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World Bank Research E-Newsletter, October 2013
  Oct 28, 2013

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The Simple Algebra of the Shared Prosperity Indicator

One of the two goals of the World Bank Group's new strategy is to promote shared prosperity, defined as the income growth of the population in the bottom 40 percent. The simple monitoring indicator then is that population’s income per capita. The indicator can be decomposed into two components: the change in the group’s share of total income and the growth of the average income of the entire population in the country. In a recent working paper, David Rosenblatt and Tamara McGavock offer a brief discussion of the properties of the indicators, the simple decomposition in algebra, graphics showing the various combinations of the two components of the decomposition, simulations of the decomposition for hypothetical countries, and some data to illustrate the scenarios.

World Bank Policy Research Working Paper 6645 »

Did India’s National Rural Employment Guarantee Scheme Improve Welfare and Reduce Poverty?

In a recent working paper, Klaus Deininger and Yanyan Liu examine how India’s National Rural Employment Guarantee Scheme, a huge experiment in addressing persistently high rates of extreme poverty and gender inequality, affects poverty and welfare. Using panel data from about 4,000 households in Andhra Pradesh, along with administrative data, the study suggests that participants significantly increase consumption (protein and energy intake) in the short run. They also accumulate more nonfinancial assets in the medium term (two years or more). The program brings a net benefit, especially for scheduled castes and tribes, as well as households supplying temporary and day labor. The increase in assets by non-participants, combined with the fact that wages rose more than the cost of the program, suggests that the program has led to the creation of productive assets. If properly implemented, the program can thus help reduce extreme poverty and help empower women.

World Bank Policy Research Working Paper 6543 »

Do Guidelines for Ethical Economic Research Work in the Field?

In a recent working paper, Harold Alderman, Jishnu Das and Vijayendra Rao use several case studies to examine potential ethical issues facing surveys and field trials. They first look at the challenge of ensuring transparency while maintaining confidentiality in situations like domestic violence. Second, they explore issues related to trust between the surveyor and the surveyed, especially among people with low literacy levels. The authors present case studies relevant to both issues. Finally, they explore how ethical reviews affect World Bank research. The imperative to do no harm means researchers in the field must sometimes go beyond existing protocols to judge whose welfare they are obligated to protect.

World Bank Policy Research Working Paper 6446 »

Structural Change and Dualism: The Role of the Poor on Marginal Lands

In most developing countries, two key stylized facts exist in the rural economy, according to a recent working paper by Edward Barbier. First, there is a “residual” pool of rural poor living on abundant but marginal agricultural land. Second, the commercial, primary-products sector, such as mining, forestry and ranching, converts and exploits forests, wetlands and other natural habitat for a variety of traded goods. As long as there is abundant marginal land for cultivation, it serves to absorb rural migrants, new populations and displaced unskilled labor. Should the economy be vulnerable to the effects of a booming primary-products sector, higher productivity and a larger commercial primary-production sector may cause a contraction in manufacturing employment and output — until complete specialization occurs. Avoiding such an outcome requires targeted polices for both the modern sector and traditional agriculture on marginal lands. While migration can provide access to alternative opportunities for the rural poor, the challenge of improving the stability and resilience of rural livelihoods remains.

World Bank Policy Research Working Paper 6456 »

How Does Risk Management Influence Farmers’ Production Decisions?

Weather is a key source of income risk for many firms and households, especially in emerging markets. In a recent working paper, Shawn Cole, Xavier Giné and James Vickery use a randomized controlled trial to study how an innovative risk-management instrument, which hedges rainfall risk, affects production decisions among a sample of Indian agricultural firms in a semi-arid region of India, where the monsoon is the primary risk for production and income. The analysis finds that the insurance led farmers — especially more-educated farmers — to shift their production to higher-return, but higher-risk, cash crops. A second experiment shows that farmers are willing to pay more for products with better coverage, but not one for one -- meaning they aren't willing to pay $100 to get $100 worth of extra coverage. These findings suggest that existing insurance products may cater more to the wants, rather than needs, of individuals and that incomplete insurance may hurt development.

World Bank Policy Research Working Paper 6546 »

Word Count: Assessing the Justifications for Governance Ratings in IDA

In a recent working paper, Stephen Knack analyzes the validity of the World Bank's Country Policy and Institutional Assessments governance ratings, an important factor in allocating funds from the International Development Association (IDA), the World Bank's fund for the poorest. He finds significant regional differences in the written justifications accompanying the six regions’ proposed ratings. The write-ups steadily grew longer over time, and those of higher quality are longer on average. But the word count doesn’t guarantee quality and some long ones provide little relevant information. Longer write-ups actually are associated with a greater probability that central reviewers will disagree with a proposed rating. If a region wishes to avoid time-intensive back-and-forth exchanges with the central units over its ratings proposals, it should provide relevant, thorough, but reasonably concise write-ups to support them. Surprisingly, the author finds no evidence of a pro-IDA country bias in the ratings, despite the fact that country teams play a central role in the process and aid allocations are highly sensitive to ratings on the governance questions. But the study finds a significant upward bias in ratings for one region, Eastern Europe and Central Asia. This study’s findings can help improve the rating process.

World Bank Policy Research Working Paper 6526 »

Mapping How Workers Adjust to Trade Shocks

Labor-market frictions, such as the costs for moving, firing and hiring, make labor adjustment costly. That’s why trade shocks, which affect wage and employment, can hurt the economy. In a recent working paper, Erhan Artuç, Daniel Lederman and Guido Porto use an “estimator” to quantify the impact of the labor-mobility costs in developing countries. On average, the lifetime impact of such costs are equivalent to nearly five times the annual income for the average worker, which varies significantly across regions (5.45 times the income in South Asia, 5.34 in Latin America, 4.96 in Eastern Europe, 4.40 in Middle East and North Africa, 4.26 in Sub-Saharan Africa, and 3.30 in East Asia). Labor-mobility costs are negatively correlated with per capita gross domestic product, educational attainment and school quality, but they are positively associated with other costs and economic distortions. Labor-mobility costs can take a toll on the economy. It can take six years for a country to fully recover from a trade shock. It takes even longer when the mobility costs are higher. The inability to adjust quickly is costly, taking from 60 percent to the full cost of the gains from trade.

World Bank Policy Research Working Paper 6556 »

The World Bank Research Digest (Fall 2013)

This quarter's Research Digest discusses: 1) Economies in Africa are more vulnerable to internal shocks, such as drought and civil conflict, than external shocks; 2) Whether an absolute or relative measure is used to define “middle income” makes a difference in analyzing middle-income traps; 3) Hedging against oil price volatility can benefit the economy in the long run; 4) Mapping the costs of labor mobility; 5) Are there market conditions that cause corruption to increase? 6) Why do some utilities perform better than others? 7) The progress and challenges in the expansion of social insurance in urban China.

The World Bank Research Digest »

Announcement: Call for Papers: 2014 World Bank Conference on Land and Poverty

The World Bank will hold its 15th Annual Conference on Land and Poverty at its Washington headquarters from March 31 to April 3, 2014. The conference is calling for papers in seven areas under the theme Integrating Land Governance into the Post-2015 Agenda: Harnessing Synergies for Implementation and Monitoring Impact. The summary for each paper should be between 800 and 1,500 words. Group proposals are due on Nov. 10 and summaries for individual papers are due on Nov. 17. Acceptance decisions will be sent out by Dec. 15. All papers, with a 100-word abstract, should be submitted by Feb. 28. For more information, please check the conference Web site or e-mail landconference@worldbank.org.

Media and Blogs

The Inside Story of WDR 2014, Risk and Opportunity: Managing Risk for Development (Let’s Talk Development blog, World Bank, Oct.6)
“The King of Egypt dreamt that seven strong and healthy cows were eaten by seven scrawny and ugly ones. Then, he dreamt that seven hearty ears of corn were replaced with seven scorched and damaged corncobs. He didn’t know what to make of these dreams and asked his advisors to interpret them. No one could. From his cell in prison, Joseph learned of the King’s dreams and interpreted their meaning: Seven years of abundance would be followed by seven years of drought in the land of Egypt. The years of famine would be so abysmal that they would erase the memory of the plentiful years. Joseph advised the King to prepare, using the bounty of the good harvest to withstand the calamity of the times to come. The King followed Joseph’s advice and saved the people of Egypt from hunger and disaster.

This story presents in a nutshell the message that we wanted the World Development Report 2014 (WDR 2014) to convey: In the face of an uncertain world, preparation in good times is essential for resilience in bad times and for prosperity always.”

Read the post by Norman Loayza, director of World Development Report 2014 and lead economist in the World Bank’s research department. Related feature story.

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Reason and the End of Poverty (Project Syndicate, Oct.7)
“Recognizing that some ‘frictional’ poverty will inevitably persist over the next two decades, the World Bank’s formal target is to reduce the percentage of people living below the poverty line – defined as daily consumption of less than $1.25 (in purchasing-power-parity terms) per person – to less than 3%.

World Bank research predicts that if all countries grow at the same rates that they did over the past 20 years, with no change in income distribution, world poverty will fall to 7.7% by 2030, from 17.7% in 2010. If they grow faster, at the average rates recorded in the 2000s, the poverty rate will fall to 5.5%.”

Read the op-ed by Kaushik Basu, senior vice president and chief economist of the World Bank.

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Transatlantic Trade for All (Project Syndicate, Oct.2)
“For a world weary of waiting for the World Trade Organization’s interminable Doha trade round to conclude, even a bilateral trade initiative may seem like a boon, especially when, as a recent Financial Times editorial pointed out, ‘bilateral’ covers half the world’s economy. But there is a serious downside: The deal could hurt developing-country exporters, unless the EU and the US make a concerted effort to protect these actors’ interests.”

Read the op-ed by Aaditya Mattoo, research manager of the Trade and International Integration team in the World Bank’s research department.

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The Hidden Cost of Inequality: Migrants Who Die on the Journey from Poor to Rich Countries (Washington Post, Oct.7)
“More than 300 would-be immigrants died just a mile off the coast of the Italian island of Lampedusa on Thursday, when the boat carrying them from North Africa's coast caught fire and capsized. The incident has drawn new attention to the huge numbers of illegal immigrants crossing the Mediterranean from Africa to Europe -- and how many of them die along the way.

World Bank economist Branko Milanovic sees incidents like this one and the death toll among African migrants headed toward Europe — as well as among Latin American migrants crossing into the United States — as a function of global inequality and its changing role in the world.”

Read the article. Branko Milanovic is a lead economist in the World Bank’s research department.

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The Taliban Is Not the Biggest Barrier to Education for Malala's Peers (The Guardian, July 29)
“The problem is that the data do not back the claims (in “The Good News from Pakistan” by Sir Michael Barber), as explained recently by Jishnu Das, a senior economist at the World Bank. The Punjab story is one of slow and steady progress, not a great leap forward. Aid from the U.K. has contributed. But the data chosen by Barber has the effect of exaggerating the increase in enrollment and ignoring the need for wider structural reforms beyond the education sector.”

Read the article. Jishnu Das is a senior economist in the Human Development and Public Services team of the World Bank’s research department. Read his related post on the World Bank’s Let’s Talk Development blog.

List of New Policy Research Working Papers
 
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