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World Bank Research E-Newsletter, August 2016
  Aug 18, 2016

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August 2016—Theme: Climate Change
Arrow-bullet Climate change poses urgent threat to poor of coastal Bangladesh
Arrow-bullet Uncertain groundwater supply may limit adoption of water-saving technology in India
Arrow-bullet Achieving climate change mitigation targets in China using carbon pricing: start low, rise gradually
Arrow-bullet Expansion of mangrove forests is needed to ease the brunt of climate change in coastal areas
Arrow-bullet Improved cookstove use in Ethiopia could reduce forest degradation and carbon emissions
Arrow-bullet Establishing protected areas slows tropical forest clearing m
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Climate change poses urgent threat to poor of coastal Bangladesh

Nearly 12 million people live in poverty in the coastal region of Bangladesh. In a recent Policy Research Talk, Lead Environmental Economist Susmita Dasgupta presented projections of the likely impact of climate change through 2050, on these households from cyclones, sea level rise, river salinity, and soil salinity. Cyclones destroy lives and livelihoods with alarming regularity (on average, every three years). Rising sea levels will increase the land surface exposed to cyclonic inundation by more than 50 percent. Rising river salinity will increase health risks, cause a scarcity of drinking water and water for irrigation, and reduce the number of fish species—a critical source of protein for many households. Increases in soil salinity will challenge a country where 48 percent of the labor force works in the agricultural sector. Discussant Stéphane Hallegatte, a Senior Economist in the Climate Change Group of the World Bank, argued that “if you can find a solution that works in coastal Bangladesh, it will be very useful for other coastal regions where the challenge is not as severe.”

Story | Video | Presentation | World Bank Policy Research Working Papers 7200, 7148, 7140, 6817.

Uncertain groundwater supply may limit adoption of water-saving technology in India

Groundwater is a vital yet threatened resource in much of South Asia, one that will become increasingly valuable in a warming climate. It is, therefore, important to understand how farmers allocate scarce groundwater across fragmented landholdings. In this paper a model of groundwater transactions is developed that accounts for the two observed forms of sales contract in south India: seasonal and per-irrigation. The model emphasizes the role of supply uncertainty during the agricultural dry season, with high uncertainty favoring per-irrigation over seasonal contracts. The model’s parameters are estimated using detailed micro-data on the area irrigated under each contract type combined with subjective probability distributions of borewell discharge elicited from a large sample of well-owners. Estimates imply that the contracting distortion, while modest in terms of welfare, leads to a significant contraction in irrigated area. Groundwater uncertainty coupled with land fragmentation is also predicted to reduce the returns to drip irrigation, now being heavily promoted in India, by around 6 percent, more so for owners of small plots. These are the farmers that would have the greatest need to sell excess water once their irrigation efficiency is improved.

World Bank Policy Research Working Paper 7694 by Xavier Gine and Hanan G. Jacoby, June 2016 | Blog | Policy Research Talk (Story | Video).

Achieving climate change mitigation targets in China using carbon pricing: start low, rise gradually

At the Paris climate conference, China set a target of reducing its CO2 intensity (the ratio of carbon dioxide emissions and gross domestic products) by 60–65 percent by 2030 from its 2005 levels. While China is planning to use a range of market and non-market instruments to meet the targets (also known as “intended nationally determined contributions” or INDC), a carbon pricing instrument—where all fossil fuels are taxed in proportion to their carbon contents—could be an efficient option. Simulating various carbon pricing scenarios using a dynamic computable general equilibrium model of the Chinese economy, the study shows that the overall economic impacts of a carbon pricing approach depends on several factors, including the change in carbon price over time and the schemes to recycle carbon revenue back into the economy. Carbon pricing that starts at a lower rate and gradually rises until it achieves the intensity target would be more efficient than a constant carbon price that remains the same over time. Using carbon revenue to cut existing taxes would be better than giving the revenue back to households in a lump-sum cash transfer because the carbon pricing causes smaller reduction of GDP in the former case than that in the latter. An efficient carbon pricing scheme to achieve the 65 percent emission intensity reduction target would start the carbon price in 2015 at Yuan10/tCO2, gradually rising to Yuan157/tCO2 in 2030 with carbon revenue recycled to cut existing VAT and capital tax rates; this would reduce China’s GDP by 0.42 percent, on average, during the 2015–2030 period.

World Bank Policy Research Working Paper 7735 by Jing Cao, Mun Ho, and Govinda R. Timilsina, June 2016.

Expansion of mangrove forests is needed to ease the brunt of climate change in coastal areas

Interest in the protective role of mangroves and coastal forests spiked after the 2004 Indian Ocean tsunami. Mangroves can substantially reduce flooding as the roots and trunks of the trees provide resistance to the flow of water. The importance of coastal mangrove protection further increases in a future climate change scenario with a rise in sea level and intensification of storms. However, if the sea level rises very quickly the mangroves forests may not be able to migrate inland, especially with barriers such as coastal roads and urban areas. The results reveal that increased storm intensity and storm surge from climate change are likely to have a large negative effect on mangroves. Given the current climate and mangrove coverage in 42 developing countries, 3.5 million people and roughly US$400 million in gross domestic product are vulnerable to inundation from storm surges. But under a future climate change scenario that includes increased storm surge and loss of mangroves, the risks to population and gross domestic product increase by 103 and 233 percent, respectively. The greatest risk is in East Asia, especially in Indonesia, the Philippines, and Myanmar. 

World Bank Policy Research Working Paper 7596 by Brian Blankespoor, Susmita Dasgupta, and Glenn-Marie Lange, March 2016.

Improved cookstove use in Ethiopia could reduce forest degradation and carbon emissions

Ethiopia’s per capita fuelwood consumption is one of the highest in the world. Over 90 percent of households use wood or charcoal to cook. The resulting unsustainable rate of biomass consumption degrades forests and increases global carbon emissions. A field experiment in rural Ethiopia measured the effect of using an improved cookstove on fuel wood consumption. The technology generated fuel savings of 22 to 31 percent per meal compared with a traditional three-stone stove, with little or no increase in cooking time. The use of the improved stove by those receiving it in the experiment was high, as indicated by monitoring devices, and users reported considerable satisfaction with the stove, including lower fuelwood collection times and reduced indoor smoke. Propagation of the improved stove in Ethiopia thus could be expected to yield both benefits to households and protection of the environment.

World Bank Policy Research Working Paper 7394 by Abebe D. Beyene, Randall Bluffstone, Sahan Dissanayake, Zenebe Gebreegziabher, Peter Martinsson, Alemu Mekonnen, and Michael Toman, August 2015.

Establishing protected areas slows tropical forest clearing

Many country studies have found that forest clearing is lower in protected areas. This investigation uses measures of deforestation before and after legal protection in 64 countries in Asia/Pacific, Africa, and Latin America for the period 2001–2012 to assess the specific effect of protection on forest clearing. High-resolution data on deforestation are combined with data on park characteristics to examine if deforestation rates inside and within 10 kilometers of the boundary of protected areas are lower because of protected area status, or if other factors explain the difference. Park size, national park status, and management by indigenous people all have large, positive, highly significant associations with effective protection across regions. In the Asia/Pacific region, the test offers compelling evidence that park establishment has a near-immediate and powerful protective effect. These findings highlight an important synergy between protected areas policy and policies for mitigating climate change through reduced deforestation.

World Bank Policy Research Working Paper 7091 by Brian Blankespoor, Susmita Dasgupta, and David Wheeler, November 2014 | Also see Research Digest, Article 6, Fall 2015.


The Commission on Global Poverty discussed findings of interim Report on Measuring Poverty
The full report will be published September 27, 2016.

Watch the recording | About the Commission


All upcoming events


The effects of benchmarks on international capital flows: The problems of passive investing (VoxEU, August 12, 2016)  

The categorisation of countries into relevant international benchmark indices affects the allocation of capital across borders. The reallocation of countries from one index to another affects not only capital flows into and out of that country, but also the countries it shares indices with. This column explains the channels through which international equity and bond market indices affect asset allocations, capital flows, and asset prices across countries. An understanding of these channels is important in preventing a widening share of capital flows being impacted by benchmark effects.

Read the blog by Claudio Raddatz, Sergio Schmukler, and Tomás Williams.


Moving toward financial inclusion in East Asia and the (All About Finance, August 9, 2016)

Surging account ownership among the poor. The highest rate of account ownership among women in developing countries. Widespread formal saving.

Those are some of the key financial inclusion trends in East Asia and the Pacific, as outlined in a new policy note drawing on the 2014 Global Findex database. Since 2011, about 700 million adults worldwide have signed up for an account at a formal financial institution (like a bank) or a mobile money account. That means 62 percent of adults now have an account, up from 51 percent three years ago.

East Asia and the Pacific made an outsized contribution to this global progress. About 240 million adults in the region left the ranks of the unbanked; 69 percent now have an account, an increase from 55 percent in 2011 (figure 1). Poor people led the regional advance, as account ownership among adults living in the poorest 40 percent of households surged by 22 percentage points—to 61 percent. Much of the growth was concentrated in China—which saw account penetration deepen on the bottom of the income ladder by 26 percentage points—but China was hardly alone. In both Indonesia and Vietnam, account ownership doubled among adults living in the poorest 40 percent of households.

Read the blog by Leora Klapper and Dorothy Singer.


Making politics work for development is all the rage (BBC Media Action Insight, August 4, 2016)

We’re currently seeing a profusion of reports arguing that development organisations find it difficult to understand and respond to political realities. Most conclude that development fails to deliver impact because politics gets in the way. 
Two of the best of these papers—If politics is the problem and Making Politics Work for Development come from the World Bank and have been ably reviewed by others.  But I’d like to pick up two questions raised that speak to a lot of what BBC Media Action does: how to improve political participation and what role can the media play in that?

But, for starters, what do these reports argue? 

Read the blog.


If politics is the problem, how can external actors be part of the solution? New World Bank paper (Oxfam, August 2, 2016)

The new paper comes from Shanta Devarajan, the Bank’s Chief Economist for the Middle East and North Africa Region, (recently drafted in to help get the WDR to the finishing line) and Stuti Khemani, Senior Economist at its Development Research Group.

The World Bank seems currently to be awash with fascinating reflections and rethinking on politics and power. This one’s big message is perfectly captured in the title and abstract (my comments in italics):

‘Despite a large body of research and evidence on the policies and institutions needed to generate growth and reduce poverty, many governments fail to adopt these policies or establish the institutions. Research advances since the 1990s have explained this syndrome, which this paper generically calls “government failure,” in terms of the incentives facing politicians, and the underlying political institutions that lead to those incentives.

Read the blog.


How to defeat terrorism: Intelligence, integration, and development (Future Development, Brooking, July 25, 2016)

My partner was caught at the Istanbul airport during the latest terrorist attack. She hid in a closet with a few people, including a small girl, disconcerted and afraid. And when the attack was over, she saw the blood, desolation, chaos, and tears of the aftermath. This was a horrific moment. Yet, it paled in comparison to what the injured and dead and their relatives had to suffer.

It seems that terrorism and political violence are becoming more prevalent and intense. They have been, however, long brewing and have affected many countries around the world. In the 1980s, my home country, Peru, suffered immensely from terrorism: The badly called “Shining Path” organization, with its communist ideology and ruthless tactics, terrorized first rural communities and then large cities with deadly bombs in crowded places and assassinations of official and civil society leaders.

A few years ago, Phil Keefer, then Lead Economist at the World Bank, and I edited two books on what we perceived to be the main security threats of our time: terrorism and drug trafficking. We thought that the answers had to come from research, and we tried to gather the best available evidence and arguments to understand the links between these security threats and economic development.

After the myriad of recent terrorist attacks—in Istanbul, Munich, Nice, Bagdad, Brussels, and Paris, to name a few—we found it important to recap lessons learned. These lessons are not just academic: Understanding the root causes of terrorism can lead to policies for prevention and for reducing the severity of attacks. To defeat terrorism, a policy strategy should include three components: intelligence, integration, and development.

For more, please see Keefer, Philip and Norman Loayza, Editors. Terrorism, Economic Development, and Political Openness. Cambridge University Press. 2008.

Read the blog by Norman Loayza.


Interview with Aaditya Mattoo on how to confront protectionism and better manage globalization (Radio Sputnik, July 25, 2016)

The world’s top economic policymakers have voiced concerns over growing protectionism sentiments. The corresponding statements were made during a G-20 meeting in the Chinese city of Chengdu. Notably, the Brexit referendum in the UK and the rhetoric coming from certain US presidential candidates were mentioned among potential threats to the global economy growth. Other risk factors include geopolitical conflicts, terrorism and refugee flows, according to the G-20 statement. The International Monetary Fund, which acts as the G-20’s economic counselor, cut its outlook for the global economy, citing the Brexit vote. According to the G-20 official statement at the end of the summit, finance ministers of world top economies are set to resist all forms of protectionism. However, analysts suggest that this vow would be hard to put into practice. Radio Sputnik discussed the issue with Aaditya Mattoo, Research Manager with a focus on Trade and International Integration at the World Bank.

Listen to the live interview with Aaditya Matoo.


Making politics work for development (Let’s Talk Development, July 25, 2016)

Fear of openly confronting politics can come in the way of achieving economic development goals. To help address this problem, the Development Research Group of the World Bank prepared a report synthesizing the vanguard of economics research on the functioning of political markets to understand the implications. It yields insights for strengthening existing transparency and citizen engagement policies with potentially powerful consequences for economic development everywhere, in poor and rich countries alike.

Read the blog by Stuti Khemani.


Using case studies to explore and explain complex interventions (Development Impact, July 20, 2016)

One of the most cited of Martin Ravallion’s many papers implores researchers to “look beyond averages” if they want to better understand development processes. One fruitful area in which this might happen is the assessment of complex interventions, a defining characteristic of which is that they generate wide variation in outcomes. Even when controlling for standard factors that might account for this variation—income, education levels, proximity to transport—outcomes in education, the performance of health care systems, or the extent to which villages participating in community-driven development programs manage conflict, can nonetheless vary considerably: some will be outstanding, some will muddle through, and some will fail spectacularly. In such situations, an important initial task for evaluators is determining the nature and extent of that variation: it will inform the overall assessment of whether the intervention is deemed to “work” (or not).

Read the blog by Michael Woolcock.


How long should the week be? (Let’s Talk Development, July 18, 2016)

As agrarian economies modernize, a need emerges for coordination in production. In most countries, production is organized around a seven-day cycle in which five days are designated as workdays and two days are designated as a weekend. Indeed, in the United States, the vast majority of employed persons work during workdays and not during weekends.

We can learn about the need for coordination in production from the experience of the Soviet Union. Between 1929–1931, the Soviet Union operated on a five-day cycle, in which, on any given day, one-fifth of the workforce had the day off. Historical accounts suggest that lack of coordination at the workplace led to accountability problems and to a loss in productivity that eventually resulted in its abandonment. This historical experience illustrates two things: first, that there is value in coordination, and, second, that societies can choose to coordinate on different work schedules.
How, then, should we choose which schedule to coordinate on? To address this question, my paper “The Week” considers a simple model that incorporates two key considerations: preferences for leisure and labor productivity. The first consideration captures the familiar tradeoff between leisure and consumption. If people work less, they will produce less. The optimal week should balance people’s desire for leisure with their desire for income. Fortunately, we can learn about people’s preferences for leisure by looking at the market overtime premium, which captures the extent to which people demand extra pay for working on their day off. The overtime premium suggests that two weekly vacation days are consistent with most individuals’ preferences.

Read the blog by Maya Eden.

List of New Policy Research Working Papers