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World Bank Research E-Newsletter, September 2012
  Sep 24, 2012

  • New Report: Rethinking the Role of the State in Finance
  • Over Time, Migrants Closed Much, But Not All, of the Gap in Initial Job Placement
  • Social Pressure to Share Income with Kin May Discourage Entrepreneurship in Rural Africa
  • Soft Skills or Hard Cash? How Training and Wage Subsidies Affect Female Youth Employment in Jordan
  • Married Women with Low Bargaining Power Can Face Increased Risk of Domestic Violence When Entering the Labor Force
  • Country Productivity and Capital Stock Can Be Used to Accurately Track Economic Welfare
  • An Increase of a Dollar in Government Spending Can Increase GDP by 40 Cents on Average
  • Reducing Differences in Per Capita CO2 Emissions between Developed and Developing Countries Will Not Solve the Climate Change Problem
  • Who Benefits Most from Rural Electrification in India?
  • Putting Greenhouse Gas Mitigation to Work in Eastern Europe and Central Asia
  • Media & Blogs
  • List of New Policy Research Working Papers

New Report: Rethinking the Role of the State in Finance
The worldwide financial crisis has severely affected the livelihoods of millions of people around the world, bringing into relief the role of financial systems in economic development and poverty reduction. The crisis has also prompted many observers to reassess state interventions in the financial systems, from regulation and supervision of financial institutions and markets, to competition policy, to state guarantees and state ownership of banks, and to enhancements in financial infrastructure. But the crisis does not necessarily negate the considerable body of evidence on these topics accumulated over the past few decades. It is important to use the crisis experience to examine what went wrong and how to fix it. The World Bank’s first-ever Global Financial Development Report, released this September, contributes to the policy debates on state interventions in finance, building on new datasets, surveys, research and country experience, emphasizing the perspective of low- and middle-income countries.
Global Financial Development Report: Rethinking the Role of the State in Finance| Press Release | Featured Content

Over Time, Migrants Closed Much, But Not All, of the Gap in Initial Job Placement
The initial occupational placements of male immigrants in the United States labor market vary significantly by country of origin, even when education and other individual factors are taken into account. Does the gap persist over time? Using data from the 1980, 1990, and 2000 U.S. Censuses, Aaditya Mattoo, Ileana Cristina Neagu, and Çaglar Özden find that migrants from countries with lower initial occupational placement levels improved their performance at a higher rate than migrants originating from countries with higher initial performance levels did. Nevertheless, the magnitude of convergence suggests that full catch-up is unlikely. The impact of country-specific attributes on the immigrants' occupational placement occurs mainly through their effect on initial performance, and they lose significance when initial occupational levels are controlled for in the estimation.
World Bank Policy Research Working Paper 6140

Social Pressure to Share Income with Kin May Discourage Entrepreneurship in Rural Africa
Individuals living in poor rural communities often feel obligated to share income with relatives and neighbors. This obligation can discourage entrepreneurs from undertaking profitable business ventures that are easily observable. Unfortunately, it has been difficult or impossible to observe the magnitude of this effect, because surveys cannot capture the returns to activities that were not actually undertaken. A newly designed experiment makes it possible to measure the economic impact of social pressure to share income with kin and neighbors, according to a new working paper by Pamela Jakiela and Owen Ozier. The goal was to test whether subjects in rural Kenyan villages accept reduced incomes in order to keep them hidden. Results indicate that women adopt an investment strategy that conceals the size of their initial wealth in the experiment, although that strategy reduces their expected earnings. The effect is largest among women with relatives present. This suggests that women behave as though they expect to be pressured to share 4 percent of their observable income with others, and substantially more when close kin can observe income directly. Simulations suggest that a “kin tax” of this magnitude may significantly reduce the probability that women open new microenterprises.
World Bank Policy Research Working Paper 6085

Soft Skills or Hard Cash? How Training and Wage Subsidies Affect Female Youth Employment in Jordan
Throughout the Middle East, unemployment rates of educated youth have been persistently high, and female labor force participation remains low. In a new working paper, Matthew Groh, Nandini Krishnan, David McKenzie, and Tara Vishwanath study the impact of a randomized experiment in Jordan, which was designed to help female community college graduates find employment. One randomly chosen group of graduates was given a voucher that would pay an employer a subsidy equivalent to the minimum wage for up to 6 months if a graduate is hired. A second group was invited to attend 45 hours of job skills training to gain the soft skills employers say graduates often lack. A third group was offered both interventions, and a fourth group forms the control group. The analysis finds that the job voucher led to a 40 percentage point increase in employment in the short run, but that most of this employment is not formal, and the average effect is much smaller and no longer statistically significant 4 months after the voucher period has ended. The voucher does appear to have a persistent impact outside the capital, where it almost doubles the employment rate of graduates, but this appears to largely reflect displacement effects. Soft skills training has no impact on employment in the full sample, but has a small positive impact for the subgroup outside of the capital. The results suggest that wage subsidies can help increase employment in the short term, but are not a panacea for the problems of high urban female youth unemployment.
World Bank Policy Research Working Paper 6141

Married Women with Low Bargaining Power Can Face Increased Risk of Domestic Violence When Entering the Labor Force
While there are many positive societal implications of increased female labor force opportunities, some theoretical models and empirical evidence suggest that working can increase a woman’s risk of suffering domestic violence. Using a dataset collected in peri-urban Dhaka, an analysis by Rachel Heath documents a positive correlation between work and domestic violence. The correlation is only present among women with less education or who were younger when they married for the first time. The results are consistent with a theoretical model in which a woman with low bargaining power can face increased risk of domestic violence upon entering the labor force, as her husband seeks to counteract her increased bargaining power. At the same time, a woman with higher baseline bargaining power is protected from domestic violence because she can leave a violent marriage.
World Bank Policy Research Working Paper 6149

Country Productivity and Capital Stock Can Be Used to Accurately Track Economic Welfare
The welfare of a country's representative consumer can be measured using just two variables: current and future total factor productivity and the capital stock per capita, according to a new working paper by Susanto Basu, Luigi Pascali, Fabio Schiantarelli, and Luis Serven. These variables suffice to calculate welfare changes within a country, as well as welfare differences across countries. The result holds regardless of the type of production technology and the degree of market competition. It applies to open economies as well, if total factor productivity is constructed using domestic absorption instead of gross domestic product as the measure of output. The result also requires that total factor productivity be constructed with prices and quantities as perceived by consumers, not firms. Thus, factor shares need to be calculated using after-tax wages and rental rates and they will typically total less than one. These results are used to calculate welfare gaps and growth rates in a sample of six developed countries with high-quality total factor productivity and capital data. Under realistic scenarios, the U.K. and Spain had the highest growth rates of welfare during the sample period 1985-2005, but the U.S. had the highest level of welfare.
World Bank Policy Research Working Paper 6026

An Increase of a Dollar in Government Spending Can Increase GDP by 40 Cents on Average
The question – how much the economy expands when government spending increases – is a central one for macroeconomic policymakers. In a new working paper, Aart Kraay uses loan-level commitment and disbursement transactions from the World Bank’s Debtor Reporting System database to isolate a predetermined component of government spending associated with past loan approvals and estimate spending multipliers for 102 developing countries.  These loans typically finance public spending projects that take several years to implement, with multiple disbursements linked to project implementation stages. Given the long disbursement periods for these loans, the bulk of government spending financed by official creditors in a given year reflects loan approval decisions made in many previous years, before current-year macroeconomic shocks are known. The one-year government spending multiplier is estimated to be around 0.4. That is, an increase of a dollar in government spending can be expected to increase GDP by 40 cents on average, indicating a substantial crowding-out of other expenditure components of GDP. The evidence suggests that multipliers are larger in recessions, in countries less exposed to international trade, and in countries with flexible exchange rate regimes.
World Bank Policy Research Working Paper 6099

Reducing Differences in Per Capita CO2 Emissions between Developed and Developing Countries Will Not Solve the Climate Change Problem
A serious stumbling block in climate change negotiations has been the large difference in per capita carbon dioxide (CO2) emissions in industrialized versus developing economies. Global emissions per capita must fall to avoid dangerous climate change, but will rise with economic progress in developing countries. Reduction of per capita emissions in industrialized countries is critical, but not enough, to meet proposed targets for stabilizing atmospheric CO2 concentrations, according to a new working paper by Govinda Timilsina. Moreover, even moderate reductions remain costly.  Simulations show that the average per capita CO2 emissions of industrialized economies would remain almost twice as high as the average for developing economies in 2030, even if the former adopted a heavy carbon tax of $250/tCO2 that would reduce their gross domestic product and global trade volume by 2 percent or more. Such a tax would reduce global CO2 emissions by less than 20 percent given rising emissions in developing countries, while slowing global economic progress. Reduction of emissions from larger emerging economies will also be necessary to stabilize atmospheric CO2 concentrations in an economically realistic fashion.
World Bank Policy Research Working Paper 6115

Who Benefits Most from Rural Electrification in India?
Aiming to improve rural people’s quality of life and spur growth on a range of socioeconomic fronts, the Government of India outlined an ambitious plan for achieving 100 percent village-level electrification by the end of 2007 and total household electrification by 2012. In 2005, it set up the Rajiv Gandhi Grameen Vidyutikaran Yojana program, and the rate of village electrification jumped from 74 to 91 percent by 2011. Using a broad household survey dataset, a new working paper by Shahidur R. Khandker, Hussain A. Samad, Rubaba Ali, and Douglas F. Barnes looks at who has benefited the most from government-aided rural electrification. The results support the view that rural electrification helps to reduce time spent by household members collecting fuel wood and increases time spent studying by boys and girls. Electrification increases labor supplied by men and women, school participation by boys and girls, and household per capita income and expenditure. Electrification also helps reduce poverty. But more than two-thirds of increased access went to wealthier rural households. Moreover, frequent power outages negatively affect both household electricity connection and its consumption, thereby reducing the expected benefits of rural electrification overall.
World Bank Policy Research Working Paper 6095

Putting Greenhouse Gas Mitigation to Work in Eastern Europe and Central Asia
Greenhouse gas emissions are largely determined by how energy is created and used, and policies designed to encourage mitigation efforts reflect this reality. However, an unintended consequence of an energy-focused strategy is that the set of policy instruments needed to tap mitigation opportunities in agriculture is incomplete. In particular, market-linked incentives to achieve mitigation targets are disconnected from efforts to better manage carbon sequestered in agricultural land. This is especially important for many countries in Eastern Europe and Central Asia where once-productive land has been degraded through poor agricultural practices. Good agricultural policies and prudent natural resource management can only partially compensate for missing links to carbon mitigation incentives. Two international project-based programs, Joint Implementation and the Clean Development Mechanism, have been used to finance other types of agricultural mitigation efforts worldwide. However, a review of projects suggests that few countries in Eastern Europe and Central Asia take full advantage of these financing paths, according to a new working paper by Donald F. Larson, Ariel Dinar, and Brian Blankespoor. This research lays out the reach of current mitigation incentives and missed mitigation opportunities in agriculture, as well as alternative policies to jointly promote mitigation and co-benefits for agriculture and the environment.
World Bank Policy Research Working Paper 6080

MEDIA & BLOGS

World Bank Report: Less Complex Regulation Is Best for Developing Nations (Real Time Economics blog, The Wall Street Journal, Sept. 13, 2012)

“Less may be more when it comes to financial regulation, especially in developing countries, according to a new report from the World Bank, released to coincide with the anniversary of the September 2008 collapse of Lehman Brothers.

The Global Financial Development Report, the first installment of a new annual study by the World Bank, takes a comprehensive look at role of the state using a new collection of data tracking the financial systems of more than 200 countries stretching back to the 1960s.”

Read the post |  Rethinking the Role of the State in Finance

Different Facets of Financial Globalization (VoxEu blog, Aug. 28, 2012)

“A lot has been said about the pros and cons of financial globalization. But what exactly is ‘financial globalization’? This column argues that we can’t be clear about the pros and cons of financial globalization unless we are clear on what it actually is.”

Read the post, co-authored by Sergio Schmukler, lead economist at the World Bank’s Development Research Group.

Equity and development: Oxfam versus the World Bank? Maybe Not (From Poverty to Power blog, Oxfam, August 29, 2012)

“More recent evidence has re-affirmed that certain kinds of inequality are particularly harmful to pro-poor growth–both in generating less growth and in making that growth less poverty-reducing. My paper, ‘Why Don’t We See Poverty Convergence?’ argues that poverty itself may well be the key aspect of initial inequality that impedes poverty reduction. Thus we are now starting to understand how poverty can self-perpetuate, even with seemingly sound economic policies.

In the end, I really don’t think there is that much disagreement. Maybe we should move the discussion toward how we can actually attain our shared goals of a world free of poverty. Sustainably promoting relevant dimensions of equity will be crucial, as will efficiency-enhancing reforms. More on both please from Oxfam’s well-intentioned new head of research.”

Read the entire post by Martin Ravallion, acting chief economist and senior vice president of the World Bank.

Power of the Pill or Power of Abortion? (Development Impact, blog, World Bank, July 25, 2012)

“Evidence is mounting, suggesting that a comprehensive family planning policy may not only ensure unfettered access to modern contraceptives but also access to safe abortions. Given the status and bargaining power of women in many developing countries, that will not be enough and we need to be thinking more creatively about increasing women’s, especially young women’s and adolescents’, access to family planning.”

Read the post by Berk Ozler, a senior economist at the World Bank’s Development Research Group.

Why Are So Many Americans Unbanked? (All about Finance blog, World Bank, Sept. 13, 2012)
“The U.S. Federal Deposit Insurance Corp. released a study yesterday reporting that 17 million adults – or 7 percent of the adult population – live in an unbanked household. In fact, because they use the household as the unit of measurement, the FDIC considers this to be a lower-bound estimate of the number of unbanked adults living in America. The finding is therefore consistent with the World Bank Development Research Group’s Global Findex database, which finds that 12 percent of American adults are unbanked. Both data sources consider an adult to be unbanked if they do not have an account at a formal financial institution.

Our report, released in April of this year, also points out that the U.S. is solidly in the lower end of the distribution of rich economies as measured by percentage of adults with a bank account. Of the 28 OECD economies included in the Global Findex database, the U.S. ranks 21st in percentage of banked adults. The within-country inequality in use of formal financial services also distinguishes the United States from the rest of the developed world.  According to the Global Findex, just 74 percent of adults in the lowest income quintile in the U.S. are banked, making them 18 percent less likely to have a formal account than those in the highest income quintile.”

Read the post by Leora Klapper, a lead economist at the World Bank’s Development Research Group.

NEW POLICY RESEARCH WORKING PAPERS

6156. Jobless Growth? Okun’s Law in East Asia by Marek Hanusch
6157. Who You Train Matters: Identifying Complementary Effects of Financial Education on Migrant Households by Yoko Doi, David McKenzie, and Bilal Zia
6158. Can Donors and Non-State Actors Undermine Citizens' Legitimating Beliefs? By Audrey Sacks
6159. Equality of Opportunity for Children in Egypt, 2000–2009: Achievements and Challenges by Carlo E. Vélez, Sherine Al-Shawarby and Heba El-Laithy
6160. Understanding the Business Environment in South Asia: Evidence from Firm-Level Surveys by Wendy Carlin and Mark Schaffer
6161. Impact of WTO Accession and the Customs Union on the Bound and Applied Tariff Rates of the Russian Federation by Oleksandr Shepotylo and David G. Tarr
6162. Emerging Economies and the Emergence of South-South Protectionism by Chad P. Bown
6163. How Bank Competition Affects Firms’ Access to Finance by Inessa Love, and María Soledad Martínez Pería
6164. Job creation through Infrastructure Investment in the Middle East and North Africa by Elena Ianchovichina, Antonio Estache, Renaud Foucart, Grégoire Garsous, and Tito Yepes
6165. Learning from China's Rise to Escape the Middle-Income Trap: A New Structural Economics Approach to Latin America by Justin Yifu Lin and Volker Treichel
6166. Internal Migration in Egypt: Levels, Determinants, Wages, and Likelihood of Employment by Santiago Herrera and Karim Badr
6167. How Does India’s Rural Roads Program Affect the Grassroots? Findings from a Survey in Orissa by Clive Bell and Susanne van Dillen
6168. Estimating the Social Profitability of India's Rural Roads Program: A Bumpy Ride by Clive Bell
6169. The Benefits of India's Rural Roads Program in the Spheres of Goods, Education and Health: Joint Estimation and Decomposition by Clive Bell,
6170. ]Heterogeneous Returns to Education in the Labor Market by Tazeen Fasih, Geeta Kingdon, Harry Anthony Patrinos, Chris Sakellariou, and Mans Soderbom
6171. Quality Contingent Contracts: Evidence from Tanzania’s Coffee Market by Shireen Mahdi
6172. Distance to Market and Search Costs in an African Maize Market by Shireen Mahdi
6173. Shelter from the Storm—but Disconnected from Jobs: Lessons from Urban South Africa on the Importance of Coordinating Housing and Transport Policies by Somik V. Lall, Rogier van den Brink, Basab Dasgupta, and Kay Muir Leresche
6174. Making Public Sector Reforms Work: Political and Economic Contexts, Incentives, and Strategies by Simone Bunse and Verena Fritz
6175. Benchmarking Financial Development around the World by Martin Cihak, Asli Demirgüç-Kunt, Erik Feyen, and Ross Levine
6176. The Doing Business Indicators, Economic Growth and Regulatory Reform by Marek Hanusch
6177. Are International Food Price Spikes the Source of Egypt’s High Inflation? by Sherine Al-Shawarby and Hoda Selim
6178. Protection in Good and Bad Times? The Turkish Green Card Health Program by Meltem A. Aran and Jesko S. Hentschel
6179. Why Follow the Leader? Collective Action, Credible Commitment and Conflict by Philip Keefer
6180. Equity in Tertiary Education in Central America: An Overview by Sajitha Bashir and Javier Luque
6181. Sovereign Bailouts and Senior Loans by Christophe Chamley and Brian Pinto
6182. Evidence-Based Implementation Efficiency Analysis of the HIV/AIDS National Response in Colombia by Antonio Moreno, Arturo Álvarez-Rosete , Ricardo Luque Nuñez, Teresa del Carmen Moreno Chavez, Rosalía Rodriguez-García, Fernando Montenegro, Luis Ángel Moreno, Alejandra Suarez Lissi, Pedro Magne Concardo, and Michel Eric Gaillard
6183. Tourism Sector in Panama: Regional Economic Impacts and the Potential to Benefit the Poor by Irina Klytchnikova and Paul Dorosh
6184. Household Enterprises in Sub-Saharan Africa—Why They Matter for Growth, Jobs, and Livelihoods by Louise Fox and Thomas Pave Sohnesen
6185. Drivers of Convergence in Eleven Eastern European Countries by Jesus Crespo Cuaresma, Harald Oberhofer, Karlis Smits, and Gallina A Vincelette
6186. MTEFs and Fiscal Performance: Panel Data Evidence by Francesco Grigoli, Zachary Mills, Marijn Verhoeven, and Razvan Vlaicu
6187. The Persistence of (Subnational) Fortune: Geography, Agglomeration, and Institutions in the New World by William F. Maloney, and Felipe Valencia Caicedo
6188. Climate Change, Agriculture and Food Security in Tanzania by Channing Arndt, William Farmer, Kenneth Strzepek, and James Thurlow
6189.Effectiveness of Interventions Aimed at Improving Women’s Employability and Quality of Work: A Critical Review by Petra E. Todd
6190. Should African Rural Development Strategies Depend on Smallholder Farms? An Exploration of the Inverse Productivity Hypothesis by Donald F. Larson, Keijiro Otsuka, Tomoya Matsumoto, and Talip Kilic
6191. What’s New in the New Industrial Policy in Latin America? by Robert Devlin and Graciela Moguillansky
6192. Sri Lanka: From Peace Dividend to Sustained Growth Acceleration by Daminda Fonseka, Brian Pinto, Mona Prasad, and Francis Rowe
6193. Investment Decision Making under Deep Uncertainty—Application to Climate Change by Stéphane Hallegatte, Ankur Shah, Robert Lempert, Casey Brown, and Stuart Gill
6194. Trade Policy and Wage Inequality: A Structural Analysis with Occupational and Sectoral Mobility by Erhan Artuc and John McLaren
6195. Bank Ownership and Lending Patterns during the 2008-2009 Financial Crisis: Evidence from Latin America and Eastern Europe by Robert Cull and María Soledad Martínez Pería
6196. Bancassurance—A Valuable Tool for Developing Insurance in Emerging Markets by Serap O.Gonulal, Nick Goulder, and Rodney Lester
6197. Antidumping and Market Competition: Implications for Emerging Economies by Chad P. Bown and Rachel McCulloch
6198.What Makes Cities More Competitive? Spatial Determinants of Entrepreneurship in India by Ejaz Ghani, William R. Kerr, and Stephen D. O’Connell
6199.What Is Behind the Decline in Poverty Since 2000? Evidence from Bangladesh, Peru and Thailand by Gabriela Inchauste, Sergio Olivieri, Jaime Saavedra, and Hernan Winkler
6200. Migration and the Transition to Adulthood in Contemporary Malawi by Kathleen Beegle and Michelle Poulin

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