Showing papers by "World Institute for Development Economics Research published in 2011"

The Level and Distribution of Global Household Wealth

Abstract: The level of average household wealth in all countries is estimated via the determinants of assets and debts for 39 countries which have balance sheet or survey data. The distribution of wealth in all countries is inferred from information on the pattern of wealth ownership for 20 countries (covering 59% of world population). Combining the level and distribution figures suggests that median global wealth was PPP$8,635 in the year 2000, and that PPP$518,361 was needed to belong to the top percentile. The top decile owned 71% of world wealth and the global Gini value was 0.802.

The economic costs of extreme weather events: a hydrometeorological CGE analysis for Malawi

Abstract: Extreme weather events such as droughts and floods have potentially damaging implications for developing countries. Previous studies have estimated economic losses during hypothetical or single historical events, and have relied on historical production data rather than explicitly modeling climate. However, effective mitigation strategies require knowledge of the full distribution of weather events and their isolated effects on economic outcomes. We combine stochastic hydrometeorological crop-loss models with a regionalized computable general equilibrium model to estimate losses for the full distribution of possible weather events in Malawi. Results indicate that, based on repeated sampling from historical events, at least 1.7 per cent of Malawi's gross domestic product (GDP) is lost each year due to the combined effects of droughts and floods. Smaller-scale farmers in the southern region of the country are worst affected. However, poverty among urban and nonfarm households also increases due to national food shortages and higher domestic prices.

Adapting to climate change: an integrated biophysical and economic assessment for Mozambique

Abstract: Mozambique, like many African countries, is already highly susceptible to climate variability and extreme weather events. Climate change threatens to heighten this vulnerability. In order to evaluate potential impacts and adaptation options for Mozambique, we develop an integrated modeling framework that translates atmospheric changes from general circulation model projections into biophysical outcomes via detailed hydrologic, crop, hydropower and infrastructure models. These sector models simulate a historical baseline and four extreme climate change scenarios. Sector results are then passed down to a dynamic computable general equilibrium model, which is used to estimate economy-wide impacts on national welfare, as well as the total cost of damages caused by climate change. Potential damages without changes in policy are significant; our discounted estimates range from US$ 2.3 to US $7.4 billion during 2003–2050. Our analysis identifies improved road design and agricultural sector investments as key ‘no-regret’ adaptation measures, alongside intensified efforts to develop a more flexible and resilient society. Our findings also support the need for cooperative river basin management and the regional coordination of adaptation strategies.

Ordinal Welfare Comparisons with Multiple Discrete Indicators: A First Order Dominance Approach and Application to Child Poverty

Abstract: We develop an ordinal method for making welfare comparisons between populations with multidimensional discrete well-being indicators observed at the micro level. The approach assumes that, for each well-being indicator, the levels can be ranked from worse to better; however, no assumptions are made about relative importance of any dimension nor about complementarity/substitutability relationships between dimensions. The method is based on the concept of multidimensional first order dominance. We introduce a rapid and reliable algorithm for empirically determining whether one population dominates another on the basis of available binary indicators by drawing upon linear programming theory. These approaches are applied to household survey data from Vietnam and Mozambique with a focus on child poverty comparisons over time and between regions.

Ethiopia's Growth Prospects in a Changing Climate: A Stochastic General Equilibrium Approach

Abstract: This study develops a stochastic economy-wide framework for analyzing economic impacts from climate change and potential adaptation policies. For the stochastic analysis, particular attention is paid to the development of a prior subjective distribution of future climate outcomes. The approach is applied to Ethiopia. The results highlight the importance of cumulative processes and rates of growth. In particular, if climate change affects the rate of technical change and the rate of accumulation of capital, the implications become significant over time. Furthermore, analysis of the variability of the components of GDP indicates that aggregate consumption always has a higher coefficient of variation than the other macro aggregates. The burden of adjustment appears to fall more heavily on consumers. Poor consumers are likely to experience increased vulnerability.Research highlights:-- Develops a dynamic CGE framework for economic climate change impact analysis.-- Focuses on agricultural productivity impacts in a least-developed-country context.-- Takes account of increased frequency of extreme weather events.-- Pays particular attention to uncertainty about future climate outcomes.-- Provides stochastic simulations of long-run growth prospects for Ethiopia.

In the shadow of the city: Africa's urban poor in opposition strongholds

Abstract: Sub-Saharan Africa is the fastest urbanising region of the world. This demographic transformation has occurred in concert with two other trends in the region, nascent democratisation and stalled decentralisation. Using the case of Lusaka, Zambia, this study argues that in the context of multi-party competition and limited fiscal decentralisation, the challenges posed by rapid urbanisation are exacerbated for the urban poor living in cities controlled by opposition parties. Semi-structured interviews conducted with local political actors are combined with a survey of 200 informal sector workers in Lusaka. This data reveals the tactics employed by the central government to weaken the popularity of the opposition in Lusaka and shows that from the viewpoint of the urban poor, such tactics ultimately prove counterproductive. The presence of similar dynamics in other African cities has important implications for aid modalities, such as budget support, that are currently used by international donors to fund development projects, including those in the urban sector.

Are biofuels good for African development? An analytical framework with evidence from Mozambique and Tanzania.

Abstract: Many low-income countries in Africa are optimistic that producing biofuels will both reduce dependence on imported fossil fuels and stimulate economic development, particularly in poorer rural areas. Conversely, skeptics view biofuels as a threat to food security in the region and as a ‘land-grabbing’ opportunity for foreign investors. As a result of this ongoing debate, national Biofuels Task Forces have been asked to evaluate both the viability of domestic biofuel production and its broader implications for economic development. To guide these complex evaluations, this article presents an analytical framework that prioritizes different aspects of a comprehensive national assessment and identifies suitable evaluation methods. The findings from recent assessments for Mozambique and Tanzania are used to illustrate the framework. While from these two countries studies found that biofuels investments could enhance development, their experiences highlight potential trade-offs, especially at the macroeconomic ...

The Welfare Effects of Health-Based Food Tax Policy

Abstract: This paper examines the effects of health-oriented food tax reforms on the distribution of tax payments, food demand and health outcomes. Unlike earlier work, we also take into account the uncertainty related to both demand estimation and health estimates and report the confidence intervals for the overall health effects instead of only point estimates. A sugar tax of 1 € / kg reduces the incidence of type 2 diabetes on average by 13% and it also leads to a reduction in coronary heart disease. The health effects appear to be most pronounced for low-income individuals, and the reforms may therefore reduce health inequality. This effect undermines the traditional regressivity argument against the heavy taxation of unhealthy food.

Mexico’s Progresa-Oportunidades and the emergence of social assistance in Latin America

Abstract: This paper provides an overview of the political and economic context under which Mexico’s Progresa-Oportunidades was introduced to prelude the emergence of social assistance in Latin America. The paper identifies four distinctive features of the programme that were revolutionary in their own right. First, the Progresa-Oportunidades embraced a multidimensional approach to poverty, linking income transfers with simultaneous interventions in health, education and nutrition. Second, the programme focused on the poor. This is in clear contrast to generalised food subsidies and other targeted interventions that dominated the antipoverty agenda in the past. Third, the programme followed a complex system of identification and selection of beneficiaries to prevent discretionary political manipulation of public funds. Finally, an independent impact evaluation protocol proved to be critical for both improving the programme’s effectiveness and strengthening its legitimacy across different political factions and constituencies. The paper concludes that the success of Progresa-Oportunidades must be understood in a broader context, where a harsh economic and political environment, coupled with a rapid democratisation and increasing political competition, laid down the foundations for the introduction and then sustained expansion of the programme

Does Gender Influence the Provision of Fringe Benefits? Evidence From Vietnamese SMEs

Abstract: This contribution studies the provision of fringe benefits using a unique survey of small and medium-sized enterprises (SMEs) in Vietnam. Analysis of the survey reveals that women who own SMEs are more likely than men who own similar firms to provide employees with fringe benefits such as annual leave, social benefits, and health insurance. This gender effect exists especially with regard to mandatory social insurance and is robust to the inclusion of standard determinants of wage compensation. The study also explores whether this finding is linked to gender differences in social networks and workforce structure, worker recruitment mechanisms, and the degree of unionization. However, these factors cannot fully account for the observed differences in fringe benefits along the “gender of owner” dimension. There remains a sizable and unexplained fringe benefits premium paid to employees in women-owned firms.

Explaining poverty evolution: The case of Mozambique

Abstract: Measuring poverty remains a complex and contentious issue. This is particularly true in sub-Saharan Africa where poverty rates are higher, information bases typically weaker, and the underlying determinants of welfare relatively volatile. This paper emplo

Social transfers and chronic poverty: objectives, design, reach and impact

Abstract: In the first decade of the new century, social transfer programmes emerged as a new paradigm in the fight against poverty in the global South. These programmes currently reach more than 860 million people worldwide. This paper focuses on three policy questions: first, do programme objectives address chronic poverty? Second, are programme design features – the identification and selection of beneficiaries, delivery mechanisms and complementary interventions – effective in reaching chronically poor households? And third, do social assistance programmes benefit the chronically poor? The paper finds that by promoting longer-term human capital investment and protecting household assets and facilitating asset building, social transfers can directly or indirectly tackle persistent deprivation. The discussion notes that current knowledge on the outcomes of social transfers encourages strong expectations on its potential role in addressing long-term poverty, but that this can only be confirmed when current programmes reach maturity. This draws attention to the importance of extending the scope, depth and especially length of academic research into these relevant questions.

Does Budget Transparency Lead to Stronger Human Development Outcomes and Commitments to Economic and Social Rights

Abstract: The aim of this paper is to explore the relationship between the quality of the budget process and human development outcomes. It looks in particular at at the relationship between the OBI and human development as measured by the Human Development Index (HDI) and a number of related human development indicators, as well as the Economic and Social Rights Fulfillment Index that measures government commitment to economic and social rights. The authors construct a framework which links budget transparency to accountability for economic and social rights.

Aid Effectiveness: Opening the Black Box

Abstract: Controversy over the aggregate impact of foreign aid has focused on reduced form estimates of the aid-growth link. The causal chain, through which aid affects developmental outcomes including growth, has received much less attention. We address this gap by: (i) specifying a structural model of the main relationships; (ii) estimating the impact of aid on a range of final and intermediate outcomes; and (iii) quantifying a simplied representation of the full structural form, where aid impacts on growth through key intermediate outcomes. A coherent picture emerges: aid stimulates growth and reduces poverty through physical capital investment and improvements in health.

Foreign Assistance in a Climate-Constrained World

Abstract: Projections show that climate finance has the potential to markedly increase total official assistance to developing countries over the next decade. Climate change will impact not only the need for foreign assistance, but also the financial mechanisms, modalities, agreements, and distribution channels for foreign assistance. In our recent paper ‘Foreign Assistance in a Climate-Constrained World’ we argue that climate finance can act as a catalyst for positive changes in the institutional architecture and distribution mechanisms for financial flows to lower-income countries. Genuine recipient country leadership is necessary in the implementation of co-ordinated development, adaptation and mitigation strategies. Predictable and long-term financial flows are best suited to facing the challenges of development in a climate constrained world.

Tax Policy and Employment: How Does the Swedish System Fare?

Abstract: This paper reviews the literature on optimal taxation of labour income and the empirical work on labour supply and the elasticity of taxable income in Sweden. It also presents an overview of Swedish taxation of labour income, offers calculations on the development in effective marginal tax rates and participation tax rates, and estimates, using the difference-in-differences method, the impact of tax incentives on employment rates of elderly workers. After this background, we ponder possibilities for reforming the Swedish tax system to improve its labour market impacts. We suggest better targeting the earned income tax credit at families and low-income workers, lowering the top marginal tax rates, and maintaining the tax incentives for older workers.

Can free trade agreements reduce economic vulnerability

Abstract: Free trade agreements between countries at different ends of the development spectrum have become increasingly common over the past decade. The impact that this type of arrangement has on trade flows has been widely modelled; however, the extent to which it can be expected to affect economic vulnerability is an aspect that has largely been overlooked. Yet as the economic distance between negotiating partners widens, the likelihood that changes in trade flows will affect the economic structure of the less developed partner increase. This paper explores the components of two prominent highly asymmetric negotiations – the Dominican Republic – Central America Free Trade Agreement and the European Union – Caribbean Forum Economic Partnership Agreement – to assess the channels through which the resulting organisation of trade may impact the vulnerability profile of the developing country partners. We find that these FTAs have the potential to address economic vulnerability in the developing country partners in ways that would not be possible in their absence.

Globalization Crises, Trade, and Development in Vietnam

Abstract: Vietnam has been among the most successful East Asian economies, especially in weathering the external shocks of recent globalization crises—the 1997-98 Asian financial crisis and the 2008-09 great recession, financial crisis and collapse of global trade. Its success contradicts its characterization as an example of export-led growth and highlights the role of the state, particularly in maintaining and influencing investment. Examination of economic performance and policy responses shows rising dependence on foreign finance around each crisis, and actions by the government to counteract that dependence and bolster the domestic economy while continuing to restructure the economy toward greater emphasis on the private sector. Growth, employment and poverty alleviation have been maintained at the expense of renewed inflation, larger budget deficits, and currency depreciation. The ‘stop-go’ nature of present …

Climate change, agriculture and food security in Tanzania

Abstract: The consequences of climate change for agriculture and food security in developing countries are of serious concern. Due to their reliance on rain-fed agriculture, both as a source of income and consumption, many low-income countries are considered to be the most vulnerable to climate change. This paper estimates the impact of climate change on food security in Tanzania. Representative climate projections are used in calibrated crop models to predict crop yield changes for 110 districts in the country. The results are in turn imposed on a highly-disaggregated, recursive dynamic economy-wide model of Tanzania. The authors find that, relative to a no-climate-change baseline and considering domestic agricultural production as the principal channel of impact, food security in Tanzania appears likely to deteriorate as a consequence of climate change. The analysis points to a high degree of diversity of outcomes (including some favorable outcomes) across climate scenarios, sectors, and regions. Noteworthy differences in impacts across households are also present both by region and by income category.

Tiered Housing Allocation: An Experimental Analysis

Abstract: We study in the laboratory, a variant of the house allocation with existing tenants problem where agents are partitioned into tiers with different privileges. Members of higher tiers receive their allocation before those in lower tiers and can also take the endowment of a member of a lower tier if they wish to. In this tiered environment, we evaluate the performance of the modified versions of three well-known mechanisms - the Top Trading Cycle (TTC), the Gale-Shapley (GS) and the Random Serial Dictatorship (RSD). For all three mechanisms, we find low rates of participation (around 40%), high rates of truth-telling conditional on participation (around 90%) and efficiency levels that are high (above 90%) but below full efficiency. Also, of the three novelties introduced in our experiment - tiered structure, multiple matches and known priority queue - only the last one has an impact on choices, with subjects being significantly more likely to participate the higher their position in the queue. Finally, the majority of subjects who do not play according to the theory still follow discernible patterns of participation and preference revelation.

Backseat Drivers: The Political Economy of Trade Liberalization

Abstract: Protection for Exporters: Power and Discrimination in Transatlantic Trade Relations 1930–2010. By Andreas Dur. Ithaca, NY: Cornell University Press, 2010. 246 pp., $39.95 paperback (ISBN-13: 978-0-801-44823-2). When the U.S. Air Force decided to update its fleet of air-to-air refuelling tankers, global rivals Boeing and Airbus both submitted competing bids for the $35billion contract. American-owned Boeing was under pressure after losing international market share and was the odds-on favourite due to a history of securing non-competitive military contracts. The surprising award of the contract to European-owned Airbus led Boeing to immediately reiterate accusations that Airbus was receiving illegal subsidies. This resulted in the U.S. government launching an investigation into the bidding process and re-tendering the contract (U.S. GAO 2008). The activation of government in response to a distressed firm is not unusual and, in fact, the WTO (2010a,b) has found both the United States and the EU have provided billions of dollars of illegal support to Boeing and Airbus. However, this case raises the broader question, addressed by Dur's volume, of the extent to which, historically, bilateral trade policies in the United States and EU should be understood as primarily driven by exporter interests. The distinction Protection for Exporters offers from existing work on the political economy of trade policy is subtle, but significant. The idea that trade policy is for sale is intuitive and has been extensively modelled in the economics literature (see for example, Grossman and Helpman 1994; Baldwin and Magee 2000). Existing work on endogenous trade policy details the …

Gender Implications of Biofuels Expansion in Africa: The Case of Mozambique

Abstract: We use a gendered dynamic CGE model to assess the implications of biofuels expansion in a low-income, land-abundant setting. Mozambique is chosen as a representative case. We compare scenarios with different gender employment intensities in producing jatropha feedstock for biodiesel. Under all scenarios, biofuels investments accelerate GDP growth and reduce poverty. However, a stronger trade-off between biofuels and food availability emerges when female labor is used intensively, as women are drawn away from food production. A skills-shortage among female workers also limits poverty reduction. Policy simulations indicate that only modest improvements in women's education and food crop yields are needed to address food security concerns and ensure broader-based benefits from biofuels investments.

Measuring the Carbon Content of the South African Economy

Abstract: We estimate the carbon intensity of industries, products, and households in South Africa. Direct and indirect carbon usage is measured using multiplier methods that capture inter-industry linkages and multi-product supply chains. Carbon intensity is found to be high for exports but low for major employing sectors. Middle-income households are the most carbon-intensive consumers. These results suggest that carbon pricing policies (without border tax adjustments) would adversely affect export earnings, but should not disproportionately hurt workers or poorer households. 7 per cent of emissions arise though marketing margins, implying that carbon pricing should be accompanied by supporting public policies and investments.