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World Bank Research E-Newsletter, June 2016
  Jun 30, 2016

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June 2016—Theme: Conflict and Fragility
Arrow-bullet Smarter approaches to combating crime and violent extremism
Arrow-bullet Development institutions can take action now to boost peace in Syria
Arrow-bullet New model estimates the size of illicit activity and laundered assets in Colombia
Arrow-bullet Income disparities for marginalized groups fell during the post-apartheid period
Arrow-bullet The heavy psychological burden of reconciliation in Sierra Leone: depression, anxiety, PTSD
Arrow-bullet Risk aversion increased sharply in the wake of 2008 post-election conflict in Kenya
Arrow-bullet Improving election quality in fragile states: evidence from post-war Liberia
Arrow-bullet Announcement
Arrow-bullet Upcoming Events
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Working Papers List of New Policy Research Working Papers
Research Visit the Research Department Homepage
Smarter approaches to combating crime and violent extremism

In this Policy Research Talk, Senior Economist Quy-Toan Do discussed how innovative forensic tools and data are helping policymakers better understand how criminals secure the revenue that funds their activities. By modeling criminals’ incentives and predicting their behavior, development institutions, governments, civil society, and other stakeholders can more effectively disrupt the financing of criminal activities. Do applied forensic tools to three real world examples of crime and violent extremism: elephant poaching in Africa, Somali piracy, and Daesh. Do concluded that disrupting the “supply” side of the opportunities for lucrative criminal activity is often not enough. Rather, disrupting these crimes requires “the decentralization of law enforcement to the level of the community.” Discussant Saroj Kumar Jha, Senior Director of the Fragility, Conflict and Violence Group of the World Bank, added that “in countries that are vulnerable to conflict and violent extremism, forensic economics can really help us understand that phenomenon better. Neighborhood policing organizations, in partnership with local police, have helped to contain crime and violence in neighborhoods.”

Story | Video | Presentation | Event information

Development institutions can take action now to boost peace in Syria

As Syria enters its sixth year of civil war, the conflict has claimed upwards of 470,000 lives, pushed half of the Syrian population out of their homes, and by mid-2014 destroyed $70-80 billion in capital stock. Inside the country, the situation has dramatically worsened over the past year, particularly in contested areas. The need for more mitigation and resilience projects inside the country becomes acute. The lack of basic services such as health, water, sanitation, electricity and education, has had devastating humanitarian consequences. While full-scale reconstruction may have to wait for peace, development institutions can commit to support an ambitious and inclusive reconstruction strategy that might in itself foster peace.

Syria: Reconstruction for Peace, Shantayanan Devarajan, Lili Mottaghi, Quy-Toan Do, and Mohamed Abdel Jelil, Middle East and North Africa (MENA) Economic Monitor. Washington, DC: World Bank Group, April 2016 | Report Launch event | Press Release | Story.

New model estimates the size of illicit activity and laundered assets in Colombia

A new model estimates that illicit incomes in Colombia increased drastically until 2001, peaking at 12 percent of gross domestic product (GDP), and then decreased to less than 2 percent of GDP by 2013. The decline occurred during a period of high economic growth and the implementation of Plan Colombia. The estimated volume of laundered assets increased from about 8 percent of GDP in the mid-1980s to a peak of 14 percent by 2002, and declined to 8 percent in 2013. The estimates are guided by a long-run growth model, which can also be applied to other countries. The model considers illicit workers and activities alongside a licit private sector and a functioning government. The licit sector operates in a perfectly competitive environment and produces a good through a standard neoclassical production function. The illicit sector operates under imperfect competition (through cartels) and is composed of the production of illicit goods with value in the market (for example illicit drugs) and activities that only redistribute wealth (for example robbery, kidnapping, and fraud). The model provides a framework to assess the effects of changes in productivity, government efficiency, and drug prices on labor and output markets. It also derives a set of estimable equations to measure the size of illicit activities and laundered assets from 1985 to 2013.

World Bank Policy Research Working Paper 7578 by Edgar Villa, Martha A. Misas, and Norman V. Loayza, February 2016.

Income disparities for marginalized groups fell during the post-apartheid period

When apartheid ended in South Africa in 1994 the dismantling of coercive institutions affected the distribution of rents (surplus value after all costs and normal returns have been accounted for) from natural resource exports. This research examines spatial income disparities in the post-apartheid period, when marginalized racial groups and labor unions became empowered. The 1996 census shows large income gaps between communities located just-inside and just-outside the former self-governing territories set aside for black inhabitants. Between 1996 and 2011, spatial income convergence increased among marginalized communities with higher initial exposure to resource rents. These results support standard bargaining theory in which the dismantling of coercive institutions improves the negotiating position of unionized workers in the mining industry.

World Bank Policy Research Working Paper 7572 by Paulo Bastos and Nicolas Bottan, February 2016.

The heavy psychological burden of reconciliation in Sierra Leone: depression, anxiety, PTSD

Civil wars often pit one neighbor against another. To restore social cohesion, many countries undertake truth and reconciliation efforts. One such effort in Sierra Leone, 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 (PTSD) in these same villages. Follow-up studies on a subset of villages measured outcomes both nine and 31 months after the intervention. They show the effects, both positive and negative, persisted into the longer term. The findings suggest that policymakers 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.

Risk aversion increased sharply in the wake of 2008 post-election conflict in Kenya

In 2008, Kenya experienced a brief but violent political upheaval in which more than 1,000 people died and many more were displaced. Because it interrupted an ongoing survey, this study is able to measure the impact of the crisis on willingness to take profitable risks. The crisis increased risk aversion significantly. Immediately after the crisis, the fraction of risk neutral and risk-loving subjects dropped by 26 percent. This study corroborates growing evidence that preferences are influenced by major events such as conflict, disasters, and economic downturns. Many existing studies of conflict, however, estimate only the marginal impact of exposure to violence, comparing more-exposed to less-exposed survivors. The present study identifies the effects of civil conflict on the general population. Relatively more conflict-affected individuals may become more pro-social or less risk averse, but conflict reduces the general population’s willingness to take profitable risks. Conflict may thus have lasting impacts on economic development through channels such as reduced entrepreneurship. Because these findings differ from earlier studies it suggests that the impacts of conflict at the scale of affected individuals and villages may not generalize to the scale of a district, or that of a nation.

World Bank Policy Research Working Paper 7440 by Pamela Jakiela and Owen Ozier, October 2015.

Improving election quality in fragile states: evidence from post-war Liberia

Citizen-oriented democracy promotion is often a major component of external aid to “fragile” states. This study examines barriers to democratic expression through elections in rural Liberia. It is based on a theoretical approach to understanding the types of dilemmas voters face in fragile states. The experiment introduced new forms of interaction between rural citizens and third-party actors: (i) civic education and town hall workshops directed by non-governmental organizations in communities over nine months and (ii) security committees that brought rural community representatives into a monthly exchange with United Nations peacekeepers. The effectiveness of these programs as measured by surveys, behavioral activities, and electoral returns showed that civic education workshops increased enthusiasm for electoral participation, produced a shift from parochial to national candidates, and increased willingness to report intimidation. The security committee program had a weak effect on preferences for national versus parochial candidates, and there was no evidence of synergy between the two programs. The effects of the civic education and town hall program confirms the importance of information and opportunities for citizens to coordinate and that these barriers can be overcome in fragile states.

World Bank Policy Research Working Paper 7370 by Eric Mvukiyehe and Cyrus Samii, July 2015 | Impact Evaluation Research Program on Fragility, Conflict and Violence


Earlier this month, donors met in Myanmar to discuss the replenishment of the International Development Association (IDA), the arm of the World Bank that helps the world’s poorest countries. The research department plays a key role in filling the ‘research gap’ on the poorest countries on topics that range from adapting to climate change, ensuring women’s ability to participate in the labor force, to promoting good governance in fragile states. Interested readers can view a collection of more than 100 papers on IDA countries produced in the last three years at Research Resources for IDA18 and also access a special edition of the Research Digest focused on IDA countries.


All upcoming events


Do social factors determine “who we are” as well as the choice sets we have? (Let’s Talk Development, June 22, 2016)  

The World Bank’s conference on “The State of Economics, the State of the World” was an opportunity to take stock of the emergence of new paradigms for understanding economic development. Following Ken Arrow’s talk on the history of the neoclassical model and Shanta Devarajan’s comments on this model’s centrality in the Bank’s work, I had the opportunity to discuss two paradigms of how individuals make decisions that have recently emerged in economics, drawing on psychology, sociology, and anthropology.

Read the blog by Karla Hoff.


Have RCTs taken over development economics? (Development Impact, June 13, 2016)

Last week the “State of Economics, State of the World” conference was held at the World Bank. I had the pleasure of discussing (along with Martin Ravallion) Esther Duflo’s talk on “The Influence of Randomized Controlled Trials on Development Economics Research and on Development Policy”. The website should have links to the papers and video stream replay up (if not already, then soon).

The first part of Esther’s talk traced out the growth in RCTs in development economics. She pointed out that in 2000 the top-5 journals published 21 articles in development, of which 0 were RCTs, while in 2015 there were 32, of which 10 were RCTs — so pretty much all the growth in development papers in top journals comes from RCTs. She also showed that the more recently BREAD members had received their PhD, the more likely they were to have done at least one RCT.

In my discussion I expanded on these facts to put them in context, and argue against what I see as a couple of strawman arguments: 1) that top journals only publish RCTs, and that RCTs have taken over development research; and 2) that young researchers have a “randomize or bust” attitude and refuse to do anything but RCTs. I thought I’d summarize what I said on both here.

Read the blog by David McKenzie.


Can wage subsidies boost employment in the wake of an economic crisis? (All About Finance, June 6, 2016)

Unemployment often rises during an economic crisis and policymakers take a range of actions to mitigate this increase. For example, 22 countries used some form of wage subsidy program to promote employment retention during the recent crisis. Many studies have looked at the effect of wage subsidies on employment in non-crisis times, with mixed findings. But, there is not much evidence on whether wage subsidies can raise employment in the wake of a crisis. Conceptually, wage subsidies during a crisis may make sense since layoffs could slow down the recovery as re-hiring and training workers may be costly for firms. This is particularly true for workers with job-specific skills. For these workers, it may be beneficial for firms to not let them go in the first place. However, as firms face lower demand for their products, they may not have the financial means to keep paying these workers, particularly in the presence of credit constraints, which are often exacerbated during a crisis. This is where wage subsidies come in. But, ultimately, we just don’t know whether these subsidies really cause firms to retain workers they otherwise would not have retained.

Read the blog by Miriam Bruhn.


Do local communities benefit from mining (Let’s Talk Development, June 2, 2016)

There is no doubt that the mining boom in Peru, from a national perspective, has brought the country significant wealth, and contributed to the impressive growth rates that allowed millions of Peruvians to be lifted out of poverty — including many citizens from the Pasco department. But have native people living close to the mines benefitted directly from this boom? The strong migration towards Cerro de Pasco, for instance, could indicate that locals may not have the right set of skills to be productively employed and benefit from mining activity. The limited economic activity that can be observed in the districts surrounding the city suggests that the benefits from mining activity may have limited geographic reach. And Cerro de Pasco is only one of many locations facing similar uneven benefits — another, more recent example is Challhuahuacho, in the department of Apurímac, where sizable immigration has brought about gentrification ... but also dislocation of native inhabitants.

In a recently published paper, we investigate the local impacts of mining activity, assessing whether the benefits of mining trickled down to the local population during the recent mining boom in Peru. In the 1990s and 2000s, the value of Peruvian mining exports grew by fifteen times; and since early 2000s, one-half of fiscal revenues from mining have been devolved to local governments. In order to compare socioeconomic outcomes between districts with and without mining activity, we use the district-level “poverty map” of 2007 (the latest available with accurate data on consumption, poverty, and inequality) together with district-level data on mining production, fiscal transfers to local government, and initial conditions from the 1993 census.

Read the blog by Norman Loayza and Jamele Rigolini.


Goodbye, Globalization? Why trade growth has slowed down — and what it might mean for the global economy ((Federal Reserve Bank of Richmond, 4th quarter 2015)

…after decades of rapid growth, trade suffered its greatest drop in the postwar era during 2008 and 2009, an episode known as the “Great Trade Collapse.” Today, growth rates are still well below the previous trend. The reasons for this sluggishness are unclear: Are there lingering effects from the global financial crisis and recession, or has some fundamental change occurred in the world economy? Either way, the answer has important implications for development and maybe for world peace.

Read the article.


Poverty down, but 1 in 2 hangs by a thread (The Indian Express, May 25, 2016)

The sharp decline in poverty in India has been accompanied by a strong pattern of upward mobility, leading to an emerging middle class. Education, urban residence, and wage work have contributed to this higher-than-average upward mobility and lower downward mobility. Yet, a vast share of the population remains vulnerable to slipping back into poverty, suggesting that gains against poverty need to be deepened and made more secure. Scheduled Tribes stand out as a group that has fallen further behind, with one-third stuck in chronic poverty.

India’s strides in reducing poverty over the last two decades have received a lot of attention, including in this series. Between 1994 and 2012, the share of India’s population living in poverty was halved, falling from 45% to 22%. Let’s now try to look at patterns that show how individuals transition into and out of poverty. We focus on how households transitioned into and out of poverty between 2005 and 2012 — the years for which the latest set of government data are available.

Read the blog by Peter Lanjouw and Rinku Murgai.


Electronic versus paper-based data collection: reviewing the debate (Development Impact, May 25, 2016)

Impact evaluation needs data, and often research teams collect this from scratch. Raw data fresh from the field is a bit like dirty laundry: it needs cleaning. Some stains are unavoidable — we all spill wine/sauce/coffee on ourselves from time to time, which is mildly frustrating but easily discarded as a fact of life, a random occurrence. But as these occurrences become regular we might begin to ask ourselves whether something is systematically wrong.

So it is with survey data, which is produced by humans and will contain errors. As long as these are randomly distributed, we usually need not be overly concerned. When such errors become systematic, however, we have a problem.

Read the blog by Sacha Dray, Felipe Dunsch, and Marcus Holmlund.


Access to finance and job growth (All About Finance, May 23, 2016)

The recent global financial crisis has highlighted the impact of credit markets on the real economy, in particular on employment. While an extensive literature exists on how finance can affect corporate investment and overall economic growth, comparatively little is known about the effect of finance on labor market outcomes. 

In a recent paper, entitled “Access to Finance and Job Growth: Firm-Level Evidence across Developing Countries” Meghana Ayyagari, Pedro Juarros, Sandeep Singh and I use comprehensive firm-level data across a large set of developing countries to analyze the impact of access to finance on job growth and the heterogeneity in this relationship across firm size.[1] In particular, we study the differential impact of access to finance on MSMEs’ ability to create jobs relative to that of larger firms.

Read the blog by Maria Soledad Martinez Peria, Meghana Ayyagari, Pedro Juarros, and Sandeep Singh.

List of New Policy Research Working Papers