Showing papers in "World Bank Research Observer in 1999"

Rethinking the Causes of Deforestation: Lessons from Economic Models

Abstract: This article, which synthesizes the results of more than 140 economic models analyzing the causes of tropical deforestation, raises significant doubts about many conventional hypotheses in the debate about deforestation. More roads, higher agricultural prices, lower wages, and a shortage of off-farm employment generally lead to more deforestation. How technical change, agricultural input prices, household income levels, and tenure security affect deforestation-if at all-is unknown. The role of macroeconomic factors such as population growth, poverty reduction, national income, economic growth, and foreign debt is also ambiguous. This review, however, finds that policy reforms included in current economic liberalization and adjustment efforts may increase the pressure on forests. Although the boom in deforestation modeling has yielded new insights, weak methodology and poor-quality data make the results of many models questionable.

Trade, Foreign Direct Investment, and International Technology Transfer : A Survey

Abstract: The author surveys the literature on trade and foreign direct investment--especially wholly-owned subsidiaries of multinational firms and international joint ventures--as channels for technology transfer. He also discusses licensing and other arm's length channels of technology transfer. He concludes: 1) How trade encourages growth depends on whether knowledge spillover is national or international. Spillover is more likely to be national for developing countries than for industrial countries. 2) Local policy often makes pure foreign direct investment infeasible, so foreign firms choose licensing or joint ventures. The jury is still out on whether licensing or joint ventures lead to more learning by local firms. 3) Policies designed to attract foreign direct investment are proliferating. Several plant-level studies have failed to find positive spillover from foreign direct investment to firms competing directly with subsidiaries of multinationals. (However, these studies treat foreign direct investment as exogenous and assume spillover to be horizontal-when it may be vertical.) All such studies do find the subsidiaries of multinationals to be more productive than domestic firms, so foreign direct investment does result in host countries using resources more effectively. 4) Absorptive capacity in the host country is essential for getting significant benefits from foreign direct investment. Without adequate human capital or investments in research and development, spillover fails to materialize. 5) A country's policy on protection of intellectual property rights affects the type of industry it attracts. Firms for which such rights are crucial (such as pharmaceutical firms) are unlikely to invest directly in countries where such protections are weak, or will not invest in manufacturing and research and development activities. Policy on intellectual property rights also influences whether technology transfer comes through licensing, joint ventures, or the establishment of wholly-owned subsidiaries.

Between the state and the market : can informal insurance patch the safety net?

Abstract: Most households in low-income countries deal with economic hardships through informal insurance arrangements between individuals and communities rather than through publicly managed programs or market-provided insurance schemes. Households may, for example, draw on savings, sell physical assets, rely on reciprocal gift exchanges, or diversify into alternative income-generating activities. These mechanisms can be highly effective in the right circumstances, but most recent studies show that informal insurance arrangements are often weak. Poor households, in particular, have substantial difficulties coping with even local, idiosyncratic risks. Public policy can help reduce vulnerability by encouraging private, flexible coping mechanisms while discouraging those that are fragile or that hinder economic and social mobility. Promising policies include creating self-regulating workfare programs and providing a supportive setting for institutions working to improve access to credit, crop and health insurance, and safe and convenient saving opportunities.

The evolution of the World Bank's land policy : principles, experience, and future challenges

Abstract: This article examines the evolution of policy recommendations concerning rural land issues since the formulation of the World Bank's 'land reform policy paper' in 1975. That paper set out three guiding principles: the desirability of owner-operated family farms; the need for markets to permit land to be transferred to more productive users; and the importance of an egalitarian asset distribution. In the 25 year since that paper was published, these guiding principles have remained the same, but it is now recognized that communal tenure systems can be more cost-effective than formal title, that titling programs should be judged on their equity as well as their efficiency, that the potential of land rental markets has often been severely underestimated, that land-sale markets enhance efficiency only if they are integrated into a broader effort at developing rural factor markets, and that land reform is more likely to result in a reduction of poverty if it harnesses (rather than undermines) the operation of land markets and is implemented in a decentralized fashion. Achieving land policies that incorporate these elements requires a coherent legal and institutional framework together with greater reliance on pilot programs to examine the applicability of interventions under local conditions.

Climate Change, Agriculture, and Developing Countries: Does Adaptation Matter?

Abstract: Most developing countries depend heavily on agriculture; the effects of global warming on productive croplands are likely to threaten both the welfare of the population and the economic development of the countries. Tropical regions in the developing world are particularly vulnerable to potential damage from environmental changes because the poor soils that cover large areas of these regions already have made much of the land unusable for agriculture. Although agronomic simulation models predict that higher temperatures will reduce grain yields as the cool wheat-growing areas get warmer, they have not examined the possibility that farmers will adapt by making production decisions that are in their own best interests. A recent set of models examines cross-sectional evidence from India and Brazil and finds that even though the agricultural sector is sensitive to climate, individual farmers do take local climates into account, and their ability to do so will help mitigate the impacts of global warming.

Public social spending in Africa : do the poor benefit?

Abstract: Education and health care are basic services essential in any effort to combat poverty and are often subsidized with public funds to help achieve that purpose. This paper examines the effectiveness of public social spending on education and health care in several African countries and finds that these programs favor not the poor, but those who are better-off. It concludes that this targeting problem cannot be solved simply by adjusting the subsidy program. The constraints that prevent the poor from taking advantage of these services must also be addressed if the public subsidies are to be effective. Measuring the benefits of publicly provided goods to individuals is a matter of longstanding concern in the economics literature. For market-based goods and services, the prices consumers pay can be taken as reflecting underlying values and can be used to yield measures of welfare that can be compared across individuals and over time.

Formal and informal markets for water : institutions, performance, and constraints

Abstract: Water markets either formal or informal can be an efficient method for reallocating scarce water supplies. At the same time certain constraints can raise the transaction costs of trading water. This paper reviews the conditions necessary to establish successful water markets, identifies potential problems, and offers mitigating strategies. It also uses examples of several informal and formal water markets already in operation to illustrate these problems and the solutions to them. This article proposes that countries facing water shortages under their current water pricing systems consider water marketing as a way to reallocate water resources. Authors illustrate the importance of understanding a country's institutional framework before embarking on a comprehensive overhaul of water policies and review the conditions required for effective water markets. Recent studies of formal and informal markets highlight the gains from the efficient allocation of water as well as the constraints that raise the transaction costs of trading water. As authors point out, water markets can provide the appropriate economic incentives to improve the efficiency of water use and encourage the reallocation of water to higher-valued uses without encountering the traditional opposition of existing water users.

Judicial Reform and Economic Development: A Survey of the Issues

Abstract: Acknowledging the importance of sound judicial systems to good governance and economic growth, the World Bank and several other donor organizations have funded judicial reform projects in more than two dozen developing countries and transition economies during the past few years. Yet little is known about the actual effect of judicial reform on economic performance or even about what elements constitute a sound reform project. This article surveys a wide range of current studies on judicial reform and finds some surprising results. Judicial reform is part of a larger effort to make the legal systems in developing countries and transition economies more market friendly. This broader legal reform movement encompasses everything from writing or revising commercial codes, bankruptcy statutes, and company laws through overhauling regulatory agencies and teaching justice ministry officials how to draft legislation that fosters private investment.

The Costs and Benefits of Regulation: Implications for Developing Countries

Abstract: The literature on the benefits and costs of regulation demonstrates that this issue can be explored systematically using standard economic analysis. It also shows that regulation can have a significant adverse impact on economic growth. Specifically, regulation aimed at controlling prices and entry into markets that would otherwise be workably competitive is likely to reduce growth and adversely affect the average standard of living. In addition, process regulation can impose a significant cost on the economy. Nonetheless, social regulations may have significant net benefits for the average consumer if designed judiciously. There are several policies developing countries might consider adopting to improve their general approach to regulation. The appropriate regulatory tools and framework will depend on many factors, including bureaucratic expertise, resource availability, political constraints, and economic impacts. There is a general need to enhance the capability for evaluating regulation at the local and national levels.

Road funds, user charges, and taxes

Abstract: Insufficient or uncertain budgetary allocations to road maintenance have resulted in road deterioration that has significantly increased production and transport costs in many countries. To avoid this problem, highway professionals advocate the establishment of dedicated road funds, managed by independent road boards made up of user representatives. The road boards would have the power to determine both the level of charges for road use and the level of expenditure on road maintenance. By contrast, macroeconomists and public finance specialists have tended to resist the establishment of dedicated road funds. They argue that road funds reduce fiscal flexibility, do not adequately address problems associated with the provision of public goods or the internalization of externalities, and often are not well managed. In general, there are two long-term institutional options for reconciling fiscal prudence with asset maintenance: a road agency that is operated commercially (subject to the normal oversight of behavior accorded to privatized monopolies), or a reformed and well-functioning budget process. This article argues that road funds must be viewed as a provisional, case-specific intermediate step in the direction of one of the long-term solutions. The role and nature of road funds should be assessed not on general principles but on a case-by-case basis through the analysis of likely micro- and macroeconomic effects. The article recommends indicators for use in specific cases to determine whether a road fund should be introduced, continued, or abolished.

The evolution of poverty and inequality in Indian villages

Abstract: This paper examines the evolution of poverty and inequality in rural India by reviewing longitudinal village studies. It explores the main forces of economic change-agricultural intensification, changing land relations, and occupational diversification-from a wide range of disciplinary perspectives, and it considers the roles of various institutions as conduits of change. Although most village studies support the survey-based judgment that rural poverty declined in India during the 1970s and 1980s, they find that progress has been slow and irregular and that inequalities within villages have persisted. These continued inequalities may constrain both the scope for further poverty reduction from economic growth and the impact of policy interventions.

What does climate change mean for agriculture in developing countries : comment on mendelsohn and dinar

Abstract: Mendelsohn and dinar review much of the important work on the implications of climate change for agriculture, focusing particularly on developing countries. Their message is that efficient economic adaptation significantly reduces the estimated effects of climate change. Few dispute that some amount of adaptation is likely and that its potential contribution to reducing the negative impacts of global warming is large. One such study, which analyzed the global impacts using an ecozone (land class) methodology, found that without adaptation, average cereal production yields fell roughly 20 to 30 percent in four different climate scenarios. Through various channels of adaptation (modifying crops and techniques on existing farmland, shifting crops to new land, and responding to changing market prices), these losses were reversed, resulting in small increases in production worldwide even before considering the positive effects of carbon dioxide (CO2) fertilization. Striking, however, are both the initial shock in cereal production in the study reported in table 1 and die range of impacts on yields (without adaptation) estimated by a variety of studies for different sites around the world.

Managing government exposure to private infrastructure risks

Abstract: The privatization of infrastructure should lead to the development of new infrastructure, improvements in the operation of existing infrastructure, and a reduction in budgetary subsidies. Whether countries reap the full benefits of privatization, however, depends on how risks are allocated. If, as is often the case in developing countries, governments assume risks that should be borne by investors, they may reduce incentives for efficiency and incur significant liabilities. To solve these problems, governments need to improve their policies and restrict their risk bearing to certain political and regulatory risks over which they have direct control. When a government provides guarantees, it should attempt to measure their cost and improve the way they are handled in the accounts and budgets. Measurement and budgeting are critical to improving decisions about the provision of guarantees, to improving project selection and contract design, and to protecting governments from unknowingly entering into commitments that might jeopardize future budgets.

Using Household Surveys to Build Analytic Capacity

Abstract: This article reviews the results of efforts in five countries to build a national capacity to analyze social policy; these efforts were undertaken in conjunction with Living Standards Measurement Survey (LSMS) projects. Case studies for Bolivia, Jamaica, the Kyrgyz Republic, South Africa, and Vietnam show that building such capacity requires explicit planning, significant time and money, open access to data, and strong support from policymakers. Lessons are drawn about four aspects of building capacity-training, technical assistance, research, and recruitment. The lessons learned from these LSMS projects apply in a more general sense to other kinds of capacity-building projects.

The World Bank research observer 14 (1)

Abstract: The evolution of poverty and inequality in Indian villages; by Rajshri Jayaraman and Peter Lanjouw. Appraising workfare; by Martin Ravallion. Public social spending in Africa : do the poor benefit?; by Florencia Castro-Leal, Julia Dayton, Lionel Demery, and Kalpana Mehra. Rethinking the causes of deforestation: lessons from economic models; by Arild Angelsen and David Kaimowitz. Formal and informal markets for water: institutions, performance, and constraints; by K. William Easter, Mark W. Rosegrant, and Ariel Dinar. Judicial reform and economic development: a survey of the issues; by Richard E. Messick. The costs and benefits of regulation: implications for developing countries; by J. Luis Guasch and Robert W. Hahn.