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World Bank Research E-Newsletter, January 2014
  Jan 22, 2014

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What Do We Know about the Life Cycle of Firms in Developing Countries?

Existing research suggests that manufacturing establishments in developing countries do not grow over time, most likely because of market imperfections and regulations. But a recent working paper by Meghana Ayyagari, Asli Demirguc-Kunt and Vojislav Maksimovic finds the opposite is true. Drawing on survey data from 120 developing countries, the analysis shows that on average, plants established more than 40 years ago employ almost five times as many workers as firms five years old or younger. The evidence is consistent in India, based on detailed manufacturing census data spanning 23 years. In addition, the paper finds that differences in financial development across Indian states, while substantial, have a minor effect on firm growth. These results hold, even after controlling for differences in labor regulations across states, capital intensity, labor regulations, and firms established before and after major reforms.

World Bank Policy Research Working Paper 6718 »

The Challenge of Measuring Hunger

There is widespread interest in counting the number of hungry people in the world and monitoring trends in hunger. But measuring the number of hungry people is not easy. Current global counts rely on combining statistics on each country's food availability with information on consumption patterns from household surveys. Recent research has advocated for estimating hunger directly from these same surveys. Important to either approach is the quality and consistency of household surveys. Using a survey experiment in Tanzania, a recent working paper by Joachim De Weerdt, Kathleen Beegle, Jed Friedman, and John Gibson finds that alternative survey designs come with significant variation in hunger counts. In particular, changing the design of the survey questionnaire (how questions are asked) greatly impacts the hunger estimate. As a result, comparable and valid statistics on the number of hungry people will continue to be compromised until the design of household surveys, especially the consistency of questionnaires, is improved.

World Bank Policy Research Working Paper 6736 »

Two-Way Migration, Including North-to-South Mobility, Can Benefit All Countries

The current debate is focused on permanent migration from poorer to richer countries and immigration policies in industrial countries, but the international mobility of people is no longer a one-time event or a one-way flow from South to North, according to a recent paper by Aaditya Mattoo and Arvind Subramanian. The economic crisis has given people in industrial countries strong incentives to migrate. As consumers, they could find better and cheaper access to key services in developing countries, such as elderly care, health and education, just as the costs of these services at home are projected to increase and threaten their living standards. As workers, they could benefit from new opportunities created by the greater economic dynamism in many emerging countries. But there are some challenges to North-to-South mobility that need to be addressed, such as the lack of portability of health insurance and the non-recognition of educational qualifications obtained abroad. Furthermore, if industrial country beneficiaries of the movement abroad exert countervailing power against those who support immigration barriers at home, it could lead to greater inflows of people, boosting innovation and growth in the North. Eventually, two-way migration could boost the movement of people at every stage in all countries and help realize the full benefits of globalization.

World Bank Policy Research Working Paper 6539 | Related article in Foreign Policy »

When Estimating the Foreign Wage Premium, It’s Important to Include Informal Workers

In a recent working paper, Emiko Fukase investigates how foreign ownership affects wages for workers of different gender and education levels in Vietnam, using the country’s Household Living Standard Surveys of 2002 and 2004. While most studies compared wage levels between foreign and domestic sectors using firm-level data, thus excluding the informal sector, it isn’t the case with this paper, as the Living Standard Surveys allow wage comparison analyses in the informal wage sector as well. A series of Mincerian earnings equations, along with worker-specific fixed effects models, are used for the analysis. Several findings emerge. First, foreign firms pay higher wages than their domestic counterparts, after controlling for workers’ personal characteristics. Second, the higher an individual worker's level of education, the larger wage premium on average he or she earns at foreign firms. Third, an important factor for the wage premium is that workers put in more hours at foreign firms than those working in the informal wage sector. Finally, unskilled women see a larger foreign wage premium than unskilled men, reflecting the low earning opportunities for women and a larger gender gap in the informal wage sector.

World Bank Policy Research Working Paper 6421 »

The Damages of the Financial Crisis: More Demand Collapse or Credit Crunch in Europe?

While there is a consensus that the 2008-2009 financial crisis was triggered by financial market disruptions in the U.S., there is little agreement on whether the transmission of the crisis and the subsequent prolonged recession are caused by credit factors or a collapse of demand for goods and services. In a recent working paper, Ha Nguyen and Rong Qian investigate the issue using a unique firm survey conducted by the World Bank in six Eastern European countries during the crisis. They find that the drop in demand for products and services, instead of a credit crunch, was overwhelmingly reported as the most damaging adverse effect of the crisis. Some usual suspects, such as rising debt or reduced access to credit, were reported as minor. In addition, the changes in sales and capacity are significantly and robustly correlated with the demand sensitivity of the sectors in which the firms operate. However, they are not robustly correlated with various proxies for firms' credit needs.

World Bank Policy Research Working Paper 6651 | Related blog »

How the Lending Behavior of Foreign-Owned Banks Changed During the Recent Global Crisis

In a recent working paper, Moon Jung Choi, Eva Gutierrez and Maria Soledad Martinez Peria analyze the lending behavior of foreign-owned banks during the global financial crisis, using bank-level panel data for countries in Central and Eastern Europe, East Asia and Latin America. They find that foreign banks across regions, whether regional or global, curtailed credit more than domestic banks did at the height of the financial crisis in 2009, but there were some interesting nuances. U.S. banks, in particular, seem to have retrenched their lending less than other foreign banks. That may be because the crisis, which began there in 2007, was receding by 2009. In addition, U.S. banks received liquidity and capital support from regulators during the crisis. The funding structure of foreign affiliates appears to have some impact on the behavior of foreign banks. Foreign affiliates with a higher deposit base, and thus lower reliance on wholesale funding, curtailed credit less than other foreign banks. Similarly, foreign bank affiliates with well-capitalized parents contracted credit less than other foreign banks.

World Bank Policy Research Working Paper 6674 »

Does Paying Hospitals through Capitation, Rather than Fee-for-Service, Improve Care Quality?

As universal health coverage gains momentum, the global health research community has made significant efforts to advance knowledge about the impact of various schemes to expand population coverage. How provider-payment reforms affect the efficiency, quality and gaps in service utilization is less well studied and understood. In a recent working paper, Ha Nguyen, Thi Hong, Sarah Bales, Adam Wagstaff, and Huyen Dao address the gap by evaluating the impact of a payment reform in Vietnam, where its social health insurance agency shifted from reimbursing hospitals on a fee-for-service basis to making a capitation payment to the hospital of the district where the enrollee lived. Using 2005-2011 hospital panel data and multiple cross-section data sets from the Vietnam Household Living Standard Surveys, the authors estimate the payment change’s impact on health care efficiency, quality and equity. The findings show that capitation increased hospitals’ efficiency, as measured by recurrent expenditure and drug expenditure per case, but had no effect on surgery complication rates or in-hospital deaths. In response to the shift to capitation, hospitals scaled down service provision to the insured and increased provision to the uninsured, who continued to pay out-of-pocket on a fee-for-service basis. The study points to the need to anticipate the intended and unintended effects of any payment reform and the trade-offs among policy objectives.

World Bank Policy Research Working Paper 6709 »

Decentralized Beneficiary Targeting Misses the Intended Beneficiaries in Malawi

Does decentralized beneficiary targeting in the administration of development programs work as intended? In a recent working paper, Talip Kilic, Edward Whitney and Paul Winters join the long-standing debate and focus on the large-scale Farm Input Subsidy Program in Malawi. Using nationally-representative household survey data, the authors systematically analyze the program’s performance in decentralized targeting during the 2009-2010 agricultural season. They begin with a standard targeting assessment, based on program participation rates and benefit amounts among the eligible and non-eligible populations. They decompose the national targeting performance and identify the relative contributions of targeting across districts, across communities in each district and within communities. The results show that the national government, districts and communities all failed to target the poor, with any minimal targeting overwhelmingly materializing at the community level. The findings are robust to the choice of the decomposition method and the proxy variable used to assess household program eligibility. The multivariate analysis of household program participation reinforces these results and reveals that the relatively well-off, rather than the poor or the wealthiest, and the locally well-connected are more likely to participate and on average receive a greater number of input coupons. Since a key program objective is to increase food security and income among resource-poor farmers, the lack of poverty targeting is a concern, and alternative targeting approaches that in part, or completely, rely on proxy means tests at the local level should be considered.

World Bank Policy Research Working Paper 6713 »

How Much Might Europeans Be Willing to Pay to Preserve the Amazon Rain Forest?

In a recent working paper, Stale Navrud and Jon Strand look at how much European households might be willing to pay to protect the Amazon rain forest, which has lost about 15 percent of its original size, mainly to deforestation. The authors use a Delphi stated-preference technique to query 48 European environmental valuation experts on their “best guesses” about possible outcomes of valuation surveys among populations in their countries, as well as in Europe as a whole. If experts’ value assessments are correct, they imply that Europeans are willing to pay an average of 28 Euros per household per year to preserve the current Amazon rainforest up to 2050. Value assessments are higher for experts from higher-income countries, though the increases aren’t proportional to the growth in per-capita national incomes. In relative terms, this implies that higher-income countries are willing to pay a somewhat smaller share of their income to protect Amazon forests than lower-income countries.

World Bank Policy Research Working Paper 6637 »

Media and Blogs

The Fear of “L” (Reuters Expert Zone blog, Jan.7)
“For the last few years, economists have been running through the alphabet to describe the shape of the long-awaited recovery — starting with an optimistic V, proceeding to a more downbeat U, and ending up at a despairing W. But now a deeper anxiety is beginning to stalk the profession: the fear of what I call an “L-shaped” recovery.”

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

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Academic Research: American Exceptionalism (The Economist Online Exchange blog, Jan.6)
"In this week’s print edition, we show that economists are besotted with America. From 1985 to 2005 over 35,000 economics papers focused on America; fewer than 20,000 focused on Europe and Central Asia combined. There were fewer than 1,000 papers that dealt with countries in the Middle East and North Africa.

The authors of a recent paper* (older, non-paywall version), led by an economist from the World Bank, set out to explain the results. Surprisingly, they conclude that America is not a special case. For the vast majority of countries, there is a strong positive relationship between per-capita income and the extent of empirical research on that country. And larger countries are the focus of more research.”

Read the article, which is based on research led by Jishnu Das and Quy-Toan Do, two economists in the World Bank’s research department.

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A Guide to The Top World Bank Blogs and Blog Posts of 2013 (Let’s Talk Development blog, World Bank, Dec.19)
“In both 2011 and 2012, I did a roundup of the most read 200 World Bank blog posts of the year, and compared the performance of the various World Bank blogs in terms of readership. What did blogging at the World Bank in 2013 look like? Table 1 compares the Bank’s blogs in terms of how many of the 200 most-read posts they produced.”

Read the post by Adam Wagstaff, research manager of the Human Development and Public Services team in the World Bank’s research department.

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An Analysis of National Financial Inclusion Strategies (All about Finance blog, World Bank, Dec.2)
“More than 50 countries have recently published explicit financial inclusion strategies and committed to formal targets for financial inclusion. These strategies and commitments reflect a growing recognition of the role of financial inclusion in reducing poverty and boosting shared prosperity. The Financial Inclusion Strategies Database — one of the supporting materials for the World Bank Group’s Global Financial Development Report 2014 — summarizes the national strategies in a format that eases comparisons across countries, thus assisting research in this area. In this post, we present an introductory statistical analysis of the dataset.”

Read the article by Martin Cihak, task team leader of the Global Financial Development Report 2014, and Parabal Partap Singh, a consultant for the report’s core team.

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A White Coin for a Black Day: Reflections on Presenting the WDR 2014 in Africa (Let’s Talk Development blog, World Bank, Dec.17)
“Following the launch of the World Development Report (WDR) 2014, Risk and Opportunity: Managing Risk for Development, various team members have been traveling to different countries to present its findings. I recently joined other team members in a visit to Morocco, Egypt, Ethiopia, and South Africa, with a stop in the middle in London and Oxford.

One thing that struck me was how relevant the topic of risk management is for many countries.”

Read the post by Kyla Wethli, a member of the core team of the WDR 2014.

List of New Policy Research Working Papers
 
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