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World Bank Research E-Newsletter, November 2016
  Nov 17, 2016

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November 2016 — Trade and Globalization
Arrow-bullet Trade, foreign direct investment, and global value chains
Arrow-bullet Revving the engine of services trade
Arrow-bullet Migration decisions and transit paths
Arrow-bullet Investigating the economic consequences of the recent trade slowdown
Arrow-bullet A trade facilitation reform in Serbia reduced uncertainty about customs clearance times
Arrow-bullet Domestic value added in exports is rising in China
Arrow-bullet Exporting to high-income nations leads to quality upgrading
Arrow-bullet Research Digest issue on Trade and Globalization (Fall 2016)
Arrow-bullet Upcoming Events
Don’t Miss …
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
Trade, foreign direct investment, and global value chains

A populist backlash against globalization is prompting many to ask: What price might we pay for stepping back from a tightly integrated global economy? In this Policy Research Talk, Trade, FDI, and Global Value Chains, Senior Economist Hiau Looi Kee drew on a tool called the Overall Trade Restrictiveness Indices to explore a case study of the costs of withdrawal from a customs union. She found that while the costs to trade in the short run may be limited, such a step could threaten a country’s long-run competitiveness depending on its impact on foreign direct investment flows.

September 2016: Event | Video | Presentation

Revving the engine of services trade

Trade fell dramatically during the 2008 financial crisis and has grown sluggishly since then. But this overall trend obscures an important fact: trade in services has been steadily growing since 2010. This expansion of services trade — from health and education to transport, telecommunications, and tourism — presents significant opportunities for developing countries. Until recently, data on services trade policies was sparse. But in this Policy Research Talk, Research Manager Aaditya Mattoo unveiled new research and data, including the Services Trade Restrictions Database, that is advancing knowledge about services trade policies, and how best to reform them.

April 2016: Event | Story | Presentation | Video

Migration decisions and transit paths

Many migrants’ paths involve multiple countries and are likely to be the outcome of complicated decision processes. For example, 9 percent of recent immigrants to the United States arrived from a transit country — a country other than their place of birth. This pattern is even more common for migrants with tertiary education: nearly 14 percent of such migrants did not come directly from their birth countries. Among those arriving in the United States from OECD countries, the transit migration ratio exceeds 30 percent. Historical evidence and current data provide ample support that many migrants live in a series of countries for different lengths of time, experience repeated migration episodes, or have circular migration paths. These decisions are based on current location-specific income levels, migration costs, as well as (expected) future opportunities that will become available only at a new location. Simulations of various policy scenarios highlight the spillovers of transit migration paths between alternative destinations. Governments need to incorporate the externalities created by their policy actions, especially on their neighbors, via direct and transit migration channels. As long as large income gaps exist, people will find a path to specific destinations via transit countries.

World Bank Policy Research Working Paper 7880 by Erhan Artuc and Caglar Ozden, November 2016 | Forthcoming in Economic Journal.

Investigating the economic consequences of the recent trade slowdown

Since the Global Financial Crisis, world trade growth has lagged slightly behind growth of gross domestic product (GDP). Trade is growing more slowly not only because growth of global gross domestic product is lower, but also because trade itself has become less responsive to GDP. There are reasons behind the changing trade-income relationship and its consequences for economic growth. On the demand side, sluggish world import growth may adversely affect individual countries’ economic growth, as it limits opportunities for their exports. On the supply side, slower trade may diminish the scope for productivity growth through increasing specialization and diffusion of technologies. Although the changing trade-income relationship matters, the quantifiable effects do not appear to be large.

World Bank Policy Research Working Paper 7673 by Cristina Constantinescu, Aaditya Mattoo, and Michele Ruta, May 2016 | Audio interview with Aaditya Mattoo on how to confront protectionism and better manage globalization (Radio Sputnik, July 25, 2016).

A trade facilitation reform in Serbia reduced uncertainty about customs clearance times

The World Trade Organization’s 2013 Trade Facilitation Agreement (TFA) included a host of operational reforms designed to increase the speed and reduce the cost of moving goods across international borders. One such reform, in-house clearance, allows qualified firms in Serbia to clear customs within their own warehouse rather than at the customs office. The estimated causal impacts on trade outcomes for 21 firms that adopted in-house clearance for import shipments showed the program compressed the distribution of clearance times for adopting firms, but median clearance times, inspection rates, and import value fell slightly. The most evident benefit of the program for participating firms is reduced uncertainty about customs clearance times.

World Bank Policy Research Working Paper 7708 by Ana M. Fernandes, Russell Hillberry,and Claudia Berg, June 2016.

Domestic value added in exports is rising in China

Domestic content in exports is in decline in most countries, but not in China. The determinants of rising domestic content in Chinese exports is explored using firm- and customs transaction-level data merged with firm survey data to measure and analyze the ratio of domestic value added in exports to gross exports at the firm level. The approach embraces firm heterogeneity, which reduces aggregation bias. The analysis shows that, for China, the substitution of domestic for imported materials by individual processing exporters raised domestic content in exports from 65 to 70 percent during 2000–2007. Such substitution indicates that the country is relying less on imports and becoming more competitive in intermediate input sectors, presumably due to the country’s trade and investment liberalization, which deepened its engagement in global value chains and led to a greater variety of domestic materials becoming available at lower prices.

Domestic Value Added in Exports: Theory and Firm Evidence from China by Hiau Looi Kee and Heiwai Tang. American Economic Review 106 (6): 1402–36, 2015. (Also available as Working Paper 7491)

Exporting to high-income nations leads to quality upgrading

The destination of exports matters for the input prices paid by firms according to detailed customs and firm-product-level data from Portugal. Exchange rate movements show that firms that export to richer countries charge more for outputs and pay higher prices for inputs, other things being equal. The results support the hypothesis that an external increase in average destination income leads firms to raise the average quality of goods they produce and to purchase higher-quality inputs. These findings have implications for our understanding of the upgrading process in developing countries. In particular, that raising the quality of outputs requires raising the quality of inputs, which in turn suggests that increasing exports to high-income destinations may require the upgrading of entire complexes of suppliers and downstream producers, not just of exporters.

Export Destinations and Input Prices, Paulo Bastos, Joana Silva, and Eric Verhoogen, World Bank Policy Research Working Paper 6914, June 2014.

Research Digest issue on Trade and Globalization (Fall 2016)

Successful international integration, supported by sound national policy and effective international cooperation, has underpinned most experiences of rapid growth, shared prosperity, and reduced poverty. Today, we understand country-level trade in final goods and conventional trade policies such as tariffs reasonably well, but unanswered questions remain. How do firms and workers engage in trade, and how does trade affect productivity and poverty? How can national trade-related policies enhance growth and reduce poverty? Moreover, how can international cooperation help in achieving these objectives? These questions drive the World Bank’s research on trade and globalization, including the research papers summarized in this issue.


All upcoming events


Is predicted data a viable alternative to real data?

Let’s Talk Development, 8 November 2016

The primary motivation for predicting data in economics, health sciences, and other disciplines has been to deal with various forms of missing data problems. However, one could also make a case for adopting prediction methods to obtain more cost-efficient estimates of welfare indicators when it is expensive to observe the outcome of interest (in comparison with its predictors). For example, consider the estimation of poverty and malnutrition rates. The conventional estimators in this case require household- and individual-level data on expenditures and health outcomes. Collecting this data is generally costly. It is not uncommon that in developing countries, where poverty and poor health outcomes are most pressing, statistical agencies do not have the budget that is needed to collect these data frequently. As a result, official estimates of poverty and malnutrition are often outdated: For example, across the 26 low-income countries in Sub-Saharan Africa over the period between 1993 and 2012, the national poverty rate and prevalence of stunting for children under five are on average reported only once every five years and once every ten years in the World Development Indicators.

Read the blog by Roy van der Weide.


How to make services work for the poor?

Let’s Talk Development, 7 November, 2016

This question is particularly relevant in the context of traditional public agricultural extension services. Expensive and burdened by high rates of under-staffing and low levels of accountability, privatization of extension services may be a way to improve cost-effectiveness. However, private services may lack incentives to tailor their services to the poorest, making them an unsatisfactory substitute for a public system of extension. This issue is particularly salient in sub-Saharan Africa, where markets for agricultural services are typically lean.

Read the blog by Maria Jones and Florence Kondylis.


Measuring inequality isn’t easy or straightforward - Here’s why

Let’s Talk Development, 3 November, 2016

This is the third of three blog posts on recent trends in national inequality.

In earlier blogposts on recent trends in inequality, we had referred to measurement issues that make this exercise challenging. In this blogpost we discuss two such issues: the underlying welfare measure (income or consumption) used to quantify the extent of inequality within a country, and the fact that estimates of inequality based on data from household surveys are likely to underreport incomes of the richest households. There are a number of other measurement challenges, such as those related to survey comparability, which are discussed in Poverty and Shared Prosperity 2016 — for a focus on Africa, also see Poverty in a Rising Africa, published earlier in 2016.

Household surveys, our main source of inequality measures, track either income or consumption expenditure. Countries vary in terms of which measure is used - the Industrialized Countries and Latin America tend to use income surveys, while South Asia, Sub-Saharan Africa, and the Middle East use consumption. Given the fact that richer households tend to consume a smaller share of their incomes than poorer households (or equivalently, the rich have higher saving rates than the poor), estimates of inequality based on consumption would underestimate the extent of inequality. In the database that was used in Chapter 4 of Poverty and Shared Prosperity 2016 (also see this blog), about half of all surveys in 2013 use income, although this ratio varies markedly by region. In other words, our data would systematically understate the level of inequality in countries where consumption data are used, compared to analysis in which only income surveys were used.

Read the blog by Christoph Lakner, Mario Negre, and José Cuesta.


Where do the world’s talents immigrate to?

Voices, 26 October 2016

"We’re the nation that just had six of our scientists and researchers win Nobel Prizes — and every one of them was an immigrant," U.S. President Barack Obama recently said after the Nobel Prize winners were announced.

The Internet was abuzz about it, and how could it not be?

The announcement couldn’t come at a better time. Not only are US Nobel laureates immigrants, but also the country has been identified as one of four where the world’s high-skilled immigrants are increasingly living, according to a new World Bank research article. The other three countries are the United Kingdom, Canada and Australia.

Titled Global Talent Flows, the research found that in 2010, there were about 28 million high‐skilled migrants residing in OECD countries (members of the Organization for Economic Cooperation and Development), an increase of nearly 130% since 1990. Only four OECD countries are the landing destination for nearly 70% of the 28 million migrants.

The study added that the United States alone has historically hosted close to half of all high‐skilled migrants to the OECD and one‐third of high‐skilled migrants worldwide. In 2010, the United States hosted 11.4 million skilled migrants, 41% of the OECD total.

Read the blog.


It’s that Time of the Year: Submissions now open for our annual “Blog your job market paper” series

Development Impact, 27 October 2016

We are pleased to launch for the sixth year a call for PhD students on the job market to blog their job market paper on the Development Impact blog. We welcome blog posts on anything related to empirical development work, impact evaluation, or measurement. For examples, you can see posts from 201520142013 and 2012. We will follow a similar process as previous years:

We will start accepting submissions immediately until midnight EST on Tuesday, November 22, with the goal of publishing a couple before Thanksgiving and then about 6-8 more in December when people are deciding who to interview. We will not accept any submissions after the deadline (no exceptions). As with last year, we will do some refereeing to decide which to include on the basis of interest, how well written they are, and fit with the blog. Your chances of being accepted are likely to be somewhat higher if you submit earlier rather than waiting until the absolute last minute of our deadline.

Read the blog by David McKenzie.


Recent trends in national inequality — some encouraging signs though no room for complacency

Let’s Talk Development, 27 October 2016

This is the second of three blog posts on recent trends in national inequality.

The previous blog post in this series described the trend in the global and regional averages of national inequality for the period 1988-2013. Now we dig deeper into the trends in inequality at the country level. We describe changes in national inequality during two periods — around 1993 to 2008 and around 2008 to 2013. The long-run spells include all countries for which we have data on inequality around 1993 and 2008, and that data is computed using the same welfare measure (income or consumption). The short-run spells include countries for which we have inequality data around 2008 to 2013; this list is based on the World Bank’s Global Database of Shared Prosperity.

Read the blog by Christoph Lakner, Mario Negre, and José Cuesta.

List of New Policy Research Working Papers