World Bank

About: World Bank is a other organization based out in Washington D.C., District of Columbia, United States. It is known for research contribution in the topics: Population & Poverty. The organization has 7813 authors who have published 21594 publications receiving 1198361 citations. The organization is also known as: World Bank, WB & The World Bank.

The Economics of the Informal Sector: A Simple Model and Some Empirical Evidence from Latin America

Abstract: An increase in the size of the informal sector hurts growth by reducing the availability for public services for everyone in the economy and increasing the number of activities that use some existing public services less efficiently or not at all. Loayza presents the view that informal economies arise when governments impose excessive taxes and regulations that they are unable to enforce. Loayza studies the determinants and effects of the informal sector using an endogenous growth model whose production technology depends essentially on congestable public services. In this model, changes (in both policy parameters and the quality of government institutions) that promote an increase in the relative size of the informal economy will also generate a reduction in the rate of economic growth. Using data from Latin American countries in the early 1990s, Loayza tests some of the model's implications and estimates the size of the informal sector in these countries - identifying the size of the informal sector to latent variable for which multiple causes and indicators exist. The results suggest that: The size of the informal sector depends positively on proxies for tax burden and restrictions on the labor market. It depends negatively on a proxy for the quality of government institutions. An increase in the size of the informal sector hurts growth by reducing the availability of public services for everyone in the economy and by increasing the number of activities that use some existing public services less efficiently or not at all. This paper - a product of the Macroeconomics and Growth Division, Policy Research Department - is part of a larger effort in the department to examine the determinants of economic growth.

Financial performance and outreach: a global analysis of leading microbanks*

Abstract: Microfinance contracts have proven able to secure high rates of loan repayment in the face of limited liability and information asymmetries, but high repayment rates have not translated easily into profits for most microbanks. Profitability, though, is at the heart of the promise that microfinance can deliver poverty reduction while not relying on ongoing subsidy. The authors examine why this promise remains unmet for most institutions. Using a data set with unusually high quality financial information on 124 institutions in 49 countries, they explore the patterns of profitability, loan repayment, and cost reduction. The authors find that institutional design and orientation matter substantially. Lenders that do not use group-based methods to overcome incentive problems experience weaker portfolio quality and lower profit rates when interest rates are raised substantially. For these individual-based lenders, one key to achieving profitability is investing more heavily in staff costs-a finding consistent with the economics of information but contrary to the conventional wisdom that profitability is largely a function of minimizing cost.

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?

Returns to Capital in Microenterprises: Evidence from a Field Experiment

Abstract: Small and informal firms account for a large share of employment in developing countries. The rapid expansion of microfinance services is based on the belief that these firms have productive investment opportunities and can enjoy high returns to capital if given the opportunity. However, measuring the return to capital is complicated by unobserved factors such as entrepreneurial ability and demand shocks, which are likely to be correlated with capital stock. The authors use a randomized experiment to overcome this problem and to measure the return to capital for the average microenterprise in their sample, regardless of whether they apply for credit. They accomplish this by providing cash and equipment grants to small firms in Sri Lanka, and measuring the increase in profits arising from this exogenous (positive) shock to capital stock. After controlling for possible spillover effects, the authors find the average real return to capital to be 5.7 percent a month, substantially higher than the market interest rate. They then examine the heterogeneity of treatment effects to explore whether missing credit markets or missing insurance markets are the most likely cause of the high returns. Returns are found to vary with entrepreneurial ability and with measures of other sources of cash within the household, but not to vary with risk aversion or uncertainty.