East Timor's transition to independence: Building up an economy from scratch

After the extensive destruction caused by the violence that followed the vote for independence on August 30th, 1999, the reconstruction of East Timor's infrastructure inevitably was the top priority. Supported by massive aid inflows, achievements in this area have been quite remarkable. As a result, East Timor's production capacity is likely to return to pre-crisis levels within a few years. The much more difficult task is to initiate and then sustain a long-run development process. This requires a whole bundle of measures of which only a part has been introduced up to now. At the macroeconomic level, three policy areas figure most prominently. First, to ensure a certain degree of macroeconomic stability as a prerequisite for growth, it is recommended to implement a combination of a Currency Board regime for the exchange rate and a sound fiscal policy based on a broad domestic revenue base. Second, permanent growth can only be achieved via the accumulation of physical and human capital. Secure property rights and a transparent investment code are among the essential conditions for physical capital formation. Human capital formation can be fostered by reallocating public resources towards basic services, which were seriously neglected under Indonesian rule. Third, a country like East Timor with its very small domestic market and its limited technical knowledge can reap large benefits from adopting an open trade and foreign investment regime. From a sectoral perspective, agriculture will remain the backbone of the economy in the foreseeable future. Incentives that lead to a more dynamic development of this sector are thus of particular importance, not only for growth but also for poverty alleviation as the vast majority of poor people live in rural areas. Such incentives include a market-oriented pricing policy, a stable and competitive exchange rate, access to credit, a basic rural infrastructure, and the provision of adequate research and extension facilities. A development strategy based on agriculture alone would, however, leave the economy vulnerable to shocks. Only a diversification of production will open the way to more robust growth. One significant step in this direction could be the exploitation of existing oil fields. If future oil revenues live up to expectations, the main policy challenge will be to avoid an overvaluation of the domestic currency (Dutch Disease). In the medium run, the establishment of labor-intensive industries could be another step towards a more diversified economy. Whether this option can be realized will depend to a large extent on East Timor's ability to import capital and know-how via foreign direct investment. Overall, if political stability prevails, the outlook for sustained progress seems better than in many other low-income countries, where the international community is less consistently engaged and where much stronger vested interests block reform efforts. At the moment, the most significant danger for long-term development in East Timor arises from the uncertainty of land and property rights, which is likely to hamper investment and agricultural development. Moreover, it has to be kept in mind that various important measures, such as investments in education, will take considerable time to materialize fully. --

A Social Accounting Matrix for Bolivia Featuring Formal and Informal Activities

This paper describes the construction of a Social Accounting Matrix (SAM) for Bolivia for the year 1997. Three distinctive features render the SAM a useful starting point for distributional analyses. First, production in the agricultural and services sectSAM, structural adjustment programs, poverty, income distribution, Bolivia

National and international policies for tropical rain forest conservation: a quantitative analysis for Cameroon

This paper provides a numerical general equilibrium assessment of policies to reduce tropical deforestation in Cameroon. Market failure - mainly in the form of national and international externalities - and policy failures - such as highly distorted product markets - are identified as major sources of overexploitation. The ecological effects of deforestation control are shown to depend crucially upon its impact on land use patterns whereas its efficiency effects hinge on the manner in which a specified set-aside target is achieved. If the international community wants to ensure a higher level of protection of these forests, and to do so within a market-based system, the provision of conditional financial resources is necessary.

Targeting aid to the needy and deserving : nothing but promises?.

By reallocating aid to where it is needed most and where a productive use is most likely, donors could help alleviate poverty in developing countries. The rhetoric of donors suggests that this insight has increasingly shaped the allocation of aid. We assess the poverty and policy orientation of bilateral and multilateral aid in different ways. In addition to presenting stylized facts based on bivariate correlations, we apply a Tobit model that captures both altruistic and selfish donor motives. We find little evidence supporting the view that the targeting of aid has improved significantly. Most donors provide higher aid to relatively poor countries, but so far the fight against poverty has not resulted in a stronger focus on the most needy recipients. The estimation results reveal that the policy orientation of aid critically depends on how local conditions are measured. Applying the widely used Kaufmann index on the quality of institutions, almost all donors failed to direct aid predominantly to where local conditions were conducive to a productive use of inflows. The response of donors to changing institutional and policy conditions in recipient countries turns out to be fairly weak. In particular, we reject the proposition that multilateral aid is more targeted than bilateral aid in terms of rewarding poor countries with better policies and institutions.Entwicklungshilfe; Entwicklungskooperation; Armutspolitik; Wirtschaftspolitische Wirkungsanalyse; Entwicklungsländer;bilateral aid , multilateral aid , fight against poverty , economic policy assessment , quality of institutions;

Is the Informal Sector Constrained from the Demand Side? Evidence for Six West African Capitals

Employing a unique dataset that covers households from six West African capitals, this paper provides new evidence on the demand for informal sector products and services. We first investigate whether demand linkages exist between formal and informal products and distribution channels, and whether there is an overlapping customer base, which would imply that both formal sector wage earners and informal workers buy both formal and informal products using both formal and informal distribution channels. In a second step, we estimate demand elasticities based on Engel curves. We find a strongly overlapping customer base and strong demand-side linkages between the formal and informal sector, with the exception that informal goods are hardly bought through formal distribution channels. The estimated demand elasticities tend to show that rising incomes are associated with a lower propensity to consume informal sector goods and to use informal distribution channels. We therefore conclude that the informal sector in West Africa is likely to be constrained from the demand side. --Informal sector,formal-informal linkages,Engel curve estimates,West Africa

Does AIDS-Related Mortality Reduce Per-Capita Household Income? Evidence from Rural Zambia.

This paper evaluates the effect of AIDS-related mortality on per-capita incomes of surviving household members, using a large nationally representative sample of rural households from Zambia. To minimize selection bias that may arise because AIDS is likely to be the endogenous outcome of individual behavior, we employ a difference-in-difference propensity score matching estimator. We find that the death of a prime-age member has no significant impact on per-capita household income. This result continues to hold when we control for spillover effects by excluding households from the control group if members departed or joined for reasons related to AIDS. A likely explanation for this finding is that surviving household members pursue a mix of income and demographic coping strategies that prevents income losses in the short to medium run.