Showing papers by "World Bank published in 1993"

Human Development in Poor Countries: On the Role of Private Incomes and Public Services

Abstract: Development is often taken to mean rising incomes. Discussions of the "goals of development" now often emphasize the reduction of poverty, rather than raising average incomes per se. The role of social services—particularly basic health and education—has also received greater emphasis in the 1980s, viewed mainly as instruments for raising the incomes of the poor. But, in all these approaches, income growth of one sort or another is what development is all about. A rather different view of the meaning of development has recently found expression in the 1990 Human Development Report (HRD) produced by the United Nations Development Programme. A conceptual underpinning for this approach can be found in the work of Amartya Sen. The essence of this view is that human development—what people can actually do and be—is the overriding purpose of economic development. Underdevelopment is viewed as the lack of certain basic capabilities, rather than lack of income per se. We do not aim here to advocate one of these approaches over the other, but rather to explore their implications for development policy. For instance, what does the human development approach imply about the role of economic growth and, in particular, about reducing income poverty? Should development priorities shift toward the provision of public services in poor countries, even if such a shift is at the expense of income growth?

A new database on human capital stock : sources, methodology and results

Abstract: The authors describe the techniques and data adopted for the construction of a new series of estimates of the stock of education in 85 countries over 28 years (1960-87). It covers all the important developing regions except the republics of the former Soviet Union. The International Economics Department (IEC) continues a well-established trend in growth research of using educational stock (measured as mean school years of education of the labor force) as a proxy for human capital. The series are built from enrollment data using the perpetual inventory method, adjusted for mortality. Estimates are corrected for grade repetition among school-goers and country-specific drop-out rates for primary and secondary students. Enrollment data series used start as far back as 1930 for most countries, and even earlier for others. This reduces the need for backward extrapolation of enrollments to provide the initial estimates of the investment inventory.

The Stock Market, Profit, and Investment

Abstract: Should managers, when taking investment decisions, follow the signals given by the stock market even when those do not coincide with their own assessment of fundamentals? Do they? In this paper we review theoretical arguments and examine the empirical evidence. First, we look at the relation between investment, market valuation, and proxies for fundamentals over the last 90 years. Second, we look at the behavior of investment during the episodes associated with the crashes of 1929 and 1987. We find a limited role of market valuation, given fundamentals.

Returns to investment in education

Abstract: Returns to investment in education based on human capital theory have been estimated systematically since the 1950s. In the 60-plus year history of such estimates, there have been several compilations in the literature. This paper reviews and highlights the latest trends and patterns based on a database of 1,120 estimates in 139 countries. The review shows that the private average global rate of return to one extra year of schooling is about 9 percent a year and very stable over decades. Private returns to higher education have increased over time, raising issues of financing and equity. Social returns to schooling remain high, above 10 percent at the secondary and higher education levels. Women continue to experience higher average rates of return to schooling, showing that girls' education remains a priority. Returns are higher in low-income countries. Those employed in the private sector of the economy enjoy higher returns than those in the public sector, lending support to the productive value of education.

Learning through alliances

Abstract: An alliance is a flexible organization that allows firms with complementary strengths to experiment with new technological, organizational, and marketing strategies. The flexibility is valuable because the project undertaken through the alliance is uncertain. Flexibility is traded off against the weak incentive structure of the alliance. Although the principle goal of the experimental set-up is to learn more about technical and market parameters, learning also occurs about working in an alliance and could lead to greater competence in managing alliances, partially alleviating incentive problems. Through demonstration and externality effects, a few successful alliances can trigger more widespread alliance formation.

Obstacles to Developing Indigenous Small and Medium Enterprises: An Empirical Assessment

Abstract: The article reports the results of field surveys conducted in Sri Lanka's leather industry and Tanzania's furniture industry. It outlines an approach to learning how small and medium enterprises (SMEs) perceive the impact of financial, regulatory, technical, marketing, and other input constraints, and to evaluating the results in relation to other empirical indicators. Lack of access to finance emerges as the binding constraint for smaller, less established firms in Sri Lanka and for all of Tanzania's SMEs - not only is informal financing limited for Tanzania's firms, even firms of adequate size and experience have difficulty borrowing from banks, and, if they do borrow, have difficult relations with their lenders. In Tanzania, regulatory and tax constraints appear largest for the smallest firms, declining somewhat as firms grow: because enforcement is comprehensive, the bureaucratic burden of negotiating with government officials is greatest for small firms. By contrast, in Sri Lanka the regulatory burden rises with firm size, because enforcement is more stringent for the larger and more visible firms. Constraints on physical inputs continue to inhibit Sri Lankan SMEs - a legacy of excessive vertical integration by parastatals. Technical constraints are appraised as most significant by relatively educated entrepreneurs with some involvement in high-quality market niches.

Intra-sub - Saharan African trade : is it too little?

Abstract: Trade among sub-Saharan African countries is very limited. This fact, plus other political and economic considerations, has been used to motivate a growing number of regional integration schemes. Although many authors have shown that intra-sub-Saharan African trade is limited, none has yet asked whether the level of intra-sub-Saharan African trade is higher or lower than one would expect, given a plausible model of the determination of trade flows. The authors compare actual trade with what a traditional gravity model would predict. They find that a gravity model predicts the low level of intra-sub-Saharan African trade. For the 19 sub-Saharan African countries in their sample, the actual sub-Saharan African share of imports plus exports was an average (median) of 8.1 percent (4.5 percent) while the gravity model predicts a slightly lower, not higher, mean (median) of 7.5 percent (4.5 percent).

Modeling the macroeconomic effects of AIDS, with an application to Tanzania

Abstract: A Solow-style model is developed to study the effects of the AIDS epidemic on the growth path of the economy and GDP per capita. The model uses conjectures about the demographic effects of AIDS in Tanzania to estimate the macroeconomic effects on the economy. The findings suggest that, without decisive policy action, AIDS may reduce Tanzanian GDP in the year 2010 by 15 to 25 percent in relation to a counterfactual no-AIDS scenario. Per capita income levels are expected to fall by 0 to 10 percent by 2010.

Competitiveness, convergence, and international specialization

Abstract: David Dollar and Edward Wolff look at claims that a deindustrialized United States is on the road to secondrate status in the global marketplace and find them to be both unfounded and simplistic. Their systematic and empirical investigation of the mechanisms through which countries like Japan and Germany have caught up with the United States in terms of productivity and standard of living will inform public debate about which government policies are likely to improve a nation's competitiveness.Looking at productivity convergence from the industry and subindustry level, Dollar and Wolff also examine questions of the relationship of productivity growth in individual industries to convergence of overall productivity in developed countries, the identification of industries crucial for aggregate productivity growth, the sources of productivity growth within industries, the relationship between international trade and productivity convergence, and whether the same mechanics of convergence are at work in developing countries.The authors' findings reveal, among other things, that the slowness of U.S. productivity growth relative to other nations is largely due to forces pushing for convergence of aggregate productivity levels. Although other countries have been catching up with the U.S., there is no evidence that they will surpass the US. or that the U.S. has deindustrialized.Perhaps most important, Dollar and Wolff find that countries catch up by raising their productivity levels in all manufacturing industries, not by large shifts of their employment and output from low- to high-value-added sectors. The growing similarity of advanced economies in terms of overall productivity masks a continued high degree of specialization in particular industries. Today different countries are the productivity leaders in different industries. Accordingly, the authors recommend that public policy focus on institutions and policies to promote innovation in general, rather than in key industries, and on free trade rather than protectionism.David Dollar is Senior Economist at the World Bank. Edward N. Wolff is Professor of Economics at New York University.

Land Use Controls and Housing Prices in Korea

Abstract: This paper analyses the effects of government controls over land supply on housing in the rapidly growing cities of Korea. Whilst Korea's urban population more than doubled in the period 1973-88, urban land for residential use grew by only 65 per cent. The result has been extremely rapid rises in city residential land values, although the more dense use of residential land has offset some of this rise on house prices. A substantial part of the rise in house prices has resulted from the government's tendency to underallocate land to urban residential use, although part of the government's surplus is used to subsidise low-income housing within the same projects.

Competitiveness, Convergence, and International Specialization

Abstract: David Dollar and Edward Wolff look at claims that a deindustrialized United States is on the road to secondrate status in the global marketplace and find them to be both unfounded and simplistic. Their systematic and empirical investigation of the mechanisms through which countries like Japan and Germany have caught up with the United States in terms of productivity and standard of living will inform public debate about which government policies are likely to improve a nation's competitiveness. Looking at productivity convergence from the industry and subindustry level, Dollar and Wolff also examine questions of the relationship of productivity growth in individual industries to convergence of overall productivity in developed countries, the identification of industries crucial for aggregate productivity growth, the sources of productivity growth within industries, the relationship between international trade and productivity convergence, and whether the same mechanics of convergence are at work in developing countries. The authors' findings reveal, among other things, that the slowness of U.S. productivity growth relative to other nations is largely due to forces pushing for convergence of aggregate productivity levels. Although other countries have been catching up with the U.S., there is no evidence that they will surpass the US. or that the U.S. has deindustrialized. Perhaps most important, Dollar and Wolff find that countries catch up by raising their productivity levels in all manufacturing industries, not by large shifts of their employment and output from low- to high-value-added sectors. The growing similarity of advanced economies in terms of overall productivity masks a continued high degree of specialization in particular industries. Today different countries are the productivity leaders in different industries. Accordingly, the authors recommend that public policy focus on institutions and policies to promote innovation in general, rather than in key industries, and on free trade rather than protectionism.

Sovereign debt : a primer

Abstract: The troublesome debts of many developing countries have spawned much literature on why countries borrow, on what debt contributes to growth, on why countries repay, and on how to deal with existing debt. The author provides an analytical primer on the following aspects of sovereign debt : 1) the basic accounting concepts associated with debt and some data associated with external borrowing; 2) debt as a component of an optimizing model of borrowing in a competitive loan market, when the borrower faces an intertemporal budget constraint; 3) debt as a component of recent models of endogenous growth; 4) problems arising from sovereign risk, including problems of liquidity, enforcement, and revenue-raising to finance repayment; 5) incentives to repay; 6) options available to a creditor whose debtor is unwilling to meet current debt-service obligations; and 7) debt buybacks. The author concludes that in the absence of any efficiency cost imposed by outstanding debt, how much a buyback benefits the borrower depends on how much buying back debt reduces what is available for repayment later. The author also concludes that if there are efficiency losses associated with debt, debt forgiveness can benefit both a debtor nation and its creditors. Contrary to claims in the literature, this outcome does not require that a reduction in the face value of debt raise its market value, and the debtor benefits even though the buyback raises the market price of the debt.