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World Bank Research E-Newsletter, November 2014
  Nov 26, 2014

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In this Issue
Arrow-bullet Policy Research Talk: Employment, Demographic Change, and Well-Being: Avoiding Poverty among the Elderly in Aging Populations
Arrow-bullet Shareholder-Friendly Corporate Governance Is Positively Associated with Bank Insolvency Risk
Arrow-bullet A Simple Framework for Measuring Poverty
Arrow-bullet Empirical Evidence for Poverty Traps Is Scarce
Arrow-bullet When Agricultural Productivity Goes Up Poverty Goes Down in Bangladesh
Arrow-bullet How Energy Prices Can Play a Role in Both Lowering Energy Demand and Improving Energy Efficiency
Arrow-bullet Mechanisms to Share Credit Information Improve Access to Finance for Firms
Arrow-bullet Intermittent Screening and Treatment for Malaria Not Enough to Protect School Children
Arrow-bullet Mass Deworming Programs Bring Long-Term Cognitive Benefits
Arrow-bullet Weak Job Growth in Tunisia Due to Insufficient Firm Dynamism
Arrow-bullet Announcements: A Call for Innovative Ideas on Small and Medium Enterprise Growth; World Development Report 2015 Online Launch Event; Annual Conference on Land and Poverty
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
   
   
   
   
   
   
Policy Research Talk: Employment, Demographic Change, and Well-Being: Avoiding Poverty among the Elderly in Aging Populations

The aging of populations in countries around the world poses a challenge both to ensure the well-being of the elderly and to identify sustainable ways to expand pension systems. In few places is the challenge more pressing than the countries of the East Asia and Pacific region, where rising dependency ratios—the fraction of elderly relative to the working age population—are forcing tough trade-offs for both families and policy makers. At the November Policy Research Talk, John Giles, senior economist in the research department, discussed what the latest research tells us about how these trade-offs are being made, how policy reforms are making an impact on the well-being of the elderly and incentives for work, and identified some potentially promising untapped areas of policy reform.

Read the feature story.

Shareholder-Friendly Corporate Governance Is Positively Associated with Bank Insolvency Risk

A positive association between shareholder-friendly corporate governance and bank insolvency risk is shown for an international sample of banks over the 2004-08 period. Banks are special in that shareholder-friendly corporate governance increases the risk of bank insolvency relatively more for banks that are large and located in countries with sound public finances, as banks aim to exploit the financial safety net. Shareholder-friendly corporate governance is specifically associated with higher asset volatility, more nonperforming loans, and a lower tangible capital ratio. Furthermore, shareholder-friendly corporate governance is associated with more bank risk-taking at times of rapid economic expansion. Consistent with increased risk-taking, shareholder-friendly corporate governance is associated with a higher valuation of the implicit insurance provided by the financial safety net, especially in the case of large banks. These results underline the importance of the financial safety net and too-big-to-fail policies in encouraging excessive risk-taking by banks.

World Bank Policy Research Working Paper 7017, by Deniz Anginer, Asli Demirguc-Kunt, Harry Huizinga, and Kebin Ma.

A Simple Framework for Measuring Poverty

Obtaining consistent estimates of poverty over time as well as monitoring poverty trends on a timely basis is a priority concern for policy makers. However, these objectives are not readily achieved in practice when household consumption data are neither frequently collected, nor constructed using consistent and transparent criteria. This formal framework for survey-to-survey poverty imputation attempts to overcome these obstacles, and to elevate the discussion of these methods beyond the largely ad hoc efforts in the existing literature. The framework introduced here imposes few restrictive assumptions, works with simple variance formulas, provides guidance on the selection of control variables for model building, and can be generally applied to imputation either from one survey to another survey with the same design or to another survey with a different design. Empirical results analyzing the Household Expenditure and Income Survey and the Unemployment and Employment Survey in Jordan are quite encouraging, with imputation-based poverty estimates closely tracking direct estimates of poverty.

World Bank Policy Research Working Paper 7043, by Hai-Anh H. Dang, Peter F. Lanjouw, and Umar Serajuddin.

Empirical Evidence for Poverty Traps Is Scarce

Poverty traps, understood as self-reinforcing mechanisms whereby poor individuals or countries remain poor, are a staple of thinking in development economics. Such models offer a coherent account of why underdevelopment can persist over long periods of time. They also provide a compelling motivation for policy because they suggest reasons why poor people or countries may not be able to climb out of poverty on their own, and lay out a path for policy interventions to have persistent effects by shifting countries or individuals to better equilibria. However, the empirical evidence reviewed here suggests that truly stagnant incomes of the sort predicted by standard models of poverty traps are in fact quite rare. Moreover, the empirical evidence regarding several canonical mechanisms underlying models of poverty traps is mixed. We conclude that standard types of poverty traps are rare. More promising areas include behavioral and geographical poverty traps. The policy implications diverge markedly from calls for a big push in aid or for expansion of microfinance to allow people to overcome credit constraints. Rather, they call for action in less traditional policy areas such as promoting more migration.

World Bank Policy Research Working Paper 6835, by Aart Kraay and David McKenzie.

When Agricultural Productivity Goes Up Poverty Goes Down in Bangladesh

Agricultural wage income is an important source of livelihood for poor people in rural areas, especially the landless. But the wage labor market is limited in developing countries and the underemployed often engage in low-productivity home-based production activities. How does agricultural productivity growth affect the market wage, hired labor, and the allocation of labor between home production and market-oriented activities? A conceptual framework is developed where households reallocate labor away from home production (including leisure) in response to a productivity increase in agriculture. It predicts positive effects of a favorable agricultural productivity shock on wage rate and household income but an ambiguous effect on hired labor. When rainfall variation is used as a measure of agricultural productivity in rural Bangladesh, the effect of plentiful rainfall is significantly positive on agricultural wages and per capita household expenditure, but negative on the share of hired labor in the village. The decline in hired labor is consistent with labor-deficit households responding more than the labor-surplus ones in reallocating labor away from home production. Higher agricultural productivity thus reduces poverty even though it has a negative effect on the employment of hired labor in agriculture.

World Bank Policy Research Working Paper 7056, by Shahe Emran and Forhad Shilpi.

How Energy Prices Can Play a Role in Both Lowering Energy Demand and Improving Energy Efficiency

The long-term sources of change driving energy demand and shifting energy efficiency in equipment have been difficult to sort out. This work takes a new approach to estimating how energy, materials, and labor inputs respond to input price changes by distinguishing among vintages of the capital stock. This makes it possible to account for price-induced improvements in the energy efficiency of capital separately from improvements not driven by energy and other input prices. This analysis of five manufacturing industries in 19 OECD countries between 1990 and 2005 shows how higher energy prices resulted in smaller energy use due to improved energy efficiency of capital stock as well as reduced demand for energy use with already existing capital. The investment response to energy prices varied across manufacturing industries, being more significant in energy-intensive sectors. The results of policy simulations indicate that a carbon tax can deliver significant reductions in energy consumption in the medium run with modest declines in energy-using capital stock, because of induced improvements in the energy efficiency of newer capital vintages.

World Bank Policy Research Working Paper 6929, by Jevgenijs Steinbuks and Karsten Neuhoff.

Mechanisms to Share Credit Information Improve Access to Finance for Firms

A major impediment to firm financing in credit markets is asymmetric information. For example, a firm looking for a loan has better information about its ability to repay the loan than the lender. Under such asymmetric information conditions, even borrowers willing to pay the market equilibrium interest rate can’t get a loan, and demand for credit exceeds supply. But when lenders are able to share information about a client’s payment history, total debt exposure, and overall credit worthiness, access to finance improves. The analysis is based on multi-year, firm-level surveys for 63 countries covering more than 75,000 firms over the period 2002-13. Credit bureau reforms, but not credit registry reforms, have a significant and robust effect on firm financing. After the introduction of a credit bureau, the likelihood that a firm has access to finance increases, interest rates drop, maturity lengthens, and the share of working capital financed by banks increases. The effects of credit bureau reforms are more pronounced the greater the coverage of the credit bureau and the scope and accessibility of the credit information-sharing scheme. Credit bureau reforms also have a greater impact on firms’ access to finance in countries where contract enforcement is weaker. Finally, there is some evidence that the effects of credit bureau reform are more pronounced for smaller, less experienced, and more opaque firms.

World Bank Policy Research Working Paper 7013, by Maria Soledad Martinez-Peria and Sandeep Singh.

Intermittent Screening and Treatment for Malaria Not Enough to Protect School Children

Eliminating malaria requires both treatment of clinical malaria and identifying and treating asymptomatic malaria parasitaemia. A randomized trial investigated the impact of school-based intermittent screening and treatment (IST) for malaria on health and education outcomes in school children in a low-moderate transmission area on the south coast of Kenya. The trial was implemented with 5,233 children in 101 government primary schools in 2010-12. The intervention was delivered to children from classes 1 and 5 in the 51 schools randomly selected to receive IST, with the remaining 50 schools receiving no intervention. The IST intervention comprised of public health workers screening the children using rapid diagnostic tests for malaria once a school term. Children who tested positive for malaria parasites were treated with a six-dose regimen of artemether-lumefantrine. The outcomes measured were anemia, sustained attention, malaria parasitaemia, and educational achievement. In this setting in Kenya, school-based IST, as implemented in this study, is not effective in improving the health or education of school children. Possible reasons include the marked geographical heterogeneity in transmission, the rapid rate of reinfection following artemether-lumefantrine treatment, the variable reliability of malaria rapid diagnostic tests, and the relative contribution of malaria to the etiology of anemia in this setting.

World Bank Policy Research Working Paper 6791, by Katherine E. Halliday, George Okello, Elizabeth L. Turner, Kiambo Njagi, Carlos Mcharo, Juddy Kengo, Elizabeth Allen, Margaret M. Dubeck, Matthew C.H. Jukes, and Simon J. Brooker.

Mass Deworming Programs Bring Long-Term Cognitive Benefits

Intestinal parasites, while rarely fatal, have afflicted humanity for centuries; they now afflict young children predominantly in Asia and Sub-Saharan Africa. A variety of studies show that deworming medication leads to gains in health and school attendance among school-age children, but cognitive impacts were previously unknown. In a large-scale deworming intervention aimed at primary school pupils in western Kenya, this study looked at long-term effects on young children in the region who did and didn’t receive spillovers from deworming treatment. Bringing resolution to the debate, this study—ten years after the deworming intervention—finds cognitive effects comparable to between 0.5 and 0.8 years of schooling for children who were less than one year old when their communities received mass deworming treatment. Because mass deworming was administered through schools, effects are also estimated among children who were likely to have had older siblings in schools receiving the treatment directly. In this subpopulation, effects are nearly twice as large.

World Bank Policy Research Working Paper 7052, by Owen Ozier | Blog

Weak Job Growth in Tunisia Due to Insufficient Firm Dynamism

Examining which firms create jobs in a small developing country, suffering from high and persistent unemployment, offers new information about the constraints to job creation in emerging economies. Unique data covering all private firms in Tunisia over the period 1996-2010 shows firm dynamics were sluggish and overall net job creation disappointing, despite stable growth of gross domestic product. The firm size distribution has remained skewed toward small firms, because of stagnation of existing firms and new entrants starting small, typically one-person firms (self-employment). Churning is limited, especially among large firms, and few firms manage to grow. Post-entry, small firms are the worst performers for job creation, even if they survive. Moreover, the association between productivity, profitability, and job creation is feeble, pointing toward weaknesses in the re-allocative process. Weak net job creation thus appears to be due to insufficient firm dynamism rather than excessive job destruction.

World Bank Policy Research Working Paper 7068, by Bob Rijkers, Hassen Arouri, Caroline Freund, and Antonio Nucifora.

ANNOUNCEMENTS

A Call for Innovative Ideas on Small and Medium Enterprise Growth

The first competition of the new Private Sector Development Policy Innovation Lab is a call for ideas on fostering Small and Medium Enterprise growth. The goal of the lab is to involve researchers (internal and external to the World Bank) directly in developing “off-the-shelf” policy instruments for policy makers and World Bank task team leaders. Unlike existing research grants that require an implementation partner and an identified country, the goal here is to identify promising ideas and match these ideas with World Bank operational staff and governments looking to implement innovative and potentially high impact initiatives. The competition is open to both World Bank staff (researchers and operational staff) and to external researchers. The deadline for submitting a 2-page concept brief is December 5, 2014. Details about the program and the competition can be found here.

Read the blog by David McKenzie.

World Development Report 2015: Understanding Mind, Society and Behavior Online Launch Event

The underlying assumption for many economic policies is that human behavior arises from “rational choice”, with individuals carefully weighing their choices, considering all readily available information, and making decisions on their own. In recent decades, however, novel policies based on a more accurate understanding of how people actually think and behave have shown great promise in addressing some of the most difficult development challenges, such as increasing productivity, breaking the cycle of poverty from one generation to the next, and acting on climate change.

Tune in on December 4, 2014 at 10:30 (EST) as experts discuss the findings of the latest World Development Report 2015 and explore ways in which a richer understanding of the human factor and its behavior can improve policy design, implementation, and evaluation.

Join the online event.

Annual World Bank Conference on Land and Poverty 2015: Linking Land Tenure and Use for Shared Prosperity

The Annual World Bank Conference on Land and Poverty organized by the Development Research Group is a global event where representatives from governments, civil society, academia, the development community, and the private sector come together to discuss research findings, progress, and innovations around land governance policy and practice. The week-long conference aims to foster dialogue and sharing of new knowledge and best practices on the diversity of reforms and approaches being implemented around the world. Last year’s conference attracted more than 1,000 participants from 101 countries; some 250 participants were government officials, many of whom implement land programs in their own country. A record 650 abstracts have been submitted for the 2015 conference, already promising an exciting and enriching event. Read more »

Registration: External Participants
To register for this event, you will need an account in Conftool. Please create an account by accessing the Conftool link and clicking on Register new. After creating an account, select Register for the Conference on the Overview page to begin the process. Step-by-step guidelines on how to do so can be viewed on our website.

Registration: World Bank Group and IMF Staff
World Bank Group and IMF staff, please create account in Conftool by visiting the following link (https://www.conftool.com/landandpoverty2015/ ) and selecting WBG/IMF staff under Register for the Conference » Status. Step-by-step guidelines on how to do so can be viewed on our website.

MEDIA AND BLOGS

Are Institutional Births Institutionalizing Deaths? (Future Development blog, November 20)
“On October 12th in the Indian state of Chhattisgarh, twelve women who had received tubal ligations died. The tragic incident highlights the unfortunate reality that for many people around the world, hospitals and clinics may not satisfy the most basic assumption that visiting them will make you better. Equally worrying is the Indian government's singular focus on increasing 'institutional deliveries' and family planning that led it to celebrate a surgeon who had performed 100,000 sterilizations, now spending no more than 4 minutes on each ‘case’.”

Read the blog, by Jishnu Das and Jeffrey S. Hammer.

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Poverty Will Only End by 2030 If Growth Is Shared (Future Development blog, November 19)
“In a new paper, we explore this topic from the perspective of the World Bank goals of promoting shared prosperity and ending global extreme poverty by 2030. The poverty goal is defined as "reducing to no more than 3 percent the fraction of the world's population living on less than $1.25 per day" by 2030. The shared prosperity goal is defined as "fostering income growth of the bottom 40 percent of the population in every country" and is, as such, an articulation of inclusive growth. Our question is how this goal of boosting the growth of the poorest 40% in every country can help to reduce global extreme poverty by 2030?

Read the blog, by Espen Beer Prydz, Christoph Lakner, and Mario Negre.

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IMF and World Bank warn of ‘peak trade’ (Financial Times, November 18)
“China’s trade surplus shrank in 2011 as import and export growth slowed sharply, official data showed on January 10, after domestic tightening measures and global economic turmoil hit consumption.

The global economy is unlikely to see the same heated growth in trade that fuelled globalisation before the 2008 financial crisis largely because China’s manufacturers are turning inward, according to research by the International Monetary Fund and the World Bank.

The study seeks to answer what has been one of the most perplexing questions facing economists in recent years: does a continuing slowdown in the growth of international commerce mean globalisation has peaked?”

Read the article (gated) | Read the Financial Times blog post | Access the study.

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A phoneful of dollars (Economist, November 15)
“That is one way to provide financial services: have a bank do it. Defenders of this approach say that it brings the unbanked into the financial mainstream by getting them accustomed to using banks rather than informal services. But it is both expensive—bank branches cost a lot to build and staff—and inefficient. In India only a rich minority of citizens have bank accounts, and two-thirds of adults—many of them rural and poor—have no access to financial services at all. Why should they have to spend time, effort and money to travel to a bank branch?...

…Research by the World Bank has found that countries with similar levels of income often display very different levels of financial inclusion. The main reason for this disparity is government policy.”

Read the article | Read a related Wall Street Journal blog post | Access the Global Findex.

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How Ben Ali Policies Continue to Impoverish Tunisians (Future Development blog, November 6)
“Hopes are high for Tunisia’s economy to improve after Tunisians voted for a new parliament in October. Pre-election polls consistently highlighted that the economy was the foremost preoccupation of Tunisians. Yet, political debates in the run up to the elections largely ignored longstanding economic problems.

Absurdly complex regulations divide the Tunisian economy between a protected “onshore” sector that sells to Tunisian consumers and a competitive “offshore” sector that exports, mostly to Europe. "It's pointless trying to understand the logic of it — there is no logic," says Belhassen Gherab, head of Aramys, one of Tunisia's largest textile and clothing groups.”

Read the blog by Antonio Nucifora and Bob Rijkers | Access the report “The Unfinished Revolution”.

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Does More Income Mobility = Higher Social Welfare? (Let’s Talk Development blog, November 3)
“Income mobility is usually considered a good thing. It implies higher social welfare as the ability of individuals to move up and down the income ladder mitigates the impacts of poor income distribution. But it is also true that when income jumps up and down unexpectedly, life becomes riskier and planning, difficult. This is why making a general link between the mobility we observe in the data and welfare is not straightforward.”

Read the blog | Access the working paper by William Maloney.

List of New Policy Research Working Papers
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