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World Bank Research E-Newsletter, May 2016
  Jun 01, 2016

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May 2016
Arrow-bullet Smarter approaches to combating crime and violent extremism
Arrow-bullet A new dataset of national poverty thresholds for setting international poverty lines
Arrow-bullet Reduced reliance on single-donor trust funds can increase aid effectiveness
Arrow-bullet Exporter behavior changes as countries get larger or richer
Arrow-bullet Testing incentives to formalize firms
Arrow-bullet Measuring under-reporting of corruption in firm surveys
Arrow-bullet The psychological cost of reconciliation
Arrow-bullet The food price spikes of 2007/08 reduced child growth in non-farming households in Indonesia
Arrow-bullet Land restrictions increase women’s participation in the labor force, but do not raise their wages
Arrow-bullet Book review: Phishing for Phools: The Economics of Manipulation and Deception by George Akerlof and Robert Shiller
Arrow-bullet Announcements
Arrow-bullet Upcoming Events
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A Message from the Director
Blogs Latest Media and Blog Posts
Working Papers List of New Policy Research Working Papers
Research Visit the Research Department Homepage
Smarter approaches to combating crime and violent extremism

Crime and violent extremism thrive when illicit actors are able to tap into a steady stream of illicit revenues. In this Policy Research Talk, Quy-Toan Do uses creative tools and data to explore how revenue is created (or not) in three highly disparate cases of ongoing crime and violent extremism: the pirates of Somalia, the poachers of African elephants, and the radical Islamists of Daesh. All are the result of government failures and generate large negative spillovers, but the range of effective interventions is highly contingent on the revenue model present in each case. Do examined the role of multilateral institutions in addressing the negative spillovers on world trade, biodiversity, and the generation of massive flows of displaced persons.

Story | Video | Presentation

New dataset of national poverty thresholds for setting international poverty lines

The number of people living in extreme poverty is currently measured using the international poverty line of $1.90/day at 2011 purchasing power parity. The $1.90 line is derived from the same national poverty lines previously used to estimate the international poverty line of $1.25/day at 2005 purchasing power parity. This paper provides a new dataset of national poverty lines derived from reported national poverty rates. In contrast to the previous set of national lines, these newer poverty lines are consistent with national poverty rates, expressed in common units, and provide greater support for setting international poverty lines. The dataset is used to estimate several alternative international poverty lines and shows that the $1.90 international poverty line is robust and relevant as a measure of poverty for low-income countries.

World Bank Policy Research Working Paper 7606 by Dean Jolliffe and Espen Beer Prydz, March 2016.

Reduced reliance on single-donor trust funds can increase aid effectiveness

The rapid growth of trust funds at multilateral development organizations offers donors many options. These choices involve tradeoffs between larger funds that provide the benefit of burden sharing and small funds that offer opportunities to assert individual donor preferences. A range of factors—from the area of intervention of the trust fund to competing domestic interests of donor countries—affect these fundamental tradeoffs. A sample of World Bank trust funds and the participation decisions of the Organisation for Economic Co-operation and Development/Development Assistance Committee donors over the past decade is used to test these preferences. Global activities and fragile states assistance are robust determinants of participation in (large) multi-donor funds. In contrast, donors tend to prefer single-donor trust funds in areas in which their national interests dominate. Although they could use bilateral aid for the same purpose they often channel their contributions through trust funds at multilateral agencies. In doing so they reduce their own administrative costs and obtain the expertise of the multilateral agency. These findings confirm prior findings from qualitative case studies and donor reports that suggest reduced reliance on single-donor trust funds improve the development effectiveness of aid.

World Bank Policy Research Paper 7441 by Bernhard Reinsberg, Katharina Michaelowa, and Stephen Knack, October 2015.

Exporter behavior changes as countries get larger or richer

The World Bank’s Exporter Dynamics Database offers researchers the opportunity to study exporter behavior on a global basis. New data from the database on the micro structure of the export sector for 45 countries shows how exporter behavior varies systematically with country size and stage of development. Larger and more developed countries have more exporters, larger exporters, and a greater share of exports controlled by the top five percent. The extensive margin (more firms) plays a greater role than the intensive margin (average size) in supporting exports of larger countries. In contrast, the intensive margin (average size) is better at explaining the exports of richer countries. Exporter entry and exit rates are higher and entrant survival is lower at early stages of development. The positive correlations between average exporter size and stage of development and between concentration of exports at the top of the size distribution and stage of development are consistent with models where firm growth is constrained in developing countries, especially among the high-productivity firms, the “truncated top”.

World Bank Policy Research Working Paper 7452 by Ana M. Fernandes, Caroline Freund, and Martha Denisse Pierola, October 2015.

Testing incentives to formalize firms

In 2009, the Benin national statistics agency estimated the informal sector at 70 percent of GDP and 95 percent of employment. In April 2014, the Government launched the entreprenant status, a simplified and free legal regime offered to small informal businesses to enter the formal economy. A randomized impact evaluation tested three versions of the entreprenant status on business registration decisions. The first version tested whether simplifying entry regulation and providing information alone could be effective. The second version tested the notion that businesses may need additional incentives to formalize and additional support to access benefits and grow. In the third version businesses received tax mediation services as an additional incentive to formalize. The study randomly allocated 3,600 informal businesses operating in Cotonou, Benin to the three treatment groups and one control group. After one year, formalization rates rose in all three groups: 9.1 percentage points in the first treatment group; 13 percentage points in the second treatment group; and 15.8 percentage points in the third treatment group. The program had a higher impact on male business owners, those with more education, operating outside Dantokpa Market (the biggest informal market), in sectors other than trade, and that had characteristics similar to already formalized businesses.

World Bank Policy Research Working Paper 7510 by Najy Benhassine, David McKenzie, Victor Pouliquen, and Massimiliano Santini, December 2015.

Measuring under-reporting of corruption in firm surveys

Survey respondents often are reluctant to provide candid responses to sensitive questions, particularly about illegal actions such as corruption. Using a specially designed random response question, this study develops a technique for estimating the rate of non-candid, or “reticent” responses to questions about bribes in the World Bank’s Enterprise Surveys. The setting is a common two-step question in which firm managers are first asked whether they have been visited by a public official, and if so, whether a bribe was solicited. Reticent behavior can happen in both stages of the question—reticent respondents may deny that either a bribe or a visit occurred. An analysis of data on firm-level survey responses about visits by tax inspectors in seven countries shows that on average 40 percent of responses are affected by reticent behavior. There is substantial variation across countries in the rate of reticence, and the stage of the question in which reticent behavior occurs. These results imply that standard survey-based estimates of bribery that fail to take reticent behavior into account underestimate corruption by 12 percent in Nigeria and 90 percent in Turkey.

World Bank Policy Research Working Paper 7276 by Nona Karalashvili, Aart Kraay, and Peter Murrell, May 2015.

The psychological cost of reconciliation

Civil wars often pit one neighbor against another. To restore social cohesion, many countries undertake truth and reconciliation efforts. One such effort, designed and implemented by a Sierra Leonean non-governmental organization is called (Fambul Tok, or “family talk” in Krio). As a part of this effort, community-level forums were set up in which victims detail war atrocities, and perpetrators confess to war crimes. A random assignment to the study and its impact across 200 villages drawing on data from 2,383 individuals found that reconciliation had both positive and negative consequences. It led to greater forgiveness of perpetrators and strengthened social capital: Social networks were larger, and people contributed more to public goods in treated villages. However, these benefits came at a substantial cost: The reconciliation process also worsened psychological health, increasing depression, anxiety, and post-traumatic stress disorder in these same villages. Follow-up studies on a subset of villages measured outcomes both 9 and 31 months after the intervention. They show the effects, both positive and negative, persisted into the longer term. The findings suggest that policy-makers need to restructure reconciliation processes in ways that reduce their negative psychological costs while retaining their positive societal benefits.

Reconciling after civil conflict increases social capital but decreases individual well-being by Jacobus Cilliers, Oeindrila Dube, and Bilal Siddiqi, Science 352(6287): 787-794, May 2016.

The food price spikes of 2007/08 reduced child growth in non-farming households in Indonesia

Surging food prices can undermine the capacity of poor households to meet basic minimum nutritional needs. This study focuses on the potentially permanent effects of the food price crisis of 2007‐08 on child human capital formation, and distinguishes between food producers and non‐producers. The anthropometric and consumption data collected for Indonesia before and after the 2007/08 food price crisis suggest a spike in food prices had a large and negative impact on child growth among non-farming households. A corresponding effect was undetectable for food-producing households. Recent literature shows that malnutrition experienced at age 0 to 3 has long-term impacts on human capital formation and therefore labor market earnings. The results remain robust to income effects and possible attritions through migration and fostering. Local food price changes were also not related either with the number of non-farming village households or the initial average child nutrition status in the village, suggesting the observed outcomes can be directly attributed to market events and livelihood strategies. The findings imply that the food price spikes can stunt the growth of children at a vulnerable stage of life, potentially leading to lifelong inequality in human capital, as well as income.

World Bank Research Policy Working Paper 7627 by Futoshi Yamauchi and Donald F. Larson, April 2016.

Land restrictions increase women’s participation in the labor force, but do not raise their wages

Land restrictions can affect economic outcomes through impacts on the collateral value of land and insecurity of property rights. This study focuses on a different mechanism: an increase in the cost of migration out of villages due to land restrictions. While insecurity of property rights reduces labor force participation and increases wages, both wage and labor force participation move in the same direction due to the collateral effect. Land restrictions that work primarily through higher migration costs cause local labor force participation to increase because migration to better jobs is costlier, while wages decline. This prediction is tested using data from a natural experiment in Sri Lanka, where malaria played a unique role in land policy during pre-colonial times. After people fled malaria afflicted areas the government took ownership under the Crown Lands Ordinance of 1840. The lands were later distributed among households after imposing sales and rental restrictions. Analysis of these land restrictions confirms a positive effect on women’s labor force participation and a negative effect on female wages, supporting the conclusion that migration costs were the primary mechanism.

World Bank Policy Research Working Paper 7524 by M. Shahe Emran and Forhad Shilpi, December 2015.

Kaushik Basu reviews Phishing for Phools: The Economics of Manipulation and Deception by George Akerlof and Robert Shiller

There is a growing appreciation in economics that people have emotional vulnerabilities, commitments to social norms, and systematic irrationalities, which impact their decision making and choice in the marketplace. The flip side of this is that human beings are susceptible to being manipulated by unscrupulous agents who are single-minded about marketing their services and wares. This review of George Akerlof and Robert Shiller’s book, Phishing for Phools: The Economics of Manipulation and Deception, alongside other writings in the field, discusses how this research agenda can be taken forward. It shows how this new research can shed light on the ubiquity of corruption in so many societies, and proposes ideas for controlling it.

World Bank Policy Research Working Paper 7653 by Kaushik Basu, April 2016.

ANNOUNCEMENTS

World Development Report 2016: Digital Dividends
The app, now available for IOS and Android features download data (in CSV format) behind each figure in the report; ability to jump straight to tables, figures and boxes; ability to browse the report’s content by country, region and topics; and access overviews and main messages in seven languages.

Conference on Equity and Development: Ten Years On
October 20-21, 2016, Washington, DC
Call for papers by Friday, June 17, 2016

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.

UPCOMING EVENTS

All upcoming events

MEDIA AND BLOGS

It’s been 25 years since Sierra Leone’s brutal civil war. Here’s what we know about helping communities recover (Washington Post Monkey Cage, May 13, 2016)  

Twenty-five years ago, Sierra Leone plunged into a decade-long brutal civil war, made famous by the chilling practice of mass amputations of hands, arms and legs and the film “Blood Diamond.” How does a country recover from a war in which neighbor turned on neighbor, 50,000 people were killed and more than half the population had to flee their homes?

Sierra Leone is not unique. Roughly a quarter of the world’s nations were in a civil war when the Sierra Leone conflict started. The question of how to rebuild—not just buildings but also communities and individuals—affects millions of people worldwide.

What’s the best way to help communities recover from civil war?

New research by Jacobus Cilliers, Oeindrila Dube and Bilal Siddiqi, released today in Science, evaluates community-based reconciliation efforts in Sierra Leone. Using a randomized controlled trial, the authors found that a relatively cheap and short reconciliation program, which brings communities together to discuss the war and enable perpetrators to ask forgiveness, can help rebuild community ties and social capital.

That’s the good news. The bad news is that individuals feel more anxious and depressed, presumably from recalling and reliving that trauma. Both results hold up two years after the program.

Read the article.

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Global innovation in health and medicine (McGill University, May 5, 2016)

The international Simnovate summit at McGill University on May 5 and 6, 2016 focused on four themes to improve healthcare: patient safety, pervasive learning, medical technologies, and global health. The session on innovations in global health care and training explored medical training along with modern health care systems that are being transformed through simulation, and new collaborations between sectors that have never worked together in the past. In this podcast, presenter Jishnu Das, Lead Economist in the Development Research Group of the World Bank, describes a study using patients trained to present medical standard conditions to a range of doctors in India to assess the quality of care received. In the sample 76 percent of the treatments are not needed, meaning patients can get both too much care for what they don’t have and not enough care for the condition they do have, because the diagnosis may be wrong. Jishnu Das’s research focuses on the delivery of basic services, particularly health and education.

Podcast with Jishnu Das, May 5, 2016 (6:41 minutes)

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Starting life off on the wrong foot (Development Impact, May 4, 2016)

I was recently at the GW conference on the economics & political economy of Africa where I saw an interesting paper by Richard Akresh, Emilie Bagby, Damien de Walque, and Harounan Kazianga on Burkina Faso. Akresh and co. make another compelling argument for focusing on early childhood (and indeed, in utero). Kids whose household has a shock during this critical period are less smart—and this leads to them going to school less. 

Read the blog by Markus Goldstein.

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Getting more Bank for the buck (Let’s Talk Development, April 27, 2016)

An obvious comparative advantage of the World Bank Group in meeting fundamental client and global needs is its ability to carry out sophisticated project analysis, on the basis of its high-quality and motivated staff. The analysis of benefits and costs of projects takes two main forms. The first is more traditional (ex ante) cost-benefit analysis, CBA, or related efficiency analyses of projects, to ensure that expected client benefits are maximized for given costs. High quality CBA that builds on a prior record of expected project outcomes and ex post actual project outcomes can help guard against inefficiencies related to public investments in client countries. Project impact evaluations, IEs, are designed to give rigorous estimates of projects’ ex post impacts—the actual client benefits. The Bank’s use of IEs is on the rise, even though evidence gaps still remain and the use of the ensuing evidence can be improved. While the Bank has historically been a leader in developing and applying CBA in developing-country contexts, recent reviews of WBG projects have found the Bank in recent years to be much weaker in using CBAs. A forthcoming Working Paper by IEG will provide further insights into stakeholders’ interest (or lack thereof) in producing and utilizing CBA for decision-making.

Read the blog by Jon Strand and Marie Gaarder.

List of New Policy Research Working Papers
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