to upwardrevisions of the growth projections for 2018 and 2019.
... See More + However, although growth is currently recovering and is more balanced, it will most likely continue to be below the high rates achieved during the 2013–15 investment push.
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Working Paper (Numbered Series) 127256 JUN 01, 2018
Using a panel of 80 developing and developed countries for the period 1990-2015, this studyanalyses the relationship between exchange rate volatility and foreign direct investment (FDI)inflows.
... See More + The results reveal a negative relationship between de facto exchange rate volatility andFDI. Reducing exchange rate volatility by 10 percent over one-year can boost FDI inflows—ceterisparibus—by an estimated 0.48 percentage points of GDP while the same reduction over the pastfive years can boost FDI inflows by 0.27 percentage points over the long-run. The results areapplied to the case of South Africa, which has been experiencing high volatility of the rand inrecent years. Reducing the rand's volatility to that of developing country peers, South Africa could boost FDI inflows by a potential of 0.25 percentage points of GDP.
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Working Paper (Numbered Series) 127042 JUN 01, 2018
In June 2015, about 53,000 people were affected by unusually severe floods in the Greater Accra Metropolitan Area, Ghana. The real impact of such a disaster is a product of exposure (Who was affected?)
... See More + , vulnerability (How much did the affected households lose?), and socioeconomic resilience (What was their ability to cope and recover?). This study explores these three dimensions to assess whether poor people were disproportionally affected by the 2015 floods. It reaches four main conclusions. (1) In the studied area, there is no difference in annual expenditures between the households who were affected and those who were not affected by the flood. (2) Poorer households lost less than their richer neighbors in absolute terms, but more when compared with their annual expenditure level, and poorer households are over-represented among the most severely affected households. (3) More than 30 percent of the affected households report not having recovered two years after the shock, and the ability of households to recover was driven by the magnitude of their losses, sources of income, and access to coping mechanisms, but not by their poverty, as measured by the annual expenditure level. (4) There is a measurable effect of the flood on behaviors, under-mining savings and investment in enterprises. The study concludes with two policy implications. First, flood management could be
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Working Paper (Numbered Series) 129594 JUN 01, 2018
Small area poverty maps allow for the design of policies based on spatial differences in welfare. They are typically estimated based on a consumption survey reporting on poverty and a census providing the spatial disaggregation.
... See More + This paper presents a new method which allows for the estimation of up-to-date small area poverty maps when only a dated census and a more recent survey are available and predictors and structural parameters are subject to drift over time, a situation commonly encountered in practice. Instead of using survey variables to explain consumption in the survey, the new approach uses variables constructed from the census. The proposed estimator has fewer data requirements and weaker assumptions than common small area poverty map estimators. Applications to simulated data and to poverty estimation in Brazil show an overall good performance.
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Working Paper (Numbered Series) 129596 JUN 01, 2018
This paper investigates the distributional changes that limited pro-poor growth in the past two decades in Sub-Saharan Africa; these changes went undetected by standard inequality measures.
... See More + By developing a new decomposition technique based on a nonparametric method —the relative distribution— the paper finds a clear distributional pattern affecting almost all the analyzed countries. Nineteen of 24 countries experienced a significant increase in polarization, particularly in the lower tail of the distribution, and this distributional change lowered the pro-poor impact of growth substantially. Without this change, poverty could have decreased an additional 5–6 percentage points during the past decade.
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Working Paper (Numbered Series) 129597 JUN 01, 2018
The aim of this analysis is to quantify the losses from potential materialization of contingent liabilities by applying a new methodology for the case of South Africa and, to assess their impact on debt dynamics.
... See More + Accordingly, we bring a novelty to this research by utilizing probabilities of distress, which is a different approach compared to the existing, already applied methodology. The central finding of the simulations conducted is that estimated losses from contingent liabilities, are significantly lower in the first year when they materialize compared to the existing applied methodology, and will gradually add up over time. Accordingly, the solvency and liquidity situation in the country will deteriorate. For example, the largest deterioration will occur in the debt to GDP ratio where the debt accumulation may be higher by 2.1 percent of GDP within three years, compared to the baseline projection. What is more concerning is that the debt trajectory is not stabilizing and losses incurred from materialization of contingent liabilities may become significant driving factor of debt accumulation in medium-term. Ultimately, the current estimates suggest that contingent liabilities may constitute a drag to fiscal policy in medium-term and their long-term accumulation may jeopardize the debt sustainability of the country. In that respect, this analysis suggests remedial measures and building protective buffers by the South African Treasury in the case CLs materialize.
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Working Paper (Numbered Series) 126841 MAY 01, 2018
