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World Bank Research E-Newsletter, November 2013
  Nov 20, 2013

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In this Issue
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Global Financial Development Report 2014: Financial Inclusion

The report, led by Asli Demirgüç-Kunt and Martin Cihák, is the most comprehensive study yet on financial inclusion, a topic that has garnered worldwide attention. The study highlights new evidence on policies that improve — and those that undermine — financial access. It finds that financial inclusion is crucial for reducing poverty and boosting shared prosperity. People, especially the poor, benefit greatly from basic payments, savings, and insurance services. With half of the world’s adults lacking bank accounts, the study urges policy makers to focus on addressing market and government failures. It warns against promoting financial inclusion for inclusion’s sake, because attempts to provide credit for all lead to instability. It calls for a policy environment with strong laws and regulations, good information and healthy competition, which will encourage financial service providers to embrace new technologies and products such as commitment accounts and index-based insurance. Responsible financial inclusion also requires educating consumers about finance. Classroom-based financial education for the general population has little impact. People learn better during “teachable moments,” such as when starting a job or getting a loan. Also, delivering education messages though social networks and engaging channels shows promise.

Report | Press Release | Feature story »

Shared Prosperity and the Mitigation of Poverty

The World Bank Group recently adopted two overarching goals — the end of extreme, chronic poverty in the world by 2030 and the promotion of shared prosperity in every society. In a new working paper, Kaushik Basu examines the properties of these goals, their strengths and weaknesses, and their implications for actual policymaking, especially in the presence of globalization. This is closely related to the age-old debate on growth versus direct welfare interventions as instruments for countering poverty. The paper analyzes past trends on poverty and tries to shed new light on this old debate.

World Bank Policy Research Working Paper 6700 »

Indoor Air Pollution in Madagascar Can be Alleviated by Switching Cooking Fuels and Better Ventilation

Household air pollution is the second leading cause of disease in Madagascar, where more than 99 percent of households rely on solid biomass, such as charcoal, wood, and crop waste, as the main cooking fuel. Only a limited number of studies have looked at the emissions and health consequences of cook stoves in Africa. In a recent working paper, Susmita Dasgupta, Paul Martin and Hussain A. Samad summarize an initiative to monitor household air pollution in two towns in Madagascar, with a stratified sample of 154 and 184 households. Concentrations of fine particulate matter and carbon monoxide in each kitchen were monitored three times using UCB Particle Monitors and GasBadge Pro Single Gas Monitors. The average concentrations of both pollutants significantly exceeded World Health Organization guidelines for indoor exposure. A fixed-effect panel regression analysis was conducted to investigate the effects of various factors, including fuel (charcoal, wood, and ethanol), stove (traditional and improved ethanol), kitchen size, ventilation, building materials, and ambient environment. Judging by its effect on fine particulate matter and carbon monoxide, ethanol is significantly cleaner than biomass fuels and, for both pollutants, a larger kitchen significantly improves the quality of household air. Compared with traditional charcoal stoves, improved charcoal stoves were found to have no significant impact on air quality, but the improved wood stove with a chimney was effective in reducing concentrations of carbon monoxide in the kitchen, as was ventilation.

World Bank Policy Research Working Paper 6627 »

Do Better Economic Rights for Women Improve Development Outcomes?

In a recent working paper, Mary Hallward-Driemeier, Tazeen Hasan and Anca Bogdana Rusu investigate the impact of legal reforms on women’s economic rights, using a new database covering women’s legal and economic rights in 100 countries over a 50-year period. Initially, 75 countries had gender gaps in indicators such as women’s ability to own property, sign legal documents in their own name or be protected by constitutions. By 2010, 57 countries had strengthened women’s economic rights, 28 of them having eliminated all gender gaps monitored by the study. Meanwhile, more than half of the constraints on the books in 1960 had been removed, including Sub-Saharan Africa, where gender gaps had been the most prevalent. The evidence suggests that better legal rights for women are associated with important development outcomes. Across the globe and within countries over time, the removal of gender gaps in rights is associated with women participating more in the labor force, moving out of agricultural jobs and vulnerable employment into wage employment, as well as achieving better health and education outcomes. But economic growth by itself doesn’t automatically lead to more equal rights for women. Reforms require proactive engagement.

World Bank Policy Research Working Paper 6617 | Feature Story »

Why Microfinance Competition in Bangladeshi Villages is Good News

Concerns about exploitative money lenders have motivated government interventions in rural credit markets for centuries, with mostly disappointing results. Did microfinance, which expanded in the last three decades, fare any better? Proponents claim that competition from microfinance institutions reduces both interest rates demanded by money lenders and households’ reliance on informal credit, while critics argue the opposite. In a recent working paper, Claudia Berg, M. Shahe Emran and Forhad Shilpi examine the impact of microfinance institutions on the informal credit market in Bangladesh. They find that microfinance competition doesn’t reduce money-lender interest rates, partially repudiating the proponents. The effects are heterogeneous: there isn’t any perceptible effect at low levels of coverage, but the money-lender interest rate increases significantly when microfinance coverage is high enough. By contrast, households’ dependence on informal credit tends to go down after they join a microfinance institution, which contradicts part of the critics’ argument. The evidence is consistent with this model: microfinance institutions, with high enough coverage, create effective competition for the money lenders, but the average money lenders’ interest rate in the village goes up as they lose better borrowers to the microfinance programs.

World Bank Policy Research Working Paper 6619 »

Do Food Safety Standards Affect Agricultural Exports from Low-income Countries?

On average, more restrictive standards lead to less international trade of agricultural products, according to a recent working paper by Esteban Ferro, John S. Wilson and Tsunehiro Otsuki. The likely explanation is that stricter standards increase the cost of entering the market for exporting firms. This leads to firms spending more to comply with the new standards. The authors reach the conclusion using new data on the maximum residue levels of pesticides allowed in agricultural products from 61 importing countries. Once firms enter the market, higher standards don’t appear to have a noticeable impact on exports. In cross-country comparisons, higher food-safety standards in the BRIC countries — Brazil, Russia, India, China, and South Africa — have a greater impact on trade than higher standards elsewhere. Current standards in the BRIC countries, however, also tend to be less restrictive than those of other nations. Finally, evidence points to the possibility that exports from low-income countries are more negatively affected by increased product standards than those from higher-income countries.

World Bank Policy Research Working Paper 6518 »

Testing Information Constraints on India’s Largest Antipoverty Program

Public knowledge about India's ambitious Employment Guarantee Scheme is low in one of India's poorest states, Bihar, where participation is also unusually low. Is the solution simply to tell people their rights? Or does their lack of knowledge reflect deeper problems of poor people's agency and an unresponsive supply side? In a recent working paper, Martin Ravallion, Dominique van de Walle, Puja Dutta, and Rinku Murgai report on an information campaign that was designed and implemented in the form of an entertaining movie to inform people of their rights under the scheme. In randomly-assigned villages, the movie brought significant gains in knowledge and more positive perceptions about the impact of the scheme. But objectively measured employment showed no gain on average, suggesting that the movie created a “groupthink,” changing social perceptions about the scheme but not individual efficacy in accessing it. The paper concludes that awareness generation needs to go hand-in-hand with supply-side changes.

World Bank Policy Research Working Paper 6598 »

How Does Corporate Governance Affect Bank-Capitalization Strategies?

In a recent working paper, Deniz Anginer, Asli Demirgüç-Kunt and Kebin Ma examine how corporate governance and executive compensation affected bank-capitalization strategies for an international sample of banks from 2003 to 2011. "Good" corporate governance, which favors shareholder interests, is found to give rise to lower bank capitalization. In particular, three factors — intermediate-sized boards, separation of the chief executive officer and chairman roles, and an absence of anti-takeover provisions — lead to low bank capitalization. Executive options and stock wealth invested in the bank are associated with better capitalization, except for 2006, just before the global financial crisis began. During that year, stock-option wealth was associated with lower capitalization, which suggests that potential gains from taking on more bank risk outweighed the prospect of additional loss. Banks' tendencies to continue payouts to shareholders after experiencing negative income shocks are found to reflect executive risk-taking incentives.

World Bank Policy Research Working Paper 6636 »

From Guesstimates to GPStimates: Land Area Measurement and Implications for Agricultural Analysis

In a recent working paper, Calogero Carletto, Sydney Gourlay, and Paul Winters examine the implications of using handheld GPS devices to measure agricultural land across several countries in Sub-Saharan Africa. They explore the differences between the two measures, the sources of the differences, and the implications of the different methods for measuring key agricultural indicators. The data indicate that small plot areas are systematically over-reported by farmers, while larger plot areas are generally underestimated. Self-reported land area measurements systematically differ from GPS land measures, and this difference leads to potentially biased estimates of crop yields, and most importantly, of the relationship between land and productivity. Given that the majority of plots in Sub-Saharan Africa are small, over-reporting of land area — and thus, under-reporting of yield estimates — tends to be prevalent. GPS information collected as a routine part of survey-data collection will provide better measures and help better identify causal relationships and pathways to poverty reduction.

World Bank Policy Research Working Paper 6550 »

Consumption Risk-Sharing is Affected by Financial Openness

One of the major puzzles in international macroeconomics — the high sensitivity of aggregate consumption to domestic income shocks — is especially intriguing now, given the growing degree of financial integration of economies across the world. In a recent working paper, Constantino Hevia and Luis Servén explore the extent to which different countries engage in consumption risk sharing, using data for a group of 50 industrial and developing economies. Based on the empirical implementation of a model of partial consumption insurance, the authors show that rich countries exhibit higher degrees of risk sharing than developing countries. In addition, the gap between the two groups appears to have widened amid financial globalization. Moreover, the pattern of consumption risk sharing is related to the degree of financial openness: countries with larger stocks of foreign assets or liabilities exhibit larger degrees of risk sharing, and so do countries whose foreign asset stocks are more tilted towards foreign direct investment assets.

World Bank Policy Research Working Paper 6479 »

Media and Blogs

World Bank Says Expanded Access to Banking Services Comes with Risks (Reuters, Nov.11)
Instead, the World Bank encourages governments to reduce regulatory barriers, legal hurdles or other factors that make financial services too expensive for some, such as boosting competition and protecting the rights of creditors.”

Read the Reuters article | Demirguc-Kunt’s interview with BBC Business Edition | Related post on the World Bank’s All About Finance blog (World Bank)

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Growth Still Is Good for the Poor (VoxEU blog, Nov.19,)
“This new emphasis on shared prosperity naturally raises two key questions. First, to what extent does shared prosperity differ from simple prosperity, where the latter could be defined as overall aggregate income growth? Second, are there macroeconomic policies and institutions that can directly support shared prosperity, other than through their effects on overall growth? Our paper ‘Growth Still is Good for the Poor’ (2013) addresses these two questions, elaborating on earlier work done in Dollar and Kraay (2002).”

Read the post co-authored by Aart Kraay, lead economist in the World Bank's research department.

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Risking Your Health (Investing in Health blog, World Bank, Nov.20)
All over the world, people engage in behaviors that are risky for their health. They smoke, use illicit drugs, drink too much alcohol, eat unhealthy food or adopt sedentary lifestyles, and have risky sexual encounters. As a consequence, they endanger their health, reduce their own life expectancy, and often impose harmful consequences on others.

In the book Risking your Health: Causes, Consequence and Interventions to Prevent Risky Behaviors we regroup these five risky behaviors — drugs, smoking, alcohol, unhealthy food, and risky sex — and investigate them under a common lens, describing global trends in prevalence and discussing determinants and consequences.

Read the post by Damien de Walque, a senior economist in the World Bank’s research department.

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The Chart That Explains the World (Off Message, The Financial Times, Oct.25)
“In a new paper, Branko Milanovic depicts the recent history of global incomes. … On the far right of the chart is one of the two biggest “winners”: the 60m or so people who constitute the world’s top 1 per cent. About half of these are the richest 12 per cent of Americans. The rest of the top 1 per cent is made up by the top 3-6 per cent of Britons, Japanese, French and German, and the top 1 per cent of several other countries, including Russia, Brazil and South Africa.”

Read the article. Branko Milanovic is a lead economist in the World Bank’s research department. Read a summary of his recent Policy Research Talk on the same topic.

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The Connection Between Wall-Street and Main-Street (Let’s Talk Development blog, World Bank, Oct.31)
“Monetary policy is widely considered as an effective tool for short-term stabilization. However, in recent decades, evidence suggests that its effectiveness in the US has been somewhat dampened. What is the reason behind this trend? Can it inform us about the relationship between monetary policy transmission and the complexity of the financial system?”

Read the post by Maya Eden, an economist in the Macroeconomics and Growth Team of the Development Research Group.

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Good Corporate Governance is Bad for Bank Capitalization (VoxEU blog, Nov.10)
Bank capitalization determines the probability of a bank failure. This column discusses how bank’s corporate governance affects its capitalization. Corporate governance, in which the bank acts in the interest of its shareholders, is defined as a good one. Such governance, however, can lead to lower bank capitalization. It also has possibly negative implications for financial stability.

Read the post co-authored by four researchers, including Deniz Anginer, an economist in the World Bank’s Research Department and World Bank Research Director Asli Demirgüç-Kunt.

List of New Policy Research Working Papers
 
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