|
on Transition Economics |
| By: | Mary Amiti (International Monetary Fund and CEPR); Beata Smarzynska Javorcik (The World Bank and CEPR) |
| Abstract: | The authors examine the determinants of entry by foreign firms using information on 515 Chinese industries at the provincial level during 1998-2001. The analysis, rooted in the new economic geography, focuses on market and supplier access within and outside the province of entry, as well as production and trade costs. The results indicate that market and supplier access are the most important factors affecting foreign entry. Access to markets and suppliers in the province of entry matters more than access to the rest of China, which is consistent with market fragmentation due to underdeveloped transport infrastructure and informal trade barriers. |
| Keywords: | Infrastructure, Private sector development, Transition, International economics |
| Date: | 2005–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3564&r=tra |
| By: | DAVID BACH (Instituto de Empresa) |
| Abstract: | China´s entry into the global economy is universally accepted as a defining feature of this new century. Much debate has focused on the impact its economy is having on world market prices, both as producer and consumer. This ´China Price´ effect puts tremendous pressure on Western firms. But China is not just competing on price. Supported by new regulatory institutions, it increasingly influences market rules and technology standards as well. Such Chinese efforts pose a direct challenge to Western competitiveness. While Western firms must adapt to the ´China Price´, countering the ´China Standard´ will require coordination with governments to formulate a countervailing regulatory agenda. |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:emp:wpaper:wp05-31&r=tra |
| By: | Thomas Rutherford (University of Colorado); David Tarr (The World Bank); Oleksandr Shepotylo (University of Maryland) |
| Abstract: | Taking price changes from the Global Trade Analysis Project (GTAP) model of world trade, the authors use a small open economy computable general equilibrium comparative static model of the Russian economy to assess the impact of global free trade and a successful completion of the Doha Agenda on the Russian economy, and especially on the poor. They compare those results with the impact of Russian accession to the World Trade Organization (WTO) on income distribution and the poor. The model incorporates all 55,000 households from the Russian Household Budget Survey as "real" households. Crucially, given the importance of foreign direct investment (FDI) liberalization as part of Russian WTO accession, the authors also include FDI and Dixit-Stiglitz endogenous productivity effects from liberalization of import barriers against goods and FDI in services. The authors estimate that Russian WTO accession in the medium run will result in gains averaged over all Russian households equal to 7.3 percent of Russian consumption (with a standard deviation of 2.2 percent of consumption), with virtually all households gaining. They find that global free trade would result in a weighted average gain to households in Russia of 0.2 percent of consumption, with a standard deviation of 0.2 percent of consumption, while a successful completion of the Doha Development Agenda would result in a weighted average gain to households of -0.3 percent of consumption (with a standard deviation of 0.2 percent of consumption). Russia, as a net food importer, loses from subsidy elimination, and the gains to Russia from tariff cuts in other countries are too small to offset these losses. The results strongly support the view that Russia's own liberalization is more important than improvements in market access as a result of reforms in tariffs or subsidies in the rest of the world. Foremost among the own reforms is liberalization of barriers against FDI in business services. |
| Keywords: | International economics |
| Date: | 2005–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3725&r=tra |
| By: | Chor-ching Goh (The World Bank); Beata S. Javorcik (The World Bank) |
| Abstract: | The authors examine the impact of Poland's trade liberalization in 1994-2001 on the industry wage structure. The liberalization was undertaken in preparation for Poland's accession to the European Union and was more pronounced in industries with larger shares of unskilled labor. Their analysis indicates that a decrease in an industry tariff was associated with higher wages being earned by workers employed in the industry, controlling for worker characteristics and geographic variables. The result is robust to including year and industry fixed effects, controlling for industry-level exports, imports, concentration, stock of foreign direct investment, and capital accumulation. The finding is consistent with liberalization increasing competitive pressures, forcing firms to restructure and improve their productivity, which in turn translates into higher profits being shared with workers. It could also be potentially attributed to trade liberalization lowering the costs of imported inputs, which enhances firm profitability. The result holds when skilled workers are excluded from the sample, thus suggesting that reductions in trade barriers benefited the unskilled in terms of an increase in wages. |
| Keywords: | Transition, Poverty, International economics |
| Date: | 2005–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3552&r=tra |
| By: | Carsten A Holz (Hong Kong University of Science & Technology) |
| Abstract: | Views of the future China vary widely. While some believe that the collapse of China is inevitable, others see the emergence of a new superpower that increasingly poses a threat to the U.S. This paper examines the economic growth prospects of China over the next two decades. Extrapolating past real GDP growth rates into the future, the size of the Chinese economy surpasses that of the U.S. in purchasing power terms between 2012 and 2015; by 2025, China is likely to be the world's largest economic power by almost any measure. The extrapolations are supported by two types of considerations. First, China’s growth patterns of the past 25 years since the beginning of economic reforms match well those identified by standard economic development and trade theories (structural change, catching up, and factor price equalization). Second, decomposing China’s GDP growth into growth of labor and other variables, the near-certain information available today about the quantity and quality of Chinese laborers through 2015, if not several years after, allows inferences about future GDP growth. Short of some cataclysmic event, demographics alone suggests China’s continued economic rise. If talent is randomly distributed in the world population and if agglomeration of talent is important, then the odds are strongly in China’s favor. |
| Keywords: | economic growth, growth accounting, growth forecasts, development theories, human capital formation, education (all: China) |
| JEL: | O1 O10 O11 O4 O40 O47 O53 J11 O3 I21 |
| Date: | 2005–12–02 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpdc:0512002&r=tra |
| By: | Maurice Catin (CRERI, University of South Toulon-Var, France); Xubei Luo (The World Bank); Christophe Van Huffel (CRERI, University of South Toulon-Var, France) |
| Abstract: | Rapid development, a widening regional gap, and growing concentration of activities have characterized the Chinese economy since the reforms in the late 1970s. This paper examines the spatial disparities of the economic concentration in different stages of development from a geographic approach in the case of China. It aims at offering empirical supports on (1) how concentrated the economic activities are; (2) what factors determine the economic concentration; and (3) whether this concentration differs in the coastal and inland regions. The results show that the high-technology industries highly concentrate in the coastal provinces. The limited diffusion of the labor intensive activities within the coastal region does not significantly modify the major trend of the location and specialization of the industries in the inland region, and does not contribute to narrowing the regional disparities. The paper argues that in order to stimulate the geographic diffusion of economic activities to the inland region, it is important to appropriately alleviate internal migration control, reduce unnecessary state intervention, and further encourage domestic market integration. |
| Keywords: | Macroeconomics and growth |
| Date: | 2005–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3706&r=tra |
| By: | Fan Zhai (Asian Development Bank); Thomas Hertel (The World Bank and Purdue University) |
| Abstract: | The authors assess the implications of multilateral trade reforms for poverty in China. They do so by combining results from a global modeling exercise with a national CGE model that features disaggregated households in both the rural and urban sectors. They examine two trade reform scenarios: one involving global trade liberalization, and one involving possible Doha Development Agenda reforms. Using the World Bank's $2 a day poverty line, the authors find that multilateral trade reforms do in fact reduce poverty in China. The biggest reductions occur in the rural areas-largely as a result of higher prices for farm products. |
| Keywords: | Agriculture, Industry, Transition, Poverty, International economics, Labor and employment |
| Date: | 2005–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3702&r=tra |
| By: | Carsten A Holz (Hong Kong University of Science & Technology) |
| Abstract: | Data on physical capital are an indispensable part of economic growth and efficiency studies. In the case of China, economy-wide fixed asset series are usually derived by aggregating gross fixed capital formation (net of depreciation) over time, and sectoral/ownership-specific series by correcting the limited official fixed asset data available. These procedures, to varying degrees, ignore that (i) gross fixed capital formation does not equal investment, (ii) investment does not equal the value of fixed assets newly created through investment, (iii) depreciation is an accounting measure that bears no necessary relation to changes in the production capacity of fixed assets, (iv) official fixed asset data, where available, incorporate significant revaluations in the 1990s, and (v) “net fixed assets” do not measure the contribution of fixed assets to production. This paper derives economy-wide fixed asset values for 1953-2003, correcting for these shortcomings. It uses both the traditional, cumulative approach and a new, so far unexplored method of combining economy-wide depreciation values and an economy-wide depreciation rate to directly yield economy-wide fixed assets. The derived fixed asset time series are evaluated in a comparison with each other as well as with series in the literature, leading to the recommendation of a specific choice of fixed asset time series. |
| Keywords: | Capital, investment, national income accounting, production function estimations, Chinese statistics, fixed assets, measurement of economic growth |
| JEL: | E22 C80 D24 O47 P23 P24 |
| Date: | 2005–12–02 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0512001&r=tra |
| By: | Loren Brandt (University of Toronto); Carsten Holz (Hong Kong University of Science & Technology) |
| Abstract: | Prices differ across space: from province to province, from rural (or urban) areas in one province to rural (or urban) areas in another province, and from rural to urban areas within one province. Systematic differences in prices across a range of goods and services in different localities imply regional differences in the costs of living. If high- income provinces also have high costs of living, and low-income provinces have low costs of living, the use of nominal income measures in explaining such economic outcomes as inequality can lead to misinterpretations. Income should be adjusted for costs of living. We are interested in the sign and magnitude of the adjustments needed, their changes over time, and their impact on economic outcomes in China. In this article, we construct a set of (rural, urban, total) provincial- level spatial price deflators for the years 1984-2002 that can be used to obtain provincial-level income measures adjusted for purchasing power. We provide illustrations of the significant effect of ignoring spatial price differences in the analysis of China’s economy. |
| Keywords: | spatial deflators, inequality, income differences, regional absolute price levels, China |
| JEL: | D3 D31 C43 D63 O18 O53 |
| Date: | 2005–12–02 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpmi:0512001&r=tra |
| By: | Adam Wagstaff (The World Bank) |
| Abstract: | It is acknowledged that the lack of any systematic link between growth and income inequality does not necessarily mean that economic growth is not accompanied by major changes in the underlying income distribution. The author uses a method devised to decompose the redistributive effect of a tax to analyze the extent to which vertical redistribution associated with changing incomes over time is offset or reinforced by horizontal redistribution and re-ranking. He uses panel data from China and Vietnam over a period when both countries grew spectacularly as they transitioned from planned to market economies, and yet experienced smaller annual percentage increases in income inequality. The results suggest that substantial amounts of horizontal redistribution and re-ranking in both China-and to a lesser extent Vietnam-more than offset pro-poor vertical redistribution. Without the horizontal redistribution and re-ranking, the Gini coefficient for China might have fallen between 1989 and 1997-substantially so. |
| Keywords: | Poverty, Macroeconomics and growth |
| Date: | 2005–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3559&r=tra |
| By: | Louis Kuijs (The World Bank); Tao Wang (International Monetary Fund) |
| Abstract: | The authors study the sources and pattern of China's impressive economic growth over the past 25 years and show that key issues currently of concern to policymakers-widening inequality, rural poverty, and resource intensity-are to a large extent rooted in China's growth strategy, and resolving them requires a rebalancing of policies. Using both macroeconomic level and sector data and analyses, the authors extend the growth accounting framework to decompose the sources of labor productivity growth. They find that growth of industrial production, led by a massive investment effort that boosted the capital/labor ratio, has been the single most important factor driving GDP and overall labor productivity growth since the early 1990s. The shift of labor from low-productivity agriculture has been limited, and, hence, contributed only marginally to overall labor productivity growth. The productivity gap between agriculture and the rest of the economy has continued to widen, leading to increased rural-urban income inequality. Looking ahead, the authors calibrate two alternative scenarios. They show that continuing with the current growth pattern would further increase already high investment and saving needs to unsustainable levels, lower urban employment growth, and widen the rural-urban income gap. Instead, reducing subsidies to industry and investment, encouraging the development of the services industry, and reducing barriers to labor mobility would result in a more balanced growth with an investment-to-GDP ratio that is consistent with the medium-term saving trend, faster growth in urban employment, and a substantial reduction in the income gap between rural and urban residents. |
| Keywords: | Labor and employment, Macroeconomics and growth |
| Date: | 2005–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3767&r=tra |
| By: | Thorsten Beck (The World Bank); Luc Laeven (The World Bank and CEPR) |
| Abstract: | Drawing on the recent literature on economic institutions and the origins of economic development, the authors offer a political economy explanation of why institution building has varied so much across transition economies. They identify dependence on natural resources and the historical experience of these countries during socialism as major determinants of institution building during transition by influencing the political structure and process during the initial years. Their empirical analysis shows that countries that are more reliant on natural resources and spent a longer time under socialist governments are more likely to see former communists remain in power and to start the transition process with less open political systems, with negative repercussions for the development of market-compatible institutions. Using natural resource reliance and the years under socialism to extract the exogenous component of institution building, the authors also show the importance of institutions in explaining the variation in economic development and growth across transition economies during the first decade of transition. |
| Keywords: | Governance, Transition, Macroeconomics and growth |
| Date: | 2005–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3657&r=tra |
| By: | David G. Tarr (The World Bank); Giorgio Barba Navaretti (University of Milan) |
| Abstract: | This paper is the introduction and summary chapter of the 43 chapter volume entitled Handbook of Trade Policy and WTO Accession for Development in Russia and the CIS. The key policy conclusions of each of the chapters are highlighted in this paper. The Handbook will be published only in Russian in 2005, but an English language version of the majority of the papers described here is available on the website www.worldbank.org/trade/russia-wto. This paper first explains the potential importance of World Trade Organization (WTO) accession as a development tool, and discusses the recent successful development models and the role of trade policy in their development. The paper then summarizes the three parts of the Handbook. The first part treats trade policy (with applications to Russia and the Commonwealth of Independent States [CIS]). The second part treats World Trade Organization institutions and disciplines, again with Russia and CIS applications. And the third part focuses on various aspects of the impact of WTO accession on Russia. The numerous papers that relate trade policy and WTO accession to experience in Russia and the CIS are likely to be of special interest to native English speakers, since these papers are new to the literature. The papers in the Handbook are intended to be non-technical materials accessible to a wide policy audience. The Handbook forms the basis of a World Bank Institute course on trade policy and WTO accession, which has been delivered and will be delivered again on multiple occasions. |
| Keywords: | International economics |
| Date: | 2005–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3726&r=tra |
| By: | Xubei Luo (The World Bank) |
| Abstract: | The author discusses regional development patterns in China and examines effective ways of using development aid to attain regional balanced growth through optimizing growth spillover effects. Based on provincial panel data from 1978-99 she constructs an indicator "neighborhood performance" to measure the geographic spillover effects of aggregate growth from and to different provinces according to their relative richness and geographic position. Analysis of a Solow-type growth model suggests that positive spillover effects dominate negative shadow effects at the national level as well as the regional level, and some coastal provinces provide growth pull and growth push forces for their neighbors and serve as locomotives. The results show that the rapid takeoff of the coastal provinces has the largest spillover effects on the Chinese economy, but at the expense of a widening regional gap. A policy of encouraging the growth of the non-coastal regional hubs would have strong forward and backward linkages with the inland and western regions and thus reduce the regional development gap without sacrificing much aggregate growth. The author offers support for the policy of developing inland hubs, and argues that directing development aid to Hubei and Sichuan would optimize the growth spillover impacts on inland regions. |
| Keywords: | Macroeconomics and growth |
| Date: | 2005–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3652&r=tra |
| By: | Gillman, Max (Cardiff Business School); Cziráky, Dario |
| Abstract: | The paper estimates the money demand in Croatia using monthly data from 1994 to 2002. A failure of the Fisher equation is found and adjustment to the standard money demand function is made to include the inflation rate as well as the nominal interest rate. In a two-equation cointegrated system, a stable money demand shows rapid convergence back to equilibrium after shocks. This function performs better than an alternative using the exchange rate instead of the inflation rate, as in the "pass-through" literature on exchange rates. The results provide a basis for inflaton rate forecasting and suggest the ability to use inflation targeting goals in transition countries during the EU accession process. Finding a stable money demand also limits the scope for central bank "inflation bias". |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:cdf:wpaper:2005/7&r=tra |
| By: | Felix Eschenbach (Institut d'Etudes Politiques, Paris); Bernard Hoekman (Institut d'Etudes Politiques, Paris, The World Bank and CEPR) |
| Abstract: | Major changes have occurred in the structure of former centrally planned economies, including a sharp rise in the share of services in GDP, employment, and international transactions. However, large differences exist across transition economies with respect to services intensity and services policy reforms. The authors find that reforms in policies toward financial and infrastructure services, including telecommunications, power, and transport, are highly correlated with inward foreign direct investment. Controlling for regressors commonly used in the growth literature, they find that measures of services policy reform are statistically significant explanatory variables for the post-1990 economic performance of transition economies. These findings suggest services policies should be considered more generally in empirical analyses of economic growth. |
| Keywords: | Transition, International economics |
| Date: | 2005–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3663&r=tra |
| By: | Louis Kuijs (The World Bank) |
| Abstract: | The author analyzes sectoral patterns of investment and saving in China-over time and compared with other countries-to shed light on the factors driving high investment and on how saving is channeled into investment. The findings inform several policy debates. Key findings include: (1) investment by enterprises distinguishes China from other countries and explains most of the variation over time; (2) high household saving explains only a part of the large difference in national saving between China and other countries-the majority is explained by high saving of the government and enterprises (through retained earnings); and (3) only about one-third of enterprise investment is financed via the financial sector, a lower share than in the early 1990s. The author also explores explanations behind high saving of the government and enterprises. His findings have three sets of policy implications. First, the identified financing patterns put in perspective the exposure of the financial sector to investment-related risks but, against a background of concerns about suboptimal allocation of capital, bring to the fore corporate governance, dividend policy, and transparency and accountability of public funds. Second, the findings suggest policy adjustments that would help in achieving the government's goals of improving the quality of growth and increasing the role of consumption. Third, long term saving prospects and the impact of financial sector and pension policies are discussed. |
| Keywords: | Domestic finance, Governance, Macroeconomics and growth |
| Date: | 2005–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3633&r=tra |
| By: | Itzhak Goldberg (The World Bank); Branko Radulovic (The World Bank); Mark Schaffer (The World Bank) |
| Abstract: | The authors use data on 27,000 firms from 50 countries, half of which are transition economies, together with the case of Serbia to examine the relationship between productivity, the investment climate, and private ownership of firms. As government capacity to address investment climate constraints is limited, the prioritization of the constraints is critical. Identification of the relative effects of various investment climate constraints and ownership on productivity should serve as a guide for such prioritization. Although ownership has recently received less attention in policy decisions than before, according to the econometric analysis of productivity reported by the authors, private ownership is an equally or more important determinant of productivity than other components of the investment climate. The importance of ownership shows that an unfinished privatization and restructuring agenda might have negative effects on productivity, in parallel to poor investment climate. Another important finding is that countries in which firms complain more about infrastructure tend to have less productive firms. |
| Keywords: | Domestic finance, Industry, Private sector development, Governance, Macroeconomics and growth |
| Date: | 2005–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3681&r=tra |
| By: | Mark Dutz (The World Bank) |
| Abstract: | This empirical paper sheds light on a significant element of the debate of whether infrastructure services have a strong impact on economic development by exploring the impact of innovative road freight services on downstream business users. The paper uses a new and purpose-specific survey of 165 logistics service providers and 493 user enterprises in food processing, food distribution, and the automotive industry in the Czech Republic, Hungary, and Poland. The main findings are that there are substantial downstream benefits from innovations in road freight services, both dampening cost increases and raising sales revenues of business users. The additional finding that increased intensity of competition in road freight services is significantly associated with the provision of innovative services suggests that easing any remaining barriers to competition in upstream business sectors should be a priority. |
| Keywords: | Infrastructure, Industry, Private sector development |
| Date: | 2005–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3768&r=tra |
| By: | Sunita Kikeri (The World Bank); Aishetu Fatima Kolo (The World Bank) |
| Abstract: | This paper takes stock of recent privatization trends, examines the extent to which government ownership is still prevalent in developing countries, and summarizes emerging issues for state enterprise reform going forward. Between 1990 and 2003, 120 developing countries carried out nearly 8,000 privatization transactions and raised $410 billion in privatization revenues. Privatization activity peaked in 1997 and dropped off in the late 1990s and, while still at overall low levels, is slowly creeping back. While there are a large number of studies assessing the impact of privatization on enterprise performance and overall welfare, there are no systematic data on the extent to which privatization has changed the role of state enterprises in the economy. Anecdotal evidence suggests that the state's role has been substantially reduced in Eastern and Central Europe and in certain countries in Latin America. But available evidence also suggests that, despite a long track record of privatization, government ownership in state enterprises is still widely prevalent in some regions and countries, and in certain sectors in virtually all regions. The paper shows that the costs of not reforming state enterprises are high and that continued efforts need to be made to improve their performance by improving privatization policies and institutions; adopting more of a case-by-case approach for complex sectors and countries; and exposing state enterprises to market discipline through new private entry and exit of unviable firms and improvements in their corporate governance. |
| Keywords: | Private sector development |
| Date: | 2005–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3765&r=tra |
| By: | Magnus Lindelow (The World Bank); Adam Wagstaff (The World Bank) |
| Abstract: | The most basic argument for insurance is that it reduces financial risk. But since insurance opens up new opportunities for consuming expensive high-technology care which permits health improvements that are valued by the insured, and because in many settings the provider is able and has an incentive to exploit the informational advantage he has over the patient, it is not immediately obvious that insurance will in practice reduce financial risk. The authors analyze the effect of insurance on the probability of an individual incurring "high" annual health expenses using data from three household surveys-one a cross-section survey, the other two panel surveys. All come from China, a country where providers have until recently largely been paid fee-for-service (often according to a schedule that encourages the overprovision of high-technology care and the underprovision of basic care) and who are only lightly regulated. The authors define annual spending as "high" if it exceeds 5 percent of average income in the sample and as "catastrophic" if it exceeds 10 percent of the household's own per capita income. The estimates of the effect of insurance on financial risk allow for the possible endogeneity of health insurance in the panel datasets by allowing for a time-invariant fixed effect capturing unobserved risk that may be correlated with insurance status, and in the cross-section dataset by using instrumental variables, where availability of and eligibility for health insurance are used as instruments. The results suggest that during the 1990s China's government and labor insurance schemes increased financial risk associated with household health care spending, but that the rural cooperative medical scheme significantly reduced financial risk in some areas but increased it in others (though not significantly). From the results, it appears that China's new health insurance schemes (private schemes, including coverage of schoolchildren) have also increased the risk of high levels of out-of-pocket spending on health. Where the authors find evidence of health insurance increasing the risk of "high" out-of-pocket expenses, the marginal effect is of the order of 15-20 percent; in the case of "catastrophic" expenses, it is even larger. |
| Keywords: | Poverty, Health and population |
| Date: | 2005–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3741&r=tra |
| By: | Dominique van de Walle (The World Bank); Dorothyjean Cratty (The World Bank) |
| Abstract: | Recipient government responses to development project aid have typically been studied at high levels of aggregation, using cross-country comparisons and/or aggregate time series data. Yet increasingly the relevant decisions are being made at the local level, in response to specific community-level projects. The authors use local-level data to test for fungibility of World Bank financing of rural road rehabilitation targeted to specific geographic areas of Vietnam. A simple double difference estimate suggests that the project's net contribution to rehabilitated road increments is close to zero, suggesting complete displacement of funding. However, with better controls for the endogeneity of project placement the authors find much less evidence of fungibility, with displacement accounting for around one-third of the aid. The results point to the importance of dealing with selection bias in assessing project aid fungibility. |
| Keywords: | Infrastructure, Governance, Transition, Rural development |
| Date: | 2005–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3542&r=tra |
| By: | Leora F. Klapper (The World Bank); Luc Laeven (The World Bank); Inessa Love (The World Bank) |
| Abstract: | The authors study differences in the use of two corporate governance provisions - cumulative voting and proxy by mail voting - in a sample of 224 firms located in four Eastern European countries. The report finds a significant relationship between ownership structure, and the use of corporate governance provisions. Firms with a controlling owner (owning more than 50 percent of shares) are less likely to adopt either of the two provisions. However, firms that have large, minority shareholders are more likely to adopt these provisions. The authors do not find any significant relationship between the use of these provisions, and foreign ownership. The results suggest that the decision to adopt these corporate governance provisions is influenced by large, minority shareholders in their battle for representation in the board, and in managerial decisions. |
| Keywords: | Domestic finance, Private sector development, Governance, Transition |
| Date: | 2005–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3600&r=tra |
| By: | Marijke Kuiper (Agricultural Economics Research Institute (LEI) Wageningen UR); Frank van Tongeren (Agricultural Economics Research Institute (LEI) Wageningen UR) |
| Abstract: | Most studies of the opening of the Chinese economy focus at the national level. The few existing disaggregated analyses are limited to analyzing changes in agricultural production. The authors use an innovative village equilibrium model that accounts for nonseparability of household production and consumption decisions. This allows them to analyze the impact of trade liberalization on household production, consumption, and off-farm employment, as well as the interactions among these three aspects of household decisions. They use the village model to analyze the impact of price changes and labor demand, the two major pathways through which international trade affects households. Analyzing the impact of trade liberalization for one village in the Jiangxi province of China, the authors find changes in relative prices and outside village employment to have opposite impacts on household decisions. At the household level the impact of price changes dominates the employment impacts. Comparing full trade liberalization and the more limited Doha scenario, reactions are more modest in the latter case for most households, but the response is nonlinear to increasing depth of trade reforms. This is explained by household-specific transaction (shadow) prices in combination with endogenous choices to participate in the output markets. Rising income inequalities are a growing concern in China. Whether trade liberalization allows incomes to grow together or to grow apart depends on whether one accounts for the reduction in consumption demand when household members migrate. Assessing the net effect on the within-village income distribution, the authors find that poorer households that own draught power gain most from trade liberalization. The households that have to rely on the use of own labor for farm activities and are not endowed with traction power, nor with a link to employment opportunities in the prospering coastal regions, have fewer opportunities for adjustment. |
| Keywords: | Rural development, International economics |
| Date: | 2005–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3696&r=tra |
| By: | Jici Wang (Peking University); Xin Tong (Peking University) |
| Abstract: | The authors examine the diverse prospects of innovative sectors in Beijing and Shanghai using available indicators and data collected for this study through surveys. Beijing is the first choice for companies locating in China, but foreign employees prefer Shanghai for living convenience and cultural amenities. While Shanghai lags behind Beijing in knowledge creation and the generation of startup companies in the innovative sectors, it takes the lead in the commercialization of technological innovations and the development of creative cultural industries. The municipal authorities of Beijing and Shanghai have improved the innovation environment of the cities, but certain elements still stunt the growth of innovative industries, which cannot be removed easily. Three kinds of knowledge-intensive enterprises included in innovative sectors in the survey are high-tech manufacturers, knowledge-intensive business services, and creative content providers. The survey found that the clustering of the firms arose from the attraction of preferential policies and the purchase by governments or state-owned enterprises of information technology products. The survey shows that interaction among firms is inadequate in the knowledge-based industrial clusters in both Beijing and Shanghai. Hence, it may be some time before clustering leads to substantial gains in collective efficiency for innovative industry in Beijing and Shanghai. |
| Keywords: | Industry, Private sector development, Urban development |
| Date: | 2005–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3545&r=tra |
| By: | Michael Lokshin (The World Bank); Ruslan Yemtsov (The World Bank) |
| Abstract: | The authors use data from a large nationally representative survey in Russia to analyze the distributional and welfare implications of draft avoidance as a common response to Russia's highly unpopular conscription system. They develop a simple theoretical model that describes household compliance decisions with respect to enlistment. The authors use several econometric techniques to estimate the effect of various household characteristics on the probability of serving in the army and the implications for household income. Their results indicate that the burden of conscription falls disproportionately on the poor. Poor, rural households, with a low level of education, are more likely to have sons who are enlisted than urban, wealthy, and better-educated families. The losses incurred by the poor are disproportionately large and exceed the statutory rates of personal income taxes. |
| Keywords: | Poverty, Labor and employment, Public sector management |
| Date: | 2005–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3547&r=tra |
| By: | Magnus Lindelow (The World Bank); Adam Wagstaff (The World Bank) |
| Abstract: | Health shocks have been shown to have important economic consequences in industrial countries. Less is known about how health shocks affect income, consumption, labor market outcomes, and medical expenditures in middle- and low-income countries. The authors explore these issues in China. In addition to providing new evidence on the general impact of health shocks, they also extend previous work by assessing the extent of risk protection afforded by formal health insurance, and by examining differences in the impact of health shocks between the rich and poor. The authors find that health shocks are associated with a substantial and significant reduction in income and labor supply. There are indications that the impact on income is less important for the insured, possibly because health insurance coverage is also associated with limited sickness insurance, but the effect is not significant. They also find evidence that negative health shocks are associated with an increase in unearned income for the poor but not the non-poor. This effect is however not strong enough to offset the impact on overall income. The loss in income is a consequence of a reduction in labor supply for the head of household, and the authors do not find evidence that other household members compensate by increasing their labor supply. Finally, negative health shocks are associated with a significant increase in out-of-pocket health care expenditures. More surprisingly, there is some evidence that the increase is greater for the insured than the uninsured. The findings suggest that households are exposed to considerable health-related shocks to disposable income, both through loss of income and health expenditures, and that health insurance offers very limited protection. |
| Keywords: | Poverty, Health and population |
| Date: | 2005–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3740&r=tra |
| By: | Bernard Dafflon (The World Bank); Krisztina Tóth (The World Bank) |
| Abstract: | Its highly fragmented structure of local governments and serious horizontal fiscal imbalances make Switzerland a surprisingly powerful model for Eastern European countries that are currently facing the challenge of fiscal decentralization. In spite of the substantial differences in the tradition and current practice of intergovernmental fiscal relations, transition economies may learn valuable lessons from the Swiss case in the fields of direct democracy, horizontal cooperation, expenditure and revenue assignment, and fiscal discipline. Among other conclusions, the authors suggest that subnational authorities can effectively fend off recentralization attempts of the central government if they engage in spontaneous cooperation to enhance the efficiency of public service provision. Together with an adequate fiscal equalization scheme, interjurisdictional cooperation also permits the reconciliation of the objective of an increasing devolution of powers with the existing regional disparities. The authors also show that the principle of subsidiarity can best be safeguarded by anchoring the expenditure and revenue powers of subnational governments in the constitution or in a similarly strong law. With regard to fiscal discipline, the combination of a "golden rule" with direct democratic instruments of budget control is proven to be successful in enhancing the accountability of local politicians toward their constituencies. |
| Keywords: | Public sector management |
| Date: | 2005–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3655&r=tra |
| By: | Lev Freinkman (The World Bank); Alexander Plekhanov (University of Cambridge) |
| Abstract: | The paper provides an empirical analysis of the determinants of fiscal decentralization within Russian regions in 1994-2001. The conventional view that more decentralized governments are found in regions and countries with higher income, higher ethnolinguistic fractionalization, and higher levels of democracy is not supported by the data. This motivates a more refined analysis of the determinants of decentralization that points to the link between decentralization and the structure of regional government revenue: access to windfall revenues leads to a more centralized governance structure. The degree of decentralization also depends positively on the level of urbanization and regional size and negatively on income and general regional development indicators such as the education level. |
| Keywords: | Domestic finance, Public sector management |
| Date: | 2005–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3710&r=tra |
| By: | Adam Wagstaff (The World Bank); Shengchao Yu (The World Bank Office Beijing, China) |
| Abstract: | The literature contains few impact evaluations of health sector reforms, especially those involving broad and simultaneous changes on both the demand and supply sides of the sector. This paper reports the results of a World Bank-funded health sector reform project in China known as Health VIII. On the supply-side, the project combined infrastructure investments (especially at the township level) with improved planning and management, including a referral system between township health centers and county hospitals, and interventions aimed at improving the effectiveness and quality of care, including the introduction of clinical protocols and essential drug lists. On the demand-side, the project sought to resurrect community health insurance, and to introduce a safety net for the very poor to provide them with financial assistance with their health care expenses. The evaluation reported here concerns just one of the project's seven provinces, namely Gansu, the reason being that no suitable data are available to undertake a rigorous evaluation in all provinces. This paper makes use of a panel dataset collected for quite another purpose but whose timing (just around the time the project started and four years later) and location (covering both project and non-project counties) makes it well-suited to the task. The paper compares estimates obtained using a variety of different estimators, including naïve single differences (before and after, and with and without the project), and differences-in-differences, adjusting for heterogeneity through both regression and matching methods. The results suggest that it makes a difference to the estimated impact of Health VIII which estimator is used, with the naïve single differences producing often markedly different estimates from the preferred approach of combining difference-in-differences with matching. The results further suggest that Health VIII has been mostly successful in its goals. The preferred estimator suggests that the project reduced illness among children, improved self-assessed health, and increased doctor visits among the population in general, and reduced the incidence of catastrophic health spending, defined as annual spending in excess of 10 percent of annual per capita income. But the project appears to have increased the development and use of high-level facilities, hastened the demise of the village clinic, and may have reduced immunization rates. |
| Keywords: | Health and population |
| Date: | 2005–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3743&r=tra |
| By: | Susmita Dasgupta (The World Bank); Craig Meisner (The World Bank); David Wheeler (The World Bank); Nhan Thi Lam (Tien Giang Preventive Medicine Centre); Khuc Xuyen (National Institute of Occupational and Environmental Health, Vietnam) |
| Abstract: | In this paper, the authors have assessed the incidence and determinants of pesticide poisoning among rice farmers in Vietnam's Mekong Delta. Blood cholinesterase tests suggest that the incidence of poisoning from exposure to organophosphates and carbamates is quite high in Vietnam. Using the medical test results as benchmarks, the authors find that farmers' self-reported symptoms have very weak associations with actual poisoning. Regression analysis of blood tests reveals a lower incidence of poisoning for farmers who avoid the most toxic pesticides and use protective items. The authors also find very large provincial differences in poisoning incidence after they control for individual factors. The results highlight the potential importance of negative externalities, and suggest that future research on pesticide-related damage should include information on local water, air, and soil contamination. |
| Keywords: | Agriculture, Health and population |
| Date: | 2005–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3624&r=tra |
| By: | Karla Hoff (The World Bank); Joseph E. Stiglitz (Columbia University) |
| Abstract: | How does the lack of legitimacy of property rights affect the dynamics of the creation of the rule of law? The authors investigate the demand for the rule of law in post-communist economies after privatization under the assumption that theft is possible, that those who have "stolen" assets cannot be fully protected under a change in the legal regime toward rule of law, and that the number of agents with control rights over assets is large. They show that a demand for broadly beneficial legal reform may not emerge because the expectation of weak legal institutions increases the expected relative return to stripping assets, and strippers may gain from a weak and corrupt state. The outcome can be inefficient even from the narrow perspective of the asset-strippers. |
| Keywords: | ??? |
| Date: | 2005–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:3779&r=tra |
| By: | Rasmus Kattai |
| Abstract: | This paper describes the first version of Eesti Pank\'s structural macro-econometric model EMMA. EMMA belongs to the second generation of macro models, with Neo-Classical supply determined long run properties and Keynesian demand driven short run adjustment. The model has been designed for forecasting as well as for simulation exercises. In order to fulfil both tasks, the emphasis has been put on capturing the main characteristics of the Estonian economy. The model describes a very small and open economy, in which long run economic growth and inflation are strongly influenced by real and nominal convergence towards EU15 levels. |
| Keywords: | Estonia, macro model |
| JEL: | C5 E12 E17 |
| URL: | http://d.repec.org/n?u=RePEc:eea:boewps:wp2005-12&r=tra |
| By: | Anna Zalewska |
| Abstract: | Pension reform has become a major policy issue for both developed and developing countries in recent years. In developing countries the impact of these reforms on the development of their financial markets is critical. However, the initial expectations that pension reforms in developing countries would bring broad benefits and result in faster market development have not materialised. A particular problem has been that governments have imposed restrictions on the freedom of pension funds’ investment decisions. In particular, they have a tendency to enforce home bias in investment behaviour. This paper provides a non-technical introduction to home bias and its role in stock market development, and uses the Polish experience as a case study. It discusses the main arguments for portfolio diversification, the primary side effects that emerge from locking funds into underdeveloped equity markets, and highlights the problems the Polish pension funds face as a result of the “enforced” home bias policy of the Polish authorities. The findings support the view that enforced home bias has a negative impact on the local stock market development, on the performance of pension reform. |
| Keywords: | pension reforms, home bias, stock market development, emerging markets |
| JEL: | G23 G28 G11 |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:bri:cmpowp:05/136&r=tra |