Policy, Research working paper series : numbers 1248-1280

This paper contains a numerical listing of working papers prepared by the Policy, Research Complex. Each citation contains a brief abstract, and the contactpoint for the paper.Environmental Economics&Policies,Economic Theory&Research,Banks&Banking Reform,ICT Policy and Strategies,TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT

Policy, Research working paper series : numbers 1281-1302

This paper contains a numerical listing of working papers prepared by the Poilicy, Research Complex. Each citation contains a brief abstract, and the contact point for the paper.Public Sector Economics&Finance,Municipal Financial Management,Environmental Economics&Policies,Banks&Banking Reform,Economic Theory&Research

Human and physical infrastructure : public investment and pricing policies in developing countries

Almost by definition, the basis for development is infrastructure - whether services for human infrastructure (health, education, nutrition) or physical infrastructure (transport, energy, water). Although the infrastructure sectors are diverse, what they have in common is that public policy has had a great deal to do with how these services are provided and financed in almost all countries. The author reviews the recent literature on two key aspects of that involvement: investment and pricing. While the quality of the econometric evidence varies, recent literature reinforces the view that human and physical infrastructure are critical for economic growth and the reduction of poverty. And the state is recognized as playing a key role in ensuring the efficient, equitable allocation of resources for infrastructure. Despite many sound theoretical reasons for such public involvement, however, recent studies have shown that it leaves much to be desired in efficiency and equity. One symptom is underinvestment in key subsectors that have high economic returns and that help the poor the most, such as primary education and rural health clinics, in relation to more expensive interventions, such as tertiary education and urban hospitals. Another common malaise is the poor use of scarce resources, leading to low quality (students learning little) and reliability (irregular power and water flows), poor maintenance (dilapilated roads), and inappropriate input use (too many school adminstrators or health workers and not enough books or drugs in producing education health outcomes). Just as market failures necessitate government intervention in the infrastructure sectors, so government failures should be considered in deciding the depth and extent of that intervention. The literature has made some advances in diagnosing these problems in poor countries and proposing solutions. But information gaps remain, particularly in developing robust methodologies for: 1) making intersectoral comparisons across the wide range of infrastructure services; 2) crafting more diverse policies about the public-private balance in infrastructure investment, depending on the nature of"public goods"characteristics for various types of infrastructure services, or even across activities for the same service (for example, power transmission versus distribution); and 3) taking issues of political economy into account, such as the vested interests of those with large financial interests in infrastructure. The author also highlights public pricing as a policy initiative that has recently gotten much attention.After briefly reviewing the basic concepts of pricing, he focuses on the literature about pricing reform. Most commonly, the public sector is the main provider of infrastructure services, usually free or at subsidized prices. But the recent literature has aired a rethinking of the balance between public and private financing of infrastructure. The debate in this area is often heated. Health and education are traditionally provided free and some recent literature argues for positive prices, at least for higher tiers of service. The principle of public pricing has been more widely accepted in transport, energy, and to a lesser extent water, but often the levels are too low and do not provide the appropriate incentives for efficient and equitable use.Environmental Economics&Policies,Banks&Banking Reform,Health Monitoring&Evaluation,Public Sector Economics&Finance,Economic Theory&Research

Developing countries and the Uruguay Round : negotiations on services

In the late 1980s many developing countries experienced something of a pardigm shift: governments began to pursue more market-oriented domestic policies. There was an increasing perception that liberalizing access to service markets was a potentially low-cost, effective method for improving the quality and efficiency of domestic service sectors. These unilateral policy developments increased the incentives for developing countries as a group to participate in a multilateral agreement to liberalize trade in services. The author explores the extent to which the initial negotiating positions of developing countries are reflected in the draft General Agreement on Trade in Services (GATS) that has emerged from the Uruguay Round negotiations. He investigates whether the unilateral policy changes implemented by many developing countries in the late 1980s had a discernible impact on the draft GATS for developing countries. Many developing countries are pursuing regulatory reform and liberalization. To what extent will signing the GATS help governments trying to make their service sectors more efficient? Is the result of the defensive negotiating strategy that was pursued consistent with the shift toward a policy of liberalizing service markets? This issue is of particular relevance insofar as recent liberalization-plus-privatization programs in developing countries were driven by external forces rather than domestic pressure (industry) groups - which might reduce the credibility of liberalization policies. Membership in a binding multilateral agreement could help bolster reform efforts by increasing the costs of backsliding.Trade and Services,Poverty Assessment,TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT,Governance Indicators,Rules of Origin

Trade, aid, and investment in sub-Saharan Africa

Trade, aid, and investment are more inextricably linked in sub-Saharan Africa than anywhere else in the world, contends the author, whose survey of sub-Saharan Africa's prospects for trade, aid, and investment lead to the following broad conclusions. Developing an outward orientation, improving competitiveness, and recapturing its lost share in world markets offers a higher potential payoff than any other strategy for growth and sustainable development in sub-Saharan countries. If the region had maintained internal competitiveness and retained its 1970 share of world exports, successfully defending against new entrants, its 1990 level of exports would have been at least $50 billion higher than actual earnings - assuming that the composition of sub-Saharan exports would have changed to reflect changes in world trade. If the region continued to rely on exports of commodity products alone, the relative gains would have been much smaller. In the last decade, sub-Saharan Africa has become increasingly dependent on external resource flows for investment, imports, and development. But there is little chance of sustained high levels of aid because of budget constraints in the OECD countries, competing demands from new claimants, and the new conditionalities imposed by bilateral donors (for democratization, reduced military spending, and improved human rights). Most African countries must mobilize domestic resources and increase domestic savings rates by reducing public sector dissavings, the financial losses of public enterprises, and other nonproductive spending. Certain low-middle-income African countries can attract a significant amount of foreign direct investment, but most resource-poor countries - especially in the Sahel and the Horn of Africa - will continue to depend on foreign aid. There must be a more durable solution to Africa's debt problem. Only half of the debt service due can be paid, suggesting the urgent need to reduce the debt stock and thus debt servicing obligations, in alignment with debt servicing capacity. Many current proposals under discussion, if implemented, can bring considerable relief. Several sub-Saharan countries can attractsignificant investment because of their location, low labor costs, natural resource endowments, and the size of their domestic market. But productive investment levels in most African countries have remained depressed, and even where economic policy reform has been implemented, the investor response - both domestic and foreign - has been poor. Uncertainty, fears of policy reversals, lack of credibility and continuity, the contagion effect, and more attractive opportunities elsewhere reinforce such structural weaknesses in sub-Saharan Africa as poor infrastructure, inefficient services, and a weak human resource base to deprive Africa of new investment.Trade Policy,Achieving Shared Growth,Economic Theory&Research,Environmental Economics&Policies,TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT

Eastern Europe's experience with banking reform : is there a role for banks in the transition?

Are there lessons to be learned about how Eastern European countries have dealt with problems in their banking systems? What role have these countries assigned to banks during the transition? How have they used banks in dealing with the enterprise problem? The author addresses these questions by analyzing experience in Bulgaria, Hungary, Poland, Romania, and the former Czech and Slovak Federal Republic. Most of these countries have made substantial progress in restructuring their banking systems, but few have used their banking systems to improve the allocation of credit and hence stimulate the supply response. The author finds the following. The problem is not whether banks hold nonperforming loans but how banks can avoid accumulating more nonperforming loans. The underlying problem is how to close loss-making and nonviable enterprises. The countries that have encouraged the establishment of new private banks, that have introduced regulation and supervision, and that have tried to make banks more competitive have been more successful at improving the allocation of credit and achieving more control over loss-making enterprises. Banks must focus on assessing risk - and for this, capital, private ownership, and adequate regulation are crucial. How quickly banks achieve independence in credit decisions depends on how fast new governance structures can be introduced. In this, the five countries have been less successful. The objectives of bank recapitulation should be to prevent banks from accumulating more nonperforming loans (that is, dealing with the enterprise problem) and to give them the governance structure that would prevent them from incurring new nonperforming loans. This requires introducing a system of risk and reward - by making banks comply with capital adequacy requirements, by privatizing a critical number of banks, and by introducing strong regulation and supervision. Government should see that banks provide efficient payment systems, the basis for trust in banking systems. Introducing adequate regulation and supervision has been difficult as it requires knowing what the banks'role should be. Evidence strongly supports the need to recapitalize and privatize a critical number of banks. Authorities cannot rely on banks to exert control on enterprises early in the transition. In the early stages, control over state-owned enterprises should be exercised by a semipublic institution.Banks&Banking Reform,Financial Intermediation,Financial Crisis Management&Restructuring,Municipal Financial Management,Banking Law

Explaining miracles : growth regressions meet the Gang of Four

The authorexamines a range of cross-sectional variation in performance and policies for evidence on what distinguishes successes from failures. At about 6 percent, the growth rate of the Four Tigers - Hong Kong, the Republic of Korea, Singapore, and Taiwan (China) - are among the largest outliners in any study of growth. This is not surprising, says the author. The Four Tigers are Tigers because their growth rate was high. The Four generally have large positive residuals in growth regressions, but the author argues that this is not surprising for observations that were known in advance to be at the top of the sample. But growth regressions and, more generally, quantitative measures of"policies"are not very successful at picking out the Gang of Four as"most likely to succeed."Most observers before the"miracle"were pessimistic about East Asia. The Four are not nearly as superlative in policies and other country characteristics as they are in per capita growth rates. Large positive residuals such as those associated with the Four's high performance have historically been transitory. The stratospheric trajectory of the Four should be heading back toward earth soon, says the author. What may be unusual about the Four's success is that they were all in one region. At least casually, the Asian successes look a lot like growth radiating from poles, with Japan followed by the Gang of Four, followed by China, Thailand, Malaysia, and Indonesia. The great success of the Gang of Four does not imply a blanket endorsement of all their policies - they may have made mistakes that were more than offset by other good policies and, probably at least in part, by good luck. It is disturbing how large and transitory the unexplained element is in economic success. Perhaps the best way to think about good policies is that they make success likely sooner or later. When all is said and done, the story of the East Asian successes is consistent with the prosaic fundamentals: investment, education, financial depth, and low budget deficits. In these areas, the Four were above average.Economic Conditions and Volatility,Achieving Shared Growth,Governance Indicators,Economic Growth,Inequality

Structural adjustment in the 1980s : Kenya

Did the World Bank's policy-based lending to Kenya in the 1980s allow Kenya to undertake adjustment, or to postpone it? The answer is mixed, says the author. Success was greatest in trade liberalization (and exchange rate depreciation), and to a lesser extent in export development -- and these reforms would probably not have occurred without steady Bank lending. But one could argue that budget support through funds from the International Development Association may have helped Kenya postpone critical public sector reform -- in the civil service and social sectors and in divestiture of parastatals (including the National Cereals and Produce Board). Was aid to Kenya (including the Bank's) overgenerous? The author concludes that, based on reform behavior and performance, Kenya may deserve less aid than Ghana (Africa's best performer) but it does not exhibit the same aid dependency as other donor favorites in the region. But its public investment program did a poor job in ranking priorities, and growing reliance on grants and counterpart funds undoubtedly contributed to more consumption spending by government, particularly on the civil service and parastatals. Implementation of structural adjustments in Kenya was often lethargic and sometimes even contrary to stated policies, says the author. And despite a fairly stable political climate, commitment to the adjustment program was patchy and intermittent. Reforms ostensibly undertaken were in fact not always implemented. In principle, for example, an auction market for government paper was created, but in practice financial institutions typically undertook up most of that paper"by arrangement."And restrictions on movement of maize were removed but reimposed. Moreover, the design of the structural adjustment loans appears, in retrospect, to have been faulty. Too many conditions -- too general, and based on dated sectoral information -- were attached to each loan, in part because of political considerations. And the Bank released credit tranches when conditions were met in letter but not in spirit. The adjustment program benefited in the second half of the 1980s from lessons learned in the first half of the decade, particularly concerning trade liberalization and export development. But the design and dimensions of reform in the agricultural sector were too limited to achieve significant restructuring of the sector, and political interests effectively sabotaged the program. The second attempt at adjustment was also undermined by increasing financial laxity. The experience in Kenya underlines the difficulty of implementing structural adjustment under either financial laxity or extreme financial stringency. Note, too, that many things have changed in Kenya since this study was completed in the early 1990s.Environmental Economics&Policies,Economic Theory&Research,Economic Stabilization,Banks&Banking Reform,National Governance

On the dangers of decentralization

The author highlights some of the dangers of decentralizations. The benefits of decentralization in allocative efficiency are not as obvious as suggested by the standard theory of fiscal federalism. The assumptions of this theory are fragile. These doubtful benefits might carry a cost in production efficiency, but more empirical research is needed on this point. What is not doubtful is that decentralization runs counter to redistribution and stabilization. Decentralization makes redistributive policies, whether interpersonal or interjurisdictional, more difficult, if not impossible. Decentralization also makes macroeconomic stabilization programs more difficult to implement because subnational government fiscal policies can run counter to national policies. Serious drawbacks or potential drawbacks should be considered in designing any decentralization program. The arguments that the author develops make it easier to understand some of the real choices. These choices are not so much whether to decentralize in general but rather what functions to decentralize - in which sectors, and in which regions. Guidelines can be provided on this. Often, the problem is not so much whether a certain service should be provided by a central, regional, or local government, since the service often has to be provided with the intervention of all three levels of government. The real challenge is how to organize the joint production of the service. Decentralization refers simultaneously to a state and to a process. The virtues and dangers of decentralization are often discussed simultaneously for both concepts. This is a dangerous confusion because decentralization is path-dependent. What is desirable in a given country at a certain point in time depends on the present state of decentralization and the speed at which it has been reached. Much more work, particularly empirical work, is needed -- in review of decentralization (or centralization) experiences in general, as well as those encouraged or supported by the World Bank.National Governance,Banks&Banking Reform,Municipal Financial Management,Economic Theory&Research,Pharmaceuticals&Pharmacoeconomics

Determinants of cross-country income inequality : an augmented Kuznets hypothesis

Why does income inequality differ among countries? Using a sample of 80 countries from the 1980s, the author shows that two types of factors explain variations in income inequality. The first are factors that are, in the short term, independent of economic policies and are included in the standard formulation of the Kuznets'curve: the level of per capita income and the country's regional heterogeneity. From the viewpoint of economic policy, these are"given"factors, resulting in a"given inequality."The second group of factors are the social-choice factors reflected in the sizeof social transfers and of state sector employment, both of which reduce inequality. For this sample, the reduction amounts to about a quarter of"given"inequality. The importance of social-choice factors rises as the level of income rises. The divergence between actual inequality and the inequality predicted by the standard Kuznets'curve therefore systematically widens as a society develops. This discrepancy is systematic, the author contends. Inequality in richer societies decreases not only because of economic factors but also because societies choose less inequalities as they grow richer.Inequality,Poverty Impact Evaluation,Environmental Economics&Policies,Services&Transfers to Poor,Safety Nets and Transfers