Showing papers in "The World Bank Economic Review in 2001"

New tools in comparative political economy : the database of political institutions

Abstract: This article introduces a large new cross-country database, the database of political institutions. It covers 177 countries over 21 years, 1975-95. The article presents the intuition, construction, and definitions of the different variables. Among the novel variables introduced are several measures of checks and balances, tenure and stability, identification of party affiliation with government or opposition, and fragmentation of opposition and government parties in the legislature.

Infrastructure, Geographical Disadvantage, Transport Costs, and Trade

Abstract: The authors use different data sets to investigate the dependence of transport costs on geography and infrastructure. Infrastructure is an important determinant of transport costs, especially for landlocked countries. Analysis of bilateral trade data confirms the importance of infrastructure and gives an estimate of the elasticity of trade flows with respect to the trade cost factor of around-3. A deterioration of infrastructure from the median to the 75th percentile raises transport costs by 12 percentage points and reduces trade volumes by 28 percent. Analysis of African trade flows indicates that their relatively low level is largely due to poor infrastructure.

It's Not Factor Accumulation : Stylized Facts and Growth Models

Abstract: We document five stylized facts of economic growth. (1) The "residual" rather than factor accumulation accounts for most of the income and growth differences across nations. (2) Income diverges over the long run. (3) Factor accumulation is persistent while growth is not persistent and the growth path of countries exhibits remarkable variation across countries. (4) Economic activity is highly concentrated, with all factors of production flowing to the richest areas. (5) National policies closely associated with long-run economic growth rates. We argue that these facts do not support models with diminishing returns, constant returns to scale, some fixed factor of production, and that highlight the role of factor accumulation. Empirical work, however, does not yet decisively distinguish among the different theoretical conceptions of "total factor productivity growth." Economists should devote more effort towards modeling and quantifying total factor productivity.

Capital Account Liberalization: What Do Cross‐Country Studies Tell Us?

Abstract: Capital account liberalization, it is fair to say, remains one of the most controversial and least understood policies of our day. One reason is that different theoretical perspectives have very different implications for the desirability of liberalizing capital flows. Another is that empirical analysis has failed to yield conclusive results. The answer, another influential strand of thought contends, is that this efficient-markets paradigm is fundamentally misleading when applied to capital flows. Limits on capital movements are a distortion. It is an implication of the theory of the second best that removing one distortion need not be welfare enhancing when other distortions are present.

Growth empirics and reality

Abstract: This article questions current empirical practice in the study of growth. It argues that much of the modern empirical growth literature is based on assumptions about regressors, residuals, and parameters that are implausible from the perspective of both economic theory and the historical experiences of the countries under study. Many of these problems, it argues, are forms of violations of an exchangeability assumption that implicitly underlies standard growth exercises. The article shows that these implausible assumptions can be relaxed by allowing for uncertainty in model specification. Model uncertainty consists of two types: theory uncertainty, which relates to which growth determinants should be included in a model; and heterogeneity uncertainty, which relates to which observations in a data set constitute draw from the same statistical model. The article proposes ways to account for both theory and heterogeneity uncertainty. Finally, using an explicit decision-theoretic framework, the authors describe how one can engage in policy-relevant empirical analysis.

The Mystery of the Vanishing Benefits: An Introduction to Impact Evaluation

Abstract: This article provides an introduction to the concepts and methods of impact evaluation. The author provides an intuitive explanation in the context of a concrete application. The article takes the form of a short story about a fictional character's on-the-job training in evaluation. Ms. Speedy analyst is an economist in the Ministry of Finance in the fictional country of Labas. In the process of figuring out how to evaluate a human resource program targeted to the poor, Ms. Analyst learns the strengths and weaknesses of the main methods of ex post impact evaluation.

The Impact of Early Childhood Nutritional Status on Cognitive Development: Does the Timing of Malnutrition Matter?

Abstract: This article uses longitudinal data from the Philippines to examine whether the timing of malnutrition in early childhood is a critical factor in determining subsequent cognitive development. Although some observers have argued that the first six months of life are the most critical in the sense that malnutrition during that time period harms cognitive development more than malnutrition later in life, analysis of the Philippines data does not support this claim. To the contrary, the data suggest that malnutrition in the second year of life may have a larger negative impact than malnutrition in the first year of life.

Deposit Insurance around the World

Abstract: In the past two decades, in a series of banking crises around the world, banks have become systematically insolvent. These crises have occurred in developed and developing economies alike. To make such financial system breakdowns less likely and to limit their costs if they occur, policymakers feel the need for financial safety nets. These include such policies as implicit or explicit deposit insurance, a lender of last resort function of the central bank, bank insolvency resolution procedures, and bank regulation and supervision. Of these policies, explicit deposit insurance has been gaining popularity in recent years. Since the 1980s the number of countries with explicit deposit insurance schemes almost tripled, with most OECD countries and an increasing number of developing economies adopting some form of explicit depositor protection. In 1994 deposit insurance became the standard for the newly created single banking market of the European Union. Establishing an explicit deposit insurance scheme became part of the generally accepted best practice advice given to developing economies.

Crisis Transmission: Evidence from the Debt, Tequila, and Asian Flu Crises

Abstract: The increasing globalization of the economy has put the issue of the international transmission of crises in the front line. Although the word contagion is a rather new concept in international finance, it is the focus of a large number of policy-oriented seminars and debates. The clustering of crises by both region and time are at the heart of this discussion. There are several important questions that need to be answered. In this chapter we focus on a subset of them: (i) What are the propagation channels of international crises across countries (other than common shocks)? (ii) Was the debt crisis contagious? And (iii) are there useful policy instruments to shield countries from contagion? In particular, do capital controls, exchange rate flexibility and the external debt-maturity structure affect contagion? We seek to answer these questions using evidence from three key events: the 1982 debt crisis; the 1994 Mexican devaluation; and the 1997 Asian crisis.

What have we learned from a decade of empirical research on growth? Applying Growth Theory across Countries

Abstract: The potential problem of reverse causality has been obvious to everyone. It has usually been met with the standard econometric dodge: using lagged values of slow-moving variables as instruments. But this cannot be a serious solution to the problem. The causality issue points to a deeper question: Do cross-country regressions define a meaningful surface along which countries can move back and forth at will? If this is the idea, what mechanism could underlie such a surface? Brock and Durlauf call such a regression a 'model.' Reader suppose in a statistical sense it is. But an economic model should have some internal structure; its causal arrows should rest on some sort of behavioral mechanism, and that seems to be missing in this literature.

Multi-Tier Targeting of Social Assistance : The Role of Intergovernmental Transfers

Abstract: Albania provides a small amount of social assistance to nearly 20 percent of its population through a system that allows some community discretion in determining distribution. This study investigates how well this social assistance program is targeted to the poor. Relative to other safety net programs in low-income countries, social assistance in Albania is fairly well targeted. Nevertheless, the system is hampered by the absence of a clear, objective criterion to determine the size of the grants from the central government to communes as well as limited information that could be used to implement this criterion. Substantial gains in targeting could be achieved if the central government better allocated transfers to local governments, even holding local targeting at base levels.

Comment on 'it's not factor accumulation : stylized facts and growth models,' by William Easterly and Ross Levine

Abstract: When economists in the 1950s and 1960s used growth models to understand the experience of developing countries, they allowed for the possibility of technology differences between developing countries and the United States. But because they did not have a good theory for talking about the forces that determined the level of the technology-in the United States any more than in developing countries-technology factors tended to be pushed into the background in policy discussions. The new growth theory of the 1980s generated a counter reaction in the 1990s that Pete Klenow and Andres Rodriguez-Clare have called the 'neoclassical revival.' The article by William Easterly and Ross Levine is part of the next swing in the scholarly pendulum. It moves away from the critical assumption in the neoclassical revival that the level of technology is the same in all countries.

Ownership and Growth

Abstract: This article suggests how state enterprises can be incorporated into the theoretical and empirical growth literature. Specifically, it shows that if state enterprises are less efficient than private firms, invest less, employ less skilled labor, and are less eager to adopt new technology, then a large state enterprise sector tends to be associated with slow economic growth, all else remaining the same. The empirical evidence for 1978-92 indicates that, through a mixture of these channels, an increase in the share of state enterprises in employment by one standard deviation could reduce per capita growth by one to two percentage points a year from one country to another.

Does Ignoring Heterogeneity in Impacts Distort Project Appraisals? An Experiment for Irrigation in Vietnam

Abstract: Could the simplifying assumptions made in project appraisal be so far from the truth that the expected benefits of public investments are not realized? Using data for Vietnam, commonly used estimates of the benefits from irrigation investments based on means are compared with impacts assessed through an econometric modeling of marginal returns that allows for household and area heterogeneity using integrated household-level survey data. The simpler method performs well in estimating average benefits nationally but can be misleading for some regions, and, by ignoring heterogeneity, it overestimates gains to the poor and underestimates gains to the rich. At moderate to high cost levels, ignoring heterogeneity in impacts results in enough mistakes to eliminate the net benefits from public investment. When irrigating as little as 3 percent of Vietnam's non-irrigated land, the savings from the more data-intensive method are sufficient to cover the full cost of the extra data required, ignoring other benefits from that data.

What have we learned from a decade of empirical research on growth? Comment on “It's Not Factor Accumulation: Stylized Facts and Growth Models,” by William Easterly and Ross Levine

Abstract: William Easterly and Ross Levine document five stylized facts about growth and argue that they imply a bigger role for total factor productivity (tfp) and technology than for physical and human capital. The reader agrees with the first four of their facts and believes facts one and three provide strong support for their conclusion that tfp should be the focus of growth research.

Comment on 'growth empirics and reality,' by William A. Brock and Steven N. Durlauf

Abstract: William Brock and Steven Durlauf's article nicely summarizes some of the recent research on Bayesian model averaging. They make a number of important points. One is that the empirics of growth face three key problems: model uncertainty, parameter uncertainty, and endogeneity. They argue that theory uncertainty can be dealt with using Bayesian model averaging methods.

The World Bank economic review 15 (1)

Abstract: Circumstance and choice: the role of initial conditions and policies in transition economies; by Martha de Melo, Cevdet Denizer, Allan Gelb and Stoyan Tenev. Multi-tier targeting of social assistance: the role of intergovernmental transfers; by Harold Alderman. Flight capital as a portfolio choice; by Paul Collier, Anke Hoeffler and Catherine Pattillo. The impact of early childhood nutritional status on cognitive development: does the timing of malnutrition matter? By Paul Glewwe and Elizabeth M. King. The mystery of the vanishing benefits: an introduction to impact evaluation; by Martin Ravallion. Does ignoring heterogeneity in impacts distort project appraisals? An experiment for irrigation in Vietnam; by Dominique van de Walle and Dileni Gunewardena. New tools in comparative political economy: the database of political institutions; by Thorsten Beck, George Clarke, Alberto Groff, Philip Keefer and Patrick Walsh.