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World Bank Research E-Newsletter, April 2016
  Apr 28, 2016

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April 2016
Arrow-bullet Revving the engine of services trade
Arrow-bullet Minimum wages in Indonesia reduced gender pay gaps but left vulnerable women behind
Arrow-bullet The Mexican wage subsidy program lessened unemployment after the economic crisis
Arrow-bullet Testing the evaluations of programs to formalize firms
Arrow-bullet Large farm investments in Mozambique provide modest benefits to neighboring smallholders
Arrow-bullet Tailoring forest protection programs to suit communities will increase adoption
Arrow-bullet Facing up to the ethical problems of economic research in the field
Arrow-bullet Unemployment had little impact on mortality during the Great Recession
Arrow-bullet Announcement
Arrow-bullet Upcoming Events
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Working Papers List of New Policy Research Working Papers
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Revving the engine of services trade

Trade in services has been steadily growing since 2010. In this Policy Research Talk, Research Manager Aaditya Mattoo discussed new research and data, including the Services Trade Restrictions Database, that is advancing knowledge about current services trade policies, and how best to reform them.

Story | Video | Presentation

Minimum wages in Indonesia reduced gender pay gaps but left vulnerable women behind

Analysis of minimum wage increases in Indonesia demonstrates they reduced gender wage gaps overall, yet their impact varied with workers’ education. Although gender pay gaps are largest among the least educated production workers, minimum wage increases were least effective in reducing gender pay gaps among this group. The wages of women with low levels of education were unresponsive to minimum wage increases, while those of uneducated men increased, worsening gender pay gaps at the lower end of the education distribution. By contrast, minimum wage increases had the largest positive impact on women with at least some high school education; they experienced significant wage increases both in absolute terms and relative to men with the same education. Minimum wage increases were thus associated with worsened gender pay gaps among the least educated, and reduced gender gaps among the best educated production workers.

World Bank Policy Research Working Paper 7364 by Mary Hallward-Driemeier, Bob Rijkers, and Andrew Waxman, July 2015.

The Mexican wage subsidy program lessened unemployment after the economic crisis

During the recent economic crisis the government in Mexico granted firms in certain industries wage subsidies if they decided to keep their workers employed between January and August 2009. Indeed, 22 countries used some form of wage subsidy program to promote employment retention during the recent economic crisis as layoffs can slow down economic recovery, and re‐hiring and training workers can be costly for firms. Using monthly administrative data on employment, grouped into eligible and ineligible durable goods manufacturing industries with similar pre-crisis employment trends shows a modest positive effect of wage subsidies on employment during the program’s eight-month duration, ranging from 5.7 to 13.2 percent. The size of the effect increases to 24 percent after the program ended suggesting that employment after the program recovered faster in the industries eligible for the wage subsidy. While the Mexican wage subsidies effectively tackled unemployment in the wake of an economic crisis, they did not preserve job-specific skills, which was part of the economic rationale for the program. Rather, the positive effect on employment seems to have come from the subsidy payment itself.

World Bank Policy Research Working Paper 7607 by Miriam Bruhn, March 2016.

Testing the evaluations of programs to formalize firms

Most evaluations of programs to help informal firms formalize conclude they do not work. One of the few exceptions is a study that shows large effects of a tax simplification program in Brazil called SIMPLES. Another study using the same dataset but a different identification strategy, concludes that the program had a limited effect on formalization rates. This work reconciles the conflicting conclusions and investigates the plausibility of the identification strategy used in both studies. It turns out the conflicting results are caused by the dates used to identify when the program was put into effect. Further analysis suggest that “data heaping” and seasonality around November in the microdata cast doubts on the identification strategy used in both studies.

World Bank Policy Research Working Paper 7605 by Caio Piza, March 2016.

Large farm investments in Mozambique provide modest benefits to neighboring smallholders

The 2007/08 spike in global food prices set off a wave of large scale land-based investment in relatively land abundant countries. A decade later opinions on its impact diverge, partly because spillovers from investments on neighboring smallholders have not been rigorously assessed. Combining small and large farm survey data from Mozambique suggests that changes in the number and area of large farms between 2012–14 helped neighboring smallholders (within 50 kilometers) increase their use of improved farming practices but also was associated with less subjective welfare. Large farm establishment in this period had no impact on cultivated area, participation in output, credit, and nonfarm labor markets, or, after these factors are controlled for, yields. The fact that estimated positive spillovers are limited, and modest in size, and counter-balanced by decreases in subjective welfare, suggests that private large-farm investment cannot counter long-standing under-investment in Mozambique’s agricultural sector. The limited scope and modest size of the estimated benefits point toward considerable unrealized potential of such investment to include smallholders in value chains. Ways to improve outcomes in this respect and to regularly monitor outcomes using the methodology applied here are discussed.

World Bank Policy Research Working Paper 7466 by Klaus Deininger, Fang Xia, Aurelio Mate, and Ellen Payongayong, October 2015.

Tailoring forest protection programs to suit communities will increase adoption

To be effective, a program that pays households or communities to maintain forests must consider the incentives provided by the payments, the opportunity costs of using forest resources less, and interactions among community members. A choice experiment in rural Ethiopian communities explored respondents’ preferences for different aspects of such a program. Respondents showed particularly strong interests in how payments are divided between households and the community, the degree of restriction on using grazing land, and community enforcement of contracts, as well as in the level of payments received for participating in the program. Although rural Ethiopian households are quite dependent on firewood collection, restrictions on collections did not significantly impact preferences. The Ethiopian households in the choice experiment did not require very high cash payments to offset losses in access to forest resources, implying that the opportunity costs of carbon sequestration through such payments may be relatively low.

World Bank Policy Research Working Paper 7296 by Sahan T. M. Dissanayake, Abebe Damte Beyene, Randall Bluffstone, Zenebe Gebreegziabher, Peter Martinsson, Alemu Mekonnen, Michael Toman, and Ferdinand M. Vieider, June 2015.

Facing up to the ethical problems of economic research in the field

The practice of fieldwork invariably leads to ethical dilemmas and it is hard to translate research guidelines in clinical environments to the kind of field studies that development economists are typically engaged in. The authors focus on 3 particularly vexing problems with no clear solutions that they have repeatedly faced in more than 50 years of combined fieldwork. They discuss the intricacies of (1) balancing transparency and confidentiality, especially when the respondent faces the entire family, with neighbors “dropping in” and a curious set of faces looking in from the window; (2) trust between the surveyor and the surveyed, and the tricky issues of informed consent among non-literate populations and sharing information from the survey with the surveyed population and; (3) review boards in cross-country research. The World Bank does not have an internal board dealing specifically with ethical research on human subjects or a policy on employing external boards. It follows the guidelines of the World Health Organization. This is a lost opportunity for leadership in ethical fieldwork by the World Bank as it routinely conducts more than 500 surveys in low-income countries every year.

Chapter in The Oxford Handbook of Professional Economic Ethics by Harold Alderman, Jishnu Das and Vijayendra Rao, 2016.

Unemployment had little impact on mortality during the Great Recession

Did severe unemployment during the Great Recession affect mortality rates in the United States? Analysis of the data from the variation in counties’ exposure to manufacturing production suggests job losses did not increase mortality during the Great Recession. This relationship holds for males and females, for all age groups, and for almost all categories of mortality. Two important exceptions are Alzheimer's, and homicide.

World Bank Policy Research Working Paper 7603 by Ha Nguyen and Huong Nguyen, March 2016.

ANNOUNCEMENT

Conference on Equity and Development: Ten Years On
October 20-21, 2016, Washington, DC

The World Bank’s World Development Report 2006 on Equity and Development placed a concern with social justice and combating inequality at the center of the development paradigm. In the ten years since, inequality has become even more central to both academic inquiry and policy debates, in developed and developing countries alike. Research into top incomes; global inequality; inequality of opportunity; and economic mobility, to name only a few topics, has made much progress since 2006.  This conference will revisit the main premises and conclusions of the WDR 2006 in the light of recent experience and new findings. It will also explore the key developments in the field during the decade since its publication, and their implications for both policy and further inquiry

More information on the conference and the call for papers by Friday, June 17, 2016

UPCOMING EVENTS

All upcoming events

MEDIA AND BLOGS

India’s informal doctors are assets not crooks (Internal Growth Centre, April 22, 2016)  

Informal healthcare providers are the most common, and sometimes only source of healthcare, in much of rural India. Jishnu Das of the World Bank argues that informal providers should be trained and their impact evaluated to see if it improves care for poor people.

Most of us would agree that when it comes to healthcare providers, some training is better than none. Yet even this seemingly innocuous statement is highly contentious in India, where training primary care providers who lack formal medical qualifications is anathema to the professional medical classes.

But the professionals are wrong. Training informal providers (IPs) could vastly improve the quality of care for millions of rural Indians and there is no evidence that it would make matters worse.

Read the blog by Jishnu Das.

***

Negative interest rates as a fishhook (Let’s Talk Development, April 15, 2016)

Based on the opening remarks made at the Chief Economists’ Roundtable on “Growth and Inclusion in Turbulent Times

It is time for the annual Spring Meetings. Many of the world’s finance and development ministers, along with business and civil society leaders, are here in Washington and have been meeting with us at the World Bank this week to discuss what we can do to rise up to these challenging times. Most conversations have come to land on two important questions, namely: What is happening around the world in different regions? And: what can we do to stem the slowdown and disunity around the right policy way ahead?

The global economy has hit a difficult patch. We at the World Bank have had to lower our global growth forecast from 2.9%, as recently as January, to 2.5%. There was pressure on us in January that we were being too pessimistic when we put out the forecast of 2.9%. In retrospect, we were not pessimistic enough.

Let me clarify, this is a matter of concern but not a crisis. It is, instead, a festering wound from the earlier sub-prime crisis and the sovereign debt crisis that is refusing to heal. It is not a situation that should give us sleepless nights but could cause a dull, low-grade pain through the night.

Read the blog by Kaushik Basu, Senior Vice President and Chief Economist, World Bank.

***

Out of the shadows? Are firms more likely to formalize through tax simplification programs? (Let’s Talk Development, April, 14, 2016)

Red tape can be a significant barrier to having informal firms formalize and eventually benefit from any business support programs provided by governmental agencies. While the relationship between this formalization, access to finance and a firm’s performance has been implied by anecdotal evidence (de Soto 1989 and 2000), a recent survey of empirical evidence suggests that such programs may in fact achieve the opposite and not necessarily nudge firms to formalize. In fact, the evidence suggests that even with a significant reduction in red tape most informal firms decide to remain informal (see Bruhn and McKenzie 2013 for a survey).

Read the blog by Caio Piza.

***

Exporter Dynamics Database version 2.0: What does it reveal about the trade collapse? (The Data Blog, April 12, 2016)

The recent global financial crisis was closely followed by a trade collapse. Global trade plunged by 23% in 2008-2009. Despite a rebound in 2010-2011, trade growth has been almost stagnant ever since and is predicted by the WTO in its April 7 2016 press release to remain sluggish, a grim outlook compared to the expansions in pre-crisis times (Constantinescu et al., 2015).  What were the underlying micro sources of this trade collapse: were exporters’ ability to participate in foreign markets or their pace of growth most hurt? Evidence from high-income countries shows that declines in the intensive margin—average exporter size—explain most of the decline in global trade, compared to the fall in the extensive margin—the number of exporters. But what about developing countries? 

Read the blog by Ana Fernandes and Aldo Bortoluzzi.

***

This trade slowdown has a silver lining (Let’s Talk Development blog, April 11, 2016)

Global trade seems to be in a perilous state.  The dynamic growth engine of the 1990s first slowed in the 2000s, then spluttered during the crisis, and is now sadly slacking behind GDP growth.  Preliminary data indicate that trade growth touched new lows in 2015, with merchandise imports growing at around 2 percent in 2015, down from 3 percent in 2014.  But the same factors that lie behind the most recent slowdown may be creating the conditions for a future upturn, if the global community takes the necessary steps.

Global trade seems to be in a perilous state.  The dynamic growth engine of the 1990s first slowed in the 2000s, then spluttered during the crisis, and is now sadly slacking behind GDP growth.  Preliminary data indicate that trade growth touched new lows in 2015, with merchandise imports growing at around 2 percent in 2015, down from 3 percent in 2014.  But the same factors that lie behind the most recent slowdown may be creating the conditions for a future upturn, if the global community takes the necessary steps.

Research has shown that structural changes in the global economy explained a significant part of the trade slowdown.  These changes included the maturation of global value chains and the slower pace of trade liberalization.

The year 2015 was different in two respects.  First, cyclical factors dominated and accounted for approximately two thirds of the trade slowdown.  Second, whereas in previous years, weak import demand was mostly a feature of advanced economies, the trade downturn in 2015 can be traced back to emerging economies.

Read the blog by Aaditya Mattoo, Michele Ruta, and Cristina Constantinescu.

***

How mobile phones are changing women’s lives (World Economic Forum, April 4, 2016)

Mobile phones are great for catching up with friends and family or texting selfies. But for many people around the globe, especially women in developing nations, owning a mobile phone can mean far more:

  • Financial independence
  • Employment
  • Better family health and education
  • Access to the Internet, government services, and information

Mobile phone ownership gives women the ability to open a mobile phone-based bank account, an important gateway to financial independence. A private account gives women in developing nations control over their money as well as the ability to put food on the family table.

A mobile phone also gives women the ability to open a business in a remote village, without having to trek to a distant city to register that business. And, with a phone, women in developing countries can more easily schedule a clinic appointment or register their children for school.

But these benefits are unavailable to the 1.7 billion women in developing countries who don't own a mobile phone. Around the world, women are 14 percent less likely than men to own a mobile phone, according to the GSMA, an association representing mobile operators worldwide. The situation is even worse in South Asia, where women on average are 38 percent less likely to own a mobile phone than men.

Read the blog by Leora Klapper.

***

What to expect when you’re expecting, in Nigeria: Lessons from a series of health impact evaluations (Let’s Talk Development, March 29, 2016)

In Nigeria, the statistics on maternal and child health are mind boggling. Some 240,000 babies and 33,000 mothers die each year. Sadly, most of these deaths are preventable. Maternal mortality in Nigeria has decreased from 1,100 per 100,000 births in 1990 to 550 in 2013. Yet, the country, which has only two percent of the world’s population, accounts for some 15 percent of all maternal deaths globally.  Lack of access to health care is a major contributor to these high levels of maternal mortality: 42 percent of pregnant Nigerian women receive no antenatal care and 61 percent of childbirths take place with no skilled attendant present.

Read the blog by Anushka Thewarapperuma.

List of New Policy Research Working Papers
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