Showing papers in "World Bank Research Observer in 2002"

Income Risk, Coping Strategies, and Safety Nets

Abstract: Poor rural and urban households in developing countries face substantial risks, which they handle with risk-management and risk-coping strategies, including self-insurance through savings and informal insurance mechanisms. Despite these mechanisms, however, vulnerability to poverty linked to risk remains high. This article reviews the literature on poor households’ use of risk-management and risk-coping strategies. It identifies the constraints on their effectiveness and discusses policy options. It shows that risk and lumpiness limit the opportunities to use assets as insurance, that entry constraints limit the usefulness of income diversification, and that informal risk-sharing provides only limited protection, leaving some of the poor exposed to very severe negative shocks. Public safety nets are likely to be beneficial, but their impact is sometimes limited, and they may have negative externalities on households that are not covered. Collecting more information on households’ vulnerability to poverty through both quantitative and qualitative methods can help inform policy.

Urbanization in developing countries

Abstract: The rapid urbanization in many developing countries over the past half century seems to have been accompanied by excessively high levels of concentration of the urban population in very large cities. Some degree of urban concentration may be desirable initially to reduce inter- and intraregional infrastructure expenditures. But in a mature system of cities, economic activity is more spread out. Standardized manufacturing production tends to be de-concentrated into smaller and medium-size metropolitan areas, whereas production in large metropolitan areas focuses on services, research and development, and non-standardized manufacturing. The costs of excessive concentration (traffic accidents, health costs from exposure to high levels of air and water pollution, and time lost to long commutes) stem from the large size of megacities and underdeveloped institutions and human resources for urban planning and management. Alleviating excessively high urban concentration requires investments in interregional transport and telecommunications to facilitate de-concentration of industry. It also requires fiscal de-concentration, so that interior cities can raise the fiscal resources and provide the services needed to compete with primate cities for industry and population.

The Impact of Financial Crises on Labor Markets, Household Incomes, and Poverty: A Review of Evidence

Abstract: The 1990s have witnessed several financial crises, of which the East Asia and Mexico tequila crises are perhaps the most well-known. What impact have these crises had on labor markets, household incomes, and poverty? Total employment fell by much less than production declines and even increased in some cases. However, these aggregates mask considerable churning in employment across sectors, employment status, and location. Economies that experienced the sharpest currency depreciations suffered the deepest cuts in real wages, though deeper cuts in real wages relative to Gross Domestic Product (GDP) were associated with smaller rises in unemployment. To some extent, families smoothed their incomes through increased labor force participation and private transfers, though the limited evidence available suggests that wealthier families were better able to smooth consumption. The initial impact of the crises was on the urban corporate sector, but rural households were affected as well and in some instances suffered deeper losses than did urban families. School enrollment declined, especially among poorer families, as did use of health facilities, but the impact on children's nutrition levels appears to vary. Crises have typically proved short-lived, but whether households plunged into poverty during a crisis is able to recover as the economy does remain an open question.

Weak Links in the Chain II: A Prescription for Health Policy in Poor Countries

Abstract: In an earlier article, the authors outline some reasons for the disappointingly small effects of primary health care programs and identified two weak links standing between spending and increased health care. The first was the inability to translate public expenditure on health care into real services due to inherent difficulties of monitoring and controlling the behavior of public employees. The second was the “crowding out” of private markets for health care, markets that exist predominantly at the primary health care level. This article presents an approach to public policy in health that comes directly from the literature on public economics. It identifies two characteristic market failures in health. The first is the existence of large externalities in the control of many infectious diseases that are mostly addressed by standard public health interventions. The second is the widespread breakdown of insurance markets that leave people exposed to catastrophic financial losses. Other essential considerations in setting priorities in health are the degree to which policies address poverty and inequality and the practicality of implementing policies given limited administrative capacities. Priorities based on these criteria tend to differ substantially from those commonly prescribed by the international community. In a previous article in this journal, we raise questions about the prevailing orthodoxy concerning appropriate health policy in developing countries (Filmer, Hammer, and Pritchett 2000). That article questions the strategy of promoting of primary health care (phc) for virtually all countries. It discusses the disappointing experience with this approach in some countries and concludes that it should not be universally promoted because the success of phc activities is likely to be highly context specific. That article raises doubts as to the universal applicability of the approach. This article addresses the question “What is to be done?” or, given the wide variety of circumstances in different developing countries, “How do we go about determining what is to be done?” We propose a return to first principles suggested by the standard literature of public economics.

Public intervention in health insurance markets : theory and four examples from Latin America

Abstract: This article examines rationales for public intervention in health insurance markets from the perspective of public economics. It draws on the literature of organizational design to examine alternative public intervention strategies, including issues of contracting, purchaser provider splits, and regulation of competition. Health insurance reforms in four Latin American countries are then considered in light of the insights provided by the theoretical literature. Health care expenses and lost labor earnings due to illness—not to mention the direct effects of feeling lousy and dying young—represent a major source of risk for individuals and families. Exposure to such risks is costly in itself (if individuals are risk averse), but can also have long-term effects, especially on the poor. Selling assets, withdrawing children from school to care for ill parents, and exiting the labor market can leave low-income families trapped in poverty. This article addresses the role of government in spreading and reducing health risks with particular emphasis on the design and organization of the relevant institutions in Latin America. Faced with wide disparities in both health needs and access to medical care across regions and income groups, and with continuing pressures on public finances arising from the macroeconomic crises of the 1980s and 1990s, a number of countries in the region have adopted wide-ranging health sector reforms that continue today (Greene, Zevallos, and Suarez 1999). Generally, among the higher-income countries, there has been a move toward extending explicit insurance coverage to those outside the formal labor market. At the same time, these countries have examined the ways in which insurance and health care have been delivered and have instituted reforms that are meant to improve allocative and production efficiency in the sector. Lower-income countries in the region have not proceeded as far in terms of explicit health insurance reform, which requires a certain administrative capacity, and have tended to concentrate on running public hospitals and clinics better.

Deregulating the Transfer of Agricultural Technology: Lessons from Bangladesh, India, Turkey, and Zimbabwe

Abstract: Many transition and developing economies have reduced direct public involvement in the production and trade of seed and other agricultural inputs. This trend creates opportunities for farmers to realize improved access to inputs, including technology from international private research. Unfortunately, input regulations often derail these opportunities by blocking private entry and the introduction of private technology. This study looks at the experience in Bangladesh, India, Turkey, and Zimbabwe to see whether regulations make a difference in agriculture and input industries in developing economies. In all countries, companies and farmers responded to regulatory reforms by introducing and adopting more new technology and by expanding the production, trade, and use of inputs. The increased use of private technology has brought higher yields and incomes, allowing farmers and consumers to reach higher levels of welfare. These results challenge governments to open their regulatory systems to allow market entry and the introduction of private technology through seeds and other inputs.

Weathering the Storm: The Impact of the East Asian Crisis on Farm Households in Indonesia and Thailand

Abstract: This article assesses the impact of the East Asian financial crisis on farm households in two of the region’s most affected countries, Indonesia and Thailand, using detailed householdlevel survey data collected before and after the crisis began. Although the nature of the shocks in the two countries were similar, the impact on farmers’ income (particularly on distribution) was quite different. In Thailand, poor farmers bore the brunt of the crisis, in part because of their greater reliance on the urban economy, than did poor farmers in Indonesia. Urban-rural links are much weaker in Indonesia. Farmers in both countries, particularly those specializing in export crops, benefited from the currency devaluation. Although there is some evidence that the productivity of the smallest landholders declined over the period in question, it is difficult to attribute this directly to the financial crisis. At least in Thailand, a rural credit crunch does not seem to have materialized. Now that the East Asian financial crisis has waned, its impact on two of the region’s most affected countries, Indonesia and Thailand, can be more readily assessed. Agriculture is the major employer in these economies, yet little is known about how farm households weathered the crisis. Hyperbolic news reports notwithstanding, many farmers surely benefited from the exchange rate depreciation. Other effects of the crisis, however, may not have been so sanguine. Overall, one would expect considerable variation in the impact of the crisis within the rural sector. Of particular interest to policymakers, given the implications for the design of safety net programs and balanced rural development, is how the rural poor fared relative to better-off households. This article uses detailed household survey data from Indonesia and Thailand collected before and after the onset of the 1997 financial crisis to explore its effect on farm production and income, especially its differential impact on the poor.

How Research Can Assist Policy : The Case of Economic Reforms in Uganda

Abstract: Research has had a powerful impact on policy in Uganda, affecting the climate of opinion, improving the quality of the policy debate, and helping focus public policy and intervention on poverty reduction Uganda’s successful use of knowledge and research to help set public policy priorities demonstrates that even a poor post conflict country can, in a relatively short period of time, create an effective information base and feedback mechanisms for decision making

The World Bank research observer 17 (2)

Abstract: Income risk, coping strategies, and safety nets; by Stefan Dercon. The gender implications of public sector downsizing: the reform program of Vietnam; by Martin Rama. Trade, foreign direct investment, and international technology transfer: a survey; by Kamal Saggi. Deregulating the transfer of agricultural technology: lessons from Bangladesh, India, Turkey and Zimbabwe; by David Gisselquist, John Nash, and Carl Pray. How research can assist policy: the case of economic reforms in Uganda; by John Mackinnon and Ritva Reinikka.

The World Bank research observer 17 (1)

Abstract: Weathering the storm : the impact of the East Asian crisis on farm households in Indonesia and Thailand; by Fabrizio Bresciani, Gershon Feder, Daniel O. Gilligan, Hanan G. Jacoby, Tongroj Onchan, and Jaime Quizon. The impact of financial crises on labor markets, household incomes, and poverty : a review of evidence; by Peter R. Fallon and Robert E.B. Lucas. Weak links in the chain II : a prescription for health policy in poor countries; by Deon Filmer, Jeffrey S. Hammer, and Lant H. Pritchett. Public intervention in health insurance markets : theory and four examples from Latin America; by William Jack. Urbanization in developing countries; by Vernon Henderson. Developing countries and a new round of WTO negotiations; by Thomas W. Hertel, Bernard M. Hoekman, and Will Martin.