37343
* THE WORLD BANK
NEWS
Volume 5 Number 1
SPRING 1984
CONTENTS
Urban Finances in Developing Countries:
Research and Findings     .....................3
Royt W4 Bahil and johan nes Linn
Completed  Research  .. . . . . .  . . . . . . .  . . . .13
Approp)riate Industrial Techniology (Phiases I and II) ...........13
Determinianits of Fertilitv in Etypt...         . . .....
The Induistrial Inicenitive Svstem in Morocco .......... 17
WNorldiwide Inivestnment Anialysis: The Alumintim Induistrv ..... .8
New Research .............................     ....       19
Edlucationi anid Iniformial Sector Emplovnment .................19
Nationial Low-Incomne Housinig Proj'ect in Ecuiador ............20
Houisinig Demiand anid Finiance in Developing
Counitries (Phase 1I) ~....................... ........... 21
New and Forthcoming Publications .................... 22



I



World Bank Research News is issued three times a year. It summarizes the results of socieconomic research
projects conducted by the World Bank and describes new projects as they enter the research pipeline. The
current status of ongoing research projects is presented in the annual Abstracts of Current Studies: The World
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Copyright ' 1984
The International Bank for Reconstruction
and Development / The World Bank
1818 H Street, N.W.
WTashington, D.C. 20433, U.S.A.
ISSN 0253-3928
i I IrX5RJDB) B \Nh



WNater Supplv and Sewerage Disposal" (Ref. No.
URBAN          FINANCES                                671-18). was initiated. These two projects, whose
IN   DEVELOPING                                        approaches and results are reviewed belowv, formed
COUNTRIES:                                             part of a broader research effort on major issues of
urban development-the patterns, trends, and de-
RESEARCH               ISSUES                          terminants of urbanization, labor markets and
AND       FINDINGS                                     emplovment. housing. transport, and land devel-
opment-in Third WVorld countries.2
Rov, 4' Bahl anidohannes F. Linn'
-      hResearch Methodology
At the beginning of the 1970s, the World Bank          Forthecomparativecasestudvontheproblemsof
began to focus attention on urban development          urban finance and administration in developing
problems and issues, both in the context of project    countries, ten cities in seven countries were selected:
lending in developing countries and in its policv      Ahmedabad and Bombay (India), Bogota, Cali, and
analvsis and research work. As this new work           Cartagena (Colombia), Kingston (Jamaica), Jakarta
unfolded, it became clear that public finance and      (Indonesia), Manila (The Philippines), Nairobi
administration plav a major role in facilitating (or   (Kenya), and Tunis (Tunisia).
impeding) urban development, in general, and in        T     s
providing a supportive environment for specific        nees oe     Ban    an methodoloia osera-
urbani projects financed bv external donors such       needs of the Bank and methodological considera-
as the World Bank. It especiallv became evident        tions, including the range of country settings and
that the abilitv of developing countries to main-      city sizes and, hence, applicability of results to
different countries and cities, and the value of
taii and expanid their stock of urban inifrastruc-     surveying more than onie city in a country in
ture in response to rapid population growth            order t      ure  teal differn         Extensiv
depended upon astute administrative and manage-        order to capture internal differences. Extensive
rial skill with financial resources on the part of     background papers on each city's financial data
authorities in charge of providing urban services,     and budgetary and administrative practices were
prepared for comparative analvsis. This compara-
Yet little was known about the financial and           tive case study approach was chosen because, first.
admioistrative practices and problems of urban         the lack of readilv accessible and comparable data
centers in developing countries and even less          at the country and international level prohibited a
about methods to improve any weaknesses that           more-detailed approach and second, a fairlv large
were evident at the time. A broadly designed
research p)roject, iJrban Public Finance and
Administration (Ref. No. 670-70). was initiated to       E a       I*.h is pro oetso of conomics anl l Prboi Aciministra-
tO anid I)irector of the M5etroplolitanl Stud ies Pm<gram at the
establish a comparative international data base for     Niaxwell School, Svracuse University, New lork: lohantres t. Lilln
assessing such practices and problems, and for         is Senior Economist in the East Asia anid Pacific Regional Office of
developing a better understanding of the types of      the WVorldl Batik. I'he aithors ale grateful to the ntiatt indi iduals
solutions, showing potential success in specific       who itade possible the research ott which this arti(le is based
potentia slccess in spSpecial thainks to Rtchard M. Bird. I-anicirte Bougeon-Maasset L.
contexts, which might he transferable to other          Kenneth Hubhell, charles E. McLure. Jr. Roger S Smith, and
cities or countries. During the course of the          Ilartojo Wignjowiloto for their contributions to the itball lase
research, the issue of charginig user-fees for urban   studies. I)ouglas H. Keare provided guidance and support throigh.
services emerged as an important area of consid-       ottt the research effort. Gregorv K. Itigrani offered coinilnentt oni
er-ation. especially in the case of water supply and   earlier drafts of this article. Sharoni Blittco helped itt harpentinig its
foutis. Nevertheless, responsibility, for anv ertiors of fact andc intterpre-
sewerage systems. These services generally re-          tatioi remains wsith thte authors.
quire substantial capital and recurrent outlays          2. The intcrin results (f these comprehensive ongoing research
that uLrbani governments can seek to recover bv        efforts are sumimarized it B. Rettatid National U;rbantizatiott lolici
means of user-charges imposed on beneficiaries.         in Deve/oping Countries (New York: Oxtord Univierity I res, 1t81)
Therefore. a complementary research project,           andq u. intb , Catid s I t the DewtY/opirtg Ofor/ds PUuives foir Tb ert
l'i it ','g and Financing of Urban Public Services:    q.N                        rs                s



4 RLSI \R( II N IF N'S                                                                     A'I5,Gt 1484
sample, reflecting the variety and importance of       This article focuses on the first two items, which
specific institutional characteristics and practices   are the core of the research. An overview volume
of different cities, was necessary to develop a        on the major research findings is under prepara-
suitable level of generalization.                     tion. For a current listing of reports and papers
stemming from the research, see "Reports" at the
For some broad aspects of the investigation, such      end of this article.
as the share of local government expenditure in
total public spending, the distribution of local       A  Summary of Major Research            Issues
government revenue and expenditure bv category.        and Findings
and the allocation of public service functions to
local municipal authorities, it was possible to draw   The Importance of Urban Government it Developing
upon data from other case studies, World Bank          Countries. Studies of public finance in developing
project documents, and national or international       countries have generally focused on the activities
fiscal statistics. Depending on the aspect of local    of national government to the neglect of the role
government finance covered, between 20 and 30          played by subnational (state and local) public
other cities were included in the study. Among         authorities. The findings of the case studies indi-
them, relevant findings from studies of Calcutta       cate that, on average, subnational government in
and Madras (India), Karachi (Pakistan), Lusaka         developing countries is of less importance than is
(Zambia), Managua (Nicaragua), Seoul (the Re-          the case in industrialized countries. Yet in manv
public of Korea), and Teheran (Iran) are men-          developing countries, especially those in Latin
tioned hereunder. Also, in Cali and Nairobi,           America, the share of subnational government
small sample survevs, providing a more detailed        spending in total public spending is comparable
analysis of the incidence of urban taxes and user      to those in the developed countries (nearlv
charges, were conducted.                               50 percent). In other developing countries. by
contrast, especially those in sub-Saharan Africa,
Areas of Investigation                                 subnational government is unimportant in total
public finance. In particular cities throughout the
The studies attempted the following:                   developing world, a similarly varied picture
* A description, analysis, and assessment of the       emerges. Local government expenditure as a share
role of local urban government in relation to       of total public spending in urban areas was found
higher levels of government, leading to conclu-     to be very important (40 to 50 percent of the total)
sions about the appropriate allocation of re-       in Bogota and Cali, Ahmedabad and Bombay, and
sponsibility for providing services and of the      Jakarta, but of negligible importance (4 to 20
authority to expend and to raise revenue;           percent) in Kingston, Teheran, and Tunis.
* detailed description, analysis, and assessment
of the efficiencv* equity and administrative        Expenditure by local government in larger cities
implications of alternative sources of revenue,     constitutes the greatest share of total public
nameli                                             spending, and per-capita expenditures by them
are higher than is the case in smaller cities.
-murban    taxes, especially property taxes and     Furthermore, in large cities, the local authority is
motor-vehicle taxes,                                generally the largest public agency operating in
-user and development charges, particularly        the metropolitan area, although various minis-
for water supply and sewerage services, and         tries and other agcncies of national and state
-intergovernmental financial transfers:
review of prevailing practices of budgeting            i. This topic wsas futrtht.r investigated, in the case of Bogota,
Colombia, in research project, Strategic Planning to A(commodate
and investment planning and of fiscal forecast-     Rapid Gro-th in Cities ol D)eveloping Cotiiitiries ( Ihe City Sttids"),
ing for urban governments;3 and                     (Re. No. 671 -47); see Abstracts oJ Currenl Studies 19&8: 7he lobrld
* analysis of the relationship of city size and the    Battk Research PWromutit pp . 182-8; also, see I. lirn, (ed), iEssays
cssof urbanization, especially orwtrsi           ott Urban Putbl ic Finance int Colombia,' (Trbaoi Develop~ment D)isc tt,
costs                         for water sup-        sion Paper (The XWorld Banik: Water Supply aoid Urban l)evelop-
ply and sewerage services.                          ment Department. 1984).
1  I IIE \N(ORII) BANK



RESEARCH NEWS 5
governments, when combined, may represent a            likely to continue to do so.4 This growth has led to
larger share of total public expenditure. While the    concomitant increases in the demand for a mini-
patterns varv widely across countries and cities,      mum level of public services for each new urban
evidence points up the importance of local govern-     dweller, thereby necessitating expenditure by ur-
ment's role in providing urban services in many        ban authorities. Higher unit costs may also be
large cities of developing countries and of its        associated with urbanization. In addition, rising
effect on urban development. Even in situations        incomes in urban areas increase the demand for
where local government is seemingly unimportant,       public services. Yet as the demand for urban
improvements in the fiscal and administrative          services increases rapidly, the revenues of local
capabilities of local authorities could substantially  authorities most directly affected do not usually
contribute to the provision of services demanded       increase commensurately, despite higher urban
by rapid urban growth. The studies reviewed here       incomes and taxable capacity that result from
demonstrate that the fiscal and administrative         growth. The primary explanation for this situa-
problems of cities deserve more attention than         tion is that urban governments are often restricted
thev are usually accorded under the mistaken          in their revenue-raising authority to relatively
belief that local government plays only a negligi-    inelastic sources, such as property taxes, specific
ble role.                                              excises, fees, and fines, and generally stagnant or
erratic transfers from higher-level governments.
The Urban Fiscal Gap. Urban governments in de-         In such cases, the fiscal gap is the result of a
veloping and developed countries alike complain        mismatch between urban governments' responsi-
about the lack of resources to provide sufficient      bilities to provide services on one hand, and their
services to their populations. The gap between the     authority to raise revenue, on the other. The
perceived need for services and the financial          allocation of functions and revenues to urban
resources to provide them-referred to as the           governments is, therefore, an issue of utmost
fiscal gap-can be attributed in many cases to          importance.
demands for unrealistically high standards of ser-
vice which are beyond the resources available to       The Allocation of Urban Government Functions and
the urban economy, even if revenues were raised        Revenue Authoritv.5 The "fiscal gap" between the
and allocated in the most efficient manner. Efforts    expenditure by local governments and the avail-
by urban governments to provide services at stan-      ability of resources to them can be redressed, in
dards and levels commensurate with much higher         principle, in four ways: (a) a reduction in responsi-
levels of resources than conditions allow com-         bilities that require local expenditure; (b) an in-
monlv result in inefficient and inequitable alloca-    crease in the local authority to raise revenue; (c)
tion of public sector resources. For example,          an increase in the amount of revenues to be
excessively high standards for urban housing           transferred from higher-level government; and/or
projects, water and sanitation facilities, and invest-  (d) an increase in the local effort to raise revenue
ments in transport, health, and education ulti-       in the face of unchanged revenue-raising authority.
matelv limit access of such choice public services
to a few, usually the better-off segments of urban     The first option-a reduction of local (expenditure)
populations. leaving the majority with inadequate      responsibility-is frequently chosen for reasons of
service or none at all. A more realistic approach to   political convenience, but it is often a poor solution,
public investments, based on an accurate assess-       because financing problems then move to higher
ment of the resource constraints under which an        levels of government, which are also subject to
urban economv operates, would allow better ser-       serious fiscal constraints. It also limits the account-
vice to be provided to more people over the long       ability of government to the actual or poten-
run.                                                  tial beneficiaries of urban services, and reduces
In other cases, the fiscal gap may have its origins     4. See The World Bank. World Development Report 1979 (New
in the misallocation of functions and revenues to      York. Oxford University Press, 1979).
urban governments by higher-level authorities.          5. For a mlore extensive discussion, see R.W. Bahl and J.F Linn.
urba  govrnmets b  hiher-evelauthritis.    he Assignment of Local Government Revenues in Developing
Urban populations in most developing countries         Cottotries< in Charles E. McLure. Jr. (ed.), Tax Assignments in
have expanded rapidly in recent years and are          Federal Countries (Canberra. Australia: ANU Press, 1983).



6 RE.SEARCII NEWS
the likelihood of recovering costs of the service     paragraph: general urban services are financed
through user-charges, to be collected directly from   largely by local taxes, public utilities by user-
the beneficiaries.                                    charges, and social services by transfers. In
Bombay, Calcutta, and Madras, Jakarta, Karachi,
Based on the case studies' evidence, a simple         Lusaka, and Seoul, local tax revenues exceed
framework was developed to pinpoint sources of        expenditure on general urban services, while user-
revenue that are appropriate to finance particular    charges fall short of spending on public utilities,
types of assigned urban expenditures. First, for      and transfers do not match expenditure on social
publicly provided goods and services that are of      services. Within this group, Bombay and Karachi
measurable benefit to readily identifiable indivi-    are notable in that a high share of total spending is
duals within a jurisdiction, user-charges are the     devoted to social services; this share is not nearly
most efficient means of financing the services.       matched by transfers. In Ahmedabad, user-charges
Public utilities, such as water supply, sewerage,     actually exceed spending on utilities. In Cartagena
power, telephones, and public transit and housing,    and Kingston, taxes fall short of covering general
are especially strong candidates for such charges.    urban services. user-charges do not line up with
These services may involve local externalities        public utilitv spending, and transfers exceed so-
(that is, costs and benefits to others beyond the     cial service spending.
immediate beneficiary) that can be appropriately
handled either bv cross-subsidies among users of      In considering fiscal reform in developing coun-
services or by subsidies from  other sources of       tries, say, in the context of decentralization efforts,
locally raised revenue. Second, local services, such  reference to the normative framework herein
as administration, traffic control, street lighting,  would be useful. However, given the constraints
and security, which are goods to the general          on fiscal resources at higher levels of government,
public in the sense that individual beneficiaries     there is likely to be limited scope for closing the
are difficult to identify and individual costs and    urban fiscal gap through increased tax authority
benefits difficult to measure, are most appropri-     or transfers to local governments. More promis-
ately financed by taxes on local residents. Other     ing avenues appear to lie in strengthening the
services in this category are refuse collection,      local authorities' ability to raise revenues from
parks and recreation, and fire protection. Third,     user-charges and to finance major urban infra-
the costs of services for which significant spill-    structural investments through improved access
overs to neighboring jurisdictions occur, such as     to capital markets.
health, education, and welfare, should be borne
by substantial state or national intergovernmental    Local tax capacity and effort could, in fact, gener-
transfers. Strictly local financing would lead to     ally be strengthened by more careful design and
underprovision of these services from a regional      application of certain higher-level interventions.
or national perspective. Finally, borrowing is an     All too often, such intervention restricts local
appropriate source of financing capital outlays on    governments in the definition, scope, and valua-
infrastructural services, particularly public utili-  tion of the tax base; dictates exemptions and the
ties and roads.                                       level and structure of tax rates and user-charges;
and limits local capacity for tax collection. For
In practice, it was found that the assignment of      example, in most Colombian municipalities, cen-
revenue authority to local governments in many        tral and state government agencies determine the
developing countries deviates considerably from       definition of the property tax base, are responsi-
this framework. Commonly, local taxes finance         ble for property valuation, define sizable exemp-
substantial shares of services that could be fi-      tions from the tax base, and fix maximum tax rates
nanced by user-charges, and intergovernmental         and penalties for nonpayment, leaving local au-
transfers are used to finance services that are more  thorities virtually no room for independent action,
appropriately financed by local taxes or user-        except to collect the tax. In all these areas, simple
charges. In Bogota and Cali, for example, actual      neglect or, at times, deliberate design by higher-
revenue and expenditure patterns have roughly         level government have contributed to weakening
matched the guidelines set out in the preceding       the local tax capacity and efforts. Merely assign-



ing to a local government the authority to tax or        attributed to the limited technical and administra-
levy a user-charge is generally not sufficient: The      tive capabilities of urban governments. Just as
local capabilities to use the authoritv must be          important, however, are a number of other factors:
actively strengthened bv higher-level government,        Land ownership and tenure conditions are often
and deliberate steps must be taken to minimize           uncertain: higher-level governments interfere
unnecessary and harmful interventions that limit         with, or limit the use of property taxes, for
local efforts. NMajor issues and findings for the        example, through the imposition of rent control
most important taxes collected by urban govern-          or limits on tax rates; and higher effective tax
ments in developing countries, especiallv the prop-      rates on urban propertv are often successfullv
erty tax and automotive taxation, are discussed          opposed bv elites, among whom such land hold-
next, followed bv a review of user-charges and           ings are concentrated.8
intergovernmental transfers.
Notwithstanding these practical obstacles. the ur-
Issues itn Urban Propertv Taxation. In principle,        ban propertv tax is clearly among the few major
property taxation is in many ways an ideal way to        sources of local public revenue that have the scope
finance manv urban services. The propertv tax            for financing the rapidlv growing requirements
base, that is. the value of urban real estate, gener-    for nrban expenditure. Substantial efforts and
ally grows rapicdly with urbanization and can be         ingenuity, however. are required to mobilize the
objectively assessedl bv physical inspection of an       technical and administrative resources to develop
immovable object, making evasion difficult; it           accurate urban property registration and prop-
reflects the -alue of many urban services to the         ertv tax valuation rolls, to update them at regular
extent that they provide site- or area-specific          intervals, and to bill and collect propertv taxes
benefits; ownership of real estate tends to be more      effectivelv. In order to be politicallv acceptable.
concentrated than the distribution of income, thus       these improvements have to be introduced grad-
making the tax generallv progressive and convey-         ually and fairlv, and need to be linked with a
ing beneficial income-distribution effects.6 Mlore-      major effort to educate the public to develop a
oveer, if properlv administered, a propertv tax will     clear understanding about the relationships be-
result in onlv minor distortions in the allocation       twveen the provision of essential urban services
of resources. Finallv, it can be argued that prop-       and the collection of the property tax.
ertv taxes are most appropriatelv administered at
the local level, since local government will have a      Automotive Taxation. The ownership and use of
better base for assessing propertv values and a          motor vehicles represent excellent, but much ne-
greater motivation for collecting the propertv tax       glected tax bases for urban governments in devel-
than do higher-level governments.                        oping countries.9 The growth in the number of
automobiles is more rapid than the growth in citv
In practice. the property tax is indeed the most         populationi. automobile ownership and use are
common, and generallv the most important. amontg         easilv taxable, and such taxes are likely to fall on
the taxes collected by urban governments in devel-       persons with higher incomes. In addition, the
oping countries.7 Despite this importance, the           growing number of automobiles results in increas-
evidence gathered indicates that urban propertv
tax reventues have generally not kept pace with
the growvth of urban incomes or property values.           6 Sc ue  Iilin, "Ih f Incidenice of tJrban Property Taxation in
and often nlot eveni with the groowth ill uirban          C,1oombia. ii  R *t. Badil (ed. . 7ihe Taxation o/ I'rban Properttc in
population. Urban    p)roperty-tax svstems varv          Leo Jv)'ehoped Countries IMadison: rhe tniversitiv of Wisconsin
Prcss. I 979).
widely among developing countries, but all sys-            -;. S- RAW Ball, [The Pra(tice (/ Urhan Property laxation in
tems seem to suffer from  a number of common              l ss lDeveloped Co,itries' in R.W. Bahl (ed.) 7he 7axation a/
problems: Assessment practices are inadequate,            l'ib/an Propertr. 1979.
professional expertise for valuing urban proper-          .8. See R.A. L'ahl, l) Holland. and I.. Linn. nUrban Growth arn(
ties is in short supplv. collection and enforcement       L0ilal la.ies in Less )evelotped( Countries," Papers of the East-West
problems abound. and taxpayer resistance is a             opulaotiion lstittile, No. 9 89(Ilotiolnl.: East-\est Center, 1983).
pa. See IE ILinn, A utomotivc Taxation in the Cities of Deeslop
unliversal obstacle to more effective property tax        hg (Contrin NaVarlok Ur.  I -  .  ( I'ndia)X(lariaanrv-
adminiistrationi. Some of these problems can be          Mar(h 1979). ppl 1-21v.
r-A



14R1.'s \R(cII Nm.S'-                                                                         VIS4
ing requirement for public expenditure associated     existence is that they can raise substantial amounts
with the use of urban roads, and in considerable      of revenue in politically acceptable ways and with
congestion and pollution costs. Thus, for purposes    little need for coordination with higher-level
of revenue, efficiency, equity, and administration,   authorities. However. they almost invariably dis-
automotive taxation represents a nearly ideal reve-   tort the allocation of urban resources. They are
nue instrument for urban governments. Particu-        quite regressive and result in considerable admin-
larly attractive are annual automobile registration   istrative and compliance costs. In practice, these
fees, restrictive area licenses, and tolls.           drawbacks tend to be given little weight by local
legislators and administrators, to whom the ex-
Each of these measures has been applied with          panded use of these taxes offers the path of least
substantial success in a number of cities in devel-   resistance in meeting their revenue objectives. An
oping countries. For example, in Jakarta, motor       interesting example of the dilemmas faced by
vehicle registration and sales taxes have con-        local authorities in the imposition of these types of
tributed as much as 50 percent of tax revenues        taxes is the "octroi" tax, levied in many cities of
raised locally and more than 20 percent of total      India and Pakistan on goods entering the city
expenditure by local government. In Singapore, a      boundaries. In Karachi, for example, as much as
restrictive area licensing scheme has significantly   one-third of all local spending has been financed
contributed to limiting central city congestion and   by octroi receipts, reflecting the capacity of this
reduced the need to make major infrastructural        tax to raise substantial and bouyant revenues,
investments in roads.10 These, however, are excep-    generally without much interference from higher-
tional cases. Although in many cities the main        level government. The fact that this type of tax
elements required to administer an effective set of   has been labeled universally as highly inefficient
automotive taxes (automobile registration, and        because of its interference with inter-municipal
taxation of gasoline and diesel fuel at the retail    trade and its substantial administrative costs, has
level) are in place, much more could be done in       not stopped its use on the Indian subcontinent.
most cities to draw more extensively on the signifi-
cant revenue potential of this set of taxes.          Finally, urban governments generally still draw
on a wide variety of "nuisance" taxes (selected
Other Local Taxes. Local governments in urban areas   excises, licenses, stamp duties, poll taxes), which
generally draw on several taxes besides property      perform poorly in terms of revenue generation,
and automotive taxes. Among these are local           efficiency, and distributive effects, and have high
income and sales taxes. The major practical prob-     collection and compliance costs. In Cartagena, for
lem with these two types of taxes is that their       example, 24 taxes, duties, and fees, not counting
success depends on effective coordination between     user-charges, were collected at the time of the case
local and higher-level authorities. Higher-level      study. Nuisance taxes continue to exist despite their
governments frequently do not accept them   as        drawbacks, again because their use is generally
suitable instruments of local taxation, because of    unencumbered by higher-level interference and
the apparent competition with their own tax col-      because they are conventional and, thus, polit-
lection efforts. As a result, local income and sales  ically acceptable sources of local revenues in many
taxes are not often found in the cities of develop-   developing countries.
ing countries, despite their unquestioned substan-
tial revenue potential. In the absence of such        Overall, these other local taxes show only limited
obstacles, however, local sales and income taxes      potential for financing urban services, either be-
can be effectively integrated into the local reve-    cause they are not likely to be acceptable to
nue structure, as the use of a local sales tax in     higher-level government (the sales or income tax),
Managua and of local income taxes in selected         or because they are inappropriate on grounds of
African countries has demonstrated.                   their negative efficiency and equity effects and
Much more common is another set of local taxes,
namely, taxes levied on industry and commerce           10. See Research News. vol. 4, no. 2 (Summer 1983), p.20, for a
and sumptuary taxes. The main reason for their        description of "Traffic Restraint in Singapore."
I I I F W\()RI I) BVN K



their high administrative costs (industry and com-    extensive subsidization of services in the past has
merce taxes, sumptiuary taxes, and nuisance taxes).   contributed to the installation of unrealistically
high stanclards of urban service.
LTser Fees and Development Charges. There can be
little doubt as to the usefulness and desirabilitv of  The most conimon rule suggested by economists
developing broad-based charging systems for ur-       for guidinig decisions on the pricing of public
ban public services. The application of properly      services is to set price equal to marginal cost. A
designed service charges or. more generally, the      review of the applicability of the simple marginal-
recovery of urban service costs from beneficiaries,   cost pricing rule indicates that at least two precau-
can contribute to an improvement of resource          tions are in order. First, various dimensions of
allocation within and between urban areas. Such       service, including use, access, and location, should
charges serve to limit the demand for urban           be captured in pricing if the rule is to serve the
services to efficient levels and to make actual and   goal of efficient resource allocation. For example,
would-be urban dwellers and firms aware of the        water supplv tariffs can be structured to cover
costs incurred by society. As experience has shown,   these three aspects: beneficiaries with the option
service charges. or cost-recoverv, furthermore,       to hook up to wvater service bv way of an area
can generate substanitial amounts of revenue for      trunlk line could pav a) an area-specific property
urban governments. Since they are directly linked     tax or development charge, designed to recoup
to the provision and extension of much needed         the cost of trunk-line construction and other
services, they are an important element in ensur-     systemwide capital costs, b) a recurrent monthly
ing the replicabilitv of urban investment programs.   fee to cover the costs of access-the connection
from the truLnik line to individual properties, as
In addition, service charges can contribute to        well as metering and billing, and c) a water-use
equitable urban growth in more wavs than one:         charge related to actual consumption to cover the
First, by recouping the costs of public services      marginal cost of supplying water to the user.
from  the beneficiaries, equitv in the sense of       Second. the rule needs to be amended to take into
fairness is maintained, since windfall gains are      account externalities, market distortions, and im-
minimized under these circumstances. In practice,     perfect consumer information; other important
these windfall gains are usually appropriated by      objectives, in addition to efficiency, such as finan-
higher-income groups either in the form of in-        cial and fiscal viabilitv, fairness, and equitv; and
creased property values or by channeling invest-      institutional and political constraints. Considera-
ments into areas where higher-income groups           tions of equity and externalities, for example, can
most directlv benefit. Therefore, user-charges also   be simultaneouslv allowed for in so-called "life-
serve to increase the vertical equitv of the urban    line" tariffs, bv which the use of small amounts of
fiscal system. As practice has shown, user-charges    service results in fees below marginal cost. Small
can be designed to serve explicitlv the redistribu-   consumers thercbv use the service without an
tive goals of government, although this feature       undue financial burden. At the same time, higher-
has to be tempered by concern for the efficiency      income cross-subsidies that are derived, for ex-
and fiscal viability of the service being provided,   ample. bv charging above-marginal cost tariffs or
access fees to larger or wealthier consumers en-
LTser-charges are not only tools for ensuring effi-   sure the financial viability of the charging system.
cient use of public services; thev mav also serve as  This approach has been successfully applied to
an investmenit guide. since consumers' willingness   the financing of urban water supply systems in a
to pay for services is in many instances the only     number of Latin American countries.
way in which the benefits of a service can be
ascertainecl. What is more, the application of        Despite these caveats and amendments to the use
service charges or, more generally. the require-      of the simple marginal-cost pricing rule, it pro-
ment of cost-recoverv forces decision-makers to       vides a good starting point for the analysis of
considler-beforehand-the ability and willing-         charging systems; refinements can then be made
ness of beneficiaries to pay and to design stan-      on a service-by-service application, taking into
darlds of service accordingly. In many cases,         accounlt locational context. Once an efficient pric-



It) RElSIARCHI NEWS                                                                          s      484PII  I9X
ing structure is determined, its financial and eq-      "valorization" charges are levied by local authori-
uity implications and the extent to which it runs       ties to recover the cost of improving municipal
counter to established institutional norms can be       infrastructure, usually in already built-up areas,
explored. If the implications are sufficiently nega-    by distributing the costs across benefiting proper-
tive, amendments to the pricing structure, still        ties in proportion to the estimated value of the
bearing in mind the need to minimize the costs of       benefits generated from the public sector. Valori-
such adjustments in terms of the loss of efficiency,    zation programs in Bogota, for example, have
are necessary. Often, various policy objectives         financed the construction of major arterial high-
stand less in conflict than appears initially, partic-  ways, neighborhood road improvements, and of
ularlv where multi-part tariffs can be employed,        major sewerage networks.
as mentioned above. The common practice of
starting the analysis of user-charges with objec-       These experiences demonstrate the varying role
tives other than efficiency in mind almost invaria-     which such charges can play in financing urban
blv means that considerations of efficiency are         development. While either system is not necessar-
neglected altogether. The result is even greater        ily directly transferable to other countries, the
losses of efficiencv than need be the case-a result     evidence suggests that serious consideration of
that developing countries, given their low levels       similar development charges is appropriate under
of income, can ill afford.                              most circumstances. Yet, the limitations and diffi-
culties encountered with land readjustment in
Development charges are a special form of cost-         Korea and valorization charges in Colombia should
recovery for urban infrastructural projects. Often      not be downplayed or neglected. On the contrary,
termed "special assessments." 'contributions for        they provide useful clues to the pitfalls and com-
betterment," "land readjustment," or "valorization      plications which may be encountered when at-
contributions," to some extent, they serve differ-      tempting to implement development charges. In
ent purposes and involve different practices. Fea-      the case of land readjustment, major difficulties
turing lump-sum charges, phased over a payment          arise in applying the system to the improvement
period of months or vears, they are designed to         of existing urban areas rather than new areas of
recoup the public costs of infrastructural develop-     development and in attempting to ensure benefits
ment from its direct beneficiaries. They may cover      to lower-income groups. Regarding valorization
limited projects for a particular service, such as a    schemes, financial viability and program develop-
neighborhood road-paving scheme or the con-             ment are among the major problem areas. In any
struction of a sewerage line, or the full develop-      event, reference to these experiences in Colombia
ment of new areas of a city or even entire new          and Korea should provide valuable insights and
towns. Property owners, rather than occupants of        guidance in designing improved systems for cities
property or users of a particular service, usually      in the developing world.
incur such charges in the areas improved by
public action.                                          Intergoveernmental Transfers. Depending on their
design, transfers from higher-level governments
Two different types of land development charges-        can provide important incentives or disincentives
land readjustment and valorization schemes-were         to local revenue-raising efforts. They are also an
researched in some detail.'1 First, the "land re-       appropriate way to finance those local govern-
adjustment" schemes in Korea involve the public         ment functions with regional or national spill-
assembly of numerous small parcels of raw land          over benefits. Higher-level governments often
without paying monetary compensation to the
owners.                                                   1. A separate, now completed. research project, "Urban Land Use
Policies: Taxationi and Conitrol'" was designed to assess their
This land is serviced and subdivided for urban          experienc,,. For details on Colombia, see NV.A. Doebele, O.F.
use, and then returned to the original owners in        Grimes, Jr., and J.F Linn, 'Participation of Beneficiaries in Financ-
proportion to the value of their land contribution.     ing U'rban Services; Valorization Charges in Bogota, Colombia,"
Some of the land is retained by the public author-      Land Econontics 55 (February 1979), pp 73-92; and for the Reptiblic
Someof he andis rtaied y te pulicautor-   of Korea. see W.A. Do,ebele,"'Land Readjostment as an Alternative
ity and sold at market prices to permit the recov-      to Taxationi for the Recovery of Betterment: The Case of South
ery of the development cost. Second, in Colombia.       Korea." in R.W. Bahl (ed.). The Taxationt of Urban Properts. 1979.
THE WIORILI) B/lNk



treat transfers as a residual in their own budgeting     political changes resulted in major shifts in na-
process, even where elaborate allocation systems         tional priorities, or fiscal problems were so unman-
have been devised to distribute grants to local          ageable that reform was unavoidable.
governments. The commonly severe constraint on
national public finances in developing countries         In contrast, incremental adjustments have found
partlv explains whv intergovernmental transfers          general acceptance. Examples are the creation of
generally contribute a relatively small share of         special districts for capital cities giving them spe-
local government finances. This small share may,         cific responsibilities to expend and to raise reve-
however, be justified on grounds that local public       nue, enlargement of metropolitan jurisdictions by
services in developing countries tend to have few        annexation of adjacent municipalities, phased de-
spill-over effects on adjoining jurisdictions, mainly    velopment of new sources of revenue and reform
due to limited education, health, and welfare            of existing sources, reassignment of expenditure
functions being exercised at the local level.            functions, and ad hoc responses to fiscal pressures.
Transfers, therefore, are unlikelv to resolve the        If the historical lesson, then, is that proposals for
fiscal problems of local authorities in developing       drastic fiscal reform  rarely succeed in being
countries. However, to the extent that grant sys-        adopted and implemented, except in cases of
tems are alreadv in existence, substantial struc-        social or economic tumult, then gradual and step-
tural improvements can generally be made in the          wise adjustments of an existing fiscal structure, in
interest of authorities at all levels, for example, by   the directions suggested by this research, are
stimulating local revenue-raising efforts or equal-      probably the best course of action.
izing interjurisdictional revenue capacity. Ration-
alizing grant structures that now   consist of a         Reports
multiplicity of small, ad hoc transfers and putting
them, instead, on a more predictable basis would         Automotive Taxation
permit more effective fiscal planning, especially        Linn, Johannes E "Automotive Taxation in the Cities of
at the local level.                                         Developing Countries." Nagarlok Urban Affairs Quar-
terlv (India) XI (January-March 1979): 1-23.
The Scope and Prospects for Reform. Proposals, often
major and sweeping, for fiscal reform as a means         Case Studies of UTrban Finances
to alleviate serious problems of urban govern-
ments have been put forward in most, if not all,         Bahl, Roy W. "Urban Public Finances in Developing Coun-
large cities of the world. While the nature of these        tries: A Case Study of Metropolitan Ahmedabad."
reforms has varied with local conditions and with           Urban and Regional Report No. 77-4. The World
each team  responsible for them, very few such              Bank, August 1975.
reforms have been accepted in their entirety.            Bahl, Rov W.: Brigg, Pamela; and Smith, Roger S. "Urban
Commonly, resistance on the part of policymakcers           Public Finances in Developing Countries: A Case Study
and citizens facing the prospect of fiscal reform,          of Metropolitan Manila." Urban and Regional Report
however much needed, stems from doubts about                No. 77-8. The World Bank, April 1976.
unanticipated effects of untested, large-scale
changes in the economic environment and about            Bahl, Roy W.; Holland, Daniel; and Linn, Johannes E
distribution of the windfall gains and losses associ-       "Urban Growth and Local Taxes in Less Developed
ated with reform. Moreover, losses usually threaten         Countries." Papers of the East-West Population Institute,
to befall urban elites to the gain of larger, broader        No. 89. Honolulu: East-West Center, 1983.
socioeconomic groups, including the poor, who
have less political clout.                               BahI, Roy W., and Linn, Johannes F "The Assignment of
Local Government Revenues in Developing Countries."
In Charles E. McLure, Jr. (ed.), Tax Assignments in
In most cases where major fiscal adjustments have           Federal Countries. Canberra, Australia: ANU Press,
occurred in the developing world, certain condi-            1983.
tions have prevailed: either higher-level govern-
ment took over important sources of revenue              Bahl. Rov WV.., and Wasylenko, Michael J. "Urban Finances
previously allocated to local authorities, sweeping         in Seoul." Development Digest 14 (April 1976): 20-30.



1 2  RL,[% \R( II NEAN'S                                                                        SP       4,S t
" Urban Public Finances in Developing Coun-     Overview Studies of Urban Finances
tries: A Case Study of Seoul, Korea." Urban and
Regional Report No. 77-3. The World Bank, April        Bahl, Roy W., and Linn, Johannes E '"The Assignment of
1976.                                                      Local Government Revenues in Developing Countries."
In Charles E. McLure, Jr. (ed.). Tax Assignments in
Bougeon-Maassen, Francine. "Urban Public Finances in           Federal Counties. Canberra, Australia: ANU Press,
Developing Countries: A Case Study of Metropolitan         1983.
Bombay." Urban and Regional Report No. 76-13.
The World Bank. August 1976.                           Bahl, Roy W.; Holland, Daniel; and Linn, Johannes, F.
"Urban Growth and Local Taxes in Less Developed
Bougeon-Maassen, Francine, and Linn, Johannes E "Urban         Countries." Papers of the East-West Population Institute,
Public Finances in Developing Countries: A Case Study      No. 89. Honolulu: East-West Center, 1983.
of Metropolitan Kingston, Jamaica." Urban and Re-
gional Report No. 77-7. The World Bank, August 1975.   Linn, Johannes E "The Distributive Effects of Local Govern-
ment Finances in Colombia: A Review of the Evidence."
Linn, Johannes E "The Distributive Effects of Local Govern-    In R. Albert Berry and Ronald Soligo (eds.), Economic
ment Finances in Colombia: A Review of the Evidence."      Policv and Income Distribution in Colombia. Boulder,
In R. Albert Berry and Ronald Soligo (eds.), Economic      Colorado: Westview Press, 1980. Also World Bank Staff
Policv and Income Distribution in Colombia. Boulder,       Working Paper No. 235. March 1976. *$10.0.
Colorado: Westview Press, 1980. Also World Bank Staff
Working Paper No. 235. March 1976. *$10.00.                       . "Urban Finances in Developing Countries."
In Roy W. Bahl (ed.), Urban Government Finance:
. "Public Utilities in Metropolitan Bogota:        Emerging Trends. Beverly Hills: Sage Publications,
Organization, Service Levels, and Financing." Urban        1981.
and Regional Report No. 78-2. The World Bank,
May 1976.                                              Linn, Johannes F.; Lethbridge, Nicholas; and Whitehead,
Stuart. "Urban Public Finance in Project Preparation:
" "Urban Finances in Developing Countries."        An Operational Approach." United Malayan Banking
In Roy Bahl (ed.), Urban Government Finance: Emerg-        Corporation Economic Review XIV (1978): 66-82.
ing Trends. Beverly Hills: Sage Publications, 1981.
Property Taxation
. "Urban Public Finances in Developing Coun-
tries: A Case Study of Cartagena, Colombia." Urban     Bahl, Roy W. "The Practice of Urban Property Taxation in
and Regional Report No. 77-1. The World Bank,              Less Developed Countries." In Roy W. Bahl (ed.), The
January 1975.                                              Taxation of Urban Property in Less Developed Countries.
Madison: The University of Wisconsin Press, 1979.
Lirn, Johannes E; Smith, Roger S.; and Wignjowijoto,
Hartojo. "Urban Public Finances in Developing Coun-               . "Urban Property Taxation in Developing
tries: A Case Study of Jakarta, Indonesia." Urban and      Countries." Occasional Paper No. 32. Metropolitan
Regional Report No. 80-7. The World Bank, May 1976.        Studies Program. Syracuse, New York: Syracuse Uni-
versity, June 1977.
Prud'homme, Remy. "Urban Public Finances in Develop-
ing Countries: A Case Study of Metropolitan Tunis."    Linn, Johannes F "The Incidence of Urban Property
Urban and Regional Report No. 77-2. The World Bank,        Taxation in Colombia." In Roy W. Bahl (ed.), The
January 1975.                                              Taxation of Urban Property in Less Developed Countries.
Madison: The University of Wisconsin Press, 1979.
Intergovernmental Fiscal Relations
ItroenetlFsa  "The Incidence of Urban Property Taxation
Bird, Richard M. Central-Local Fiscal Relations and the       in Developing Countries: A Theoretical and Empirical
Provision of Urban Public Services. Research Mono-        Analysis Applied to Colombia." World Bank Staff
graph No. 30. Centre for Federal Financial Relations.     Working Paper No. 264. August 1977. '$13.00.
Canberra: The Australian National University, 1980.                "Property Taxation in Bogota. Colombia: An
. "Intergovernmental Fiscal Relations in Devel-    Analysis of Poor Revenue Performance." Public Fi-
oping Countries." World Bank Staff Working Paper           nance Quarterly 8 (October 1980): 457-476.
No. 304. October 1978. '$3.00.
I II V 1l  O R I.I ) II \N>K



Urbanization Costs                                          ogies for a representative mix of industries in
developing countries, it was estimated that the
Linn, Johannes F 'The Costs of Urbanization in Develop-     appropriate choice of technology, as compared
ing Countries." Economic Development and Cultural       with the use of relativelv capital-intensive meth-
Change 30 (April 1982): 625-48.                             ods of production, could realize substantial in-
User-Charges and Betterment Taxes                           creases in total value added, nonwage income, and
emplovment and wage income.' ("Appropriate"
Doebele, WVilliam A.: Grimes, Orville F., Jr. and Linn,     means producing an output of specified quality
Johannes F 'Participation of Beneficiaries in Financ-    at minimum    cost, given input prices currently
ing Urban Services: Valorization Charges in Bogota,     encountered.)
Colombia." Land Economics 55 (February 1979): 73-92.
Also World Bank Reprint Series: Number Ninety-nine.     The achievement of such gains would not be
dependent on government alteration of factor
Hubbell. L. Kenneth. "The Residential Demand for Water      costs through tax or subsidy arrangements; rather,
and Sewerage Services in Developing Countries: A        these gains would result solely from extending the
Case Studv of Nairobi." Urban and Regional Report       range of technology considered and adopted by
No. 77-14. The World Bank. April 1977.                  industrial firms in developing countries. In light
Linn, Johannes F "Estimation of Water Supply Costs in       of these potential benefits, many objections often
Cali, Colombia." Urban and Regional Report No.          raised to labor-intensive technology must be placed
76-14. The World Bank, September 1976.                  within a benefit-cost framework. For example, if
labor-intensive processes exhibit greater skilled
NMcLure. Charles E., Jr. 'Average Incremental Costs of      labor requirements, it is necessarv to compare the
Water Supply and Sewerage Services: Nairobi, Kenva."    benefits from   their adoption with the cost of
Ulrban and Regional Report No. 77-13. The World         transforming unskilled into skilled labor. Several
Bank, April 1977.                                       calculations used in the study demonstrate that
."Public Utilit Pricing: Issues in Efficiency   the benefit-cost ratios for overcoming such "con-
and Equit." Urban                              '         straints" to the adoption of labor-intensive technol-
and  qulv. *banand Regional Report No. 77-15.
The World Bank, May 1977.                               ogies are exceptionally high.
Why firms fail to search for and adopt appropriate
technologies, despite large private benefits, was
explored, and    the implications for policy are
discussed in the research papers stemming from
the project. (See "Reports" below.) Also, enhanced
dissemination of technical knowledge, encourage-
ment of trade in used equipment, and promotion
COMPLETED RESEARCH                                          of capital-goods production in some developing
countries are among the policy issues examined in
Appropriate Industrial Technology                           the papers.
(Phases Iland II)                                           Regarding the capital-goods sector, reasons con-
Ref Nos. 671-51 and 671-77                                  ventionally given for fostering manufacture of cap-
ital goods, more specifically machine production,
Several interrelated issues of industrial develop-          include the belief that locally based producers in
ment-the choice of appropriate technology, the              developing countries will be more responsive to
role of the capital-goods sector in fostering effi-
cient industrialization, and the sources and impli-
cations of low productivitv-were considered in                I See Howard Pack, "Nlacroeconomic Implications of Factor
the two phases of this project.                             Substitution in Industrial Processes," WVorld Bank Staff working
Paper No. 377, pp. i-24. According to the assumptions and methodol-
ogy set forth, the gross annual value added in manufacturing could
Employing a number of detailed engineering and              increase as much as 72 percent, emplovment 311 percent, and
economic analyses of existing production technol-           nonlfabor income 51 percent.



14 RISE ARCH NE[XS                                                                 _-SPRING 1984
any effective demand for labor-intensive equip-     To address these issues and move toward opera-
ment than are developed-country producers, whose    tionally relevant analysis, a detailed study of the
market mainly consists of firms in the developed    economically important aspects of textile engi-
countries. In addition, historical evidence sug-    neering was undertaken, together with the collec-
gests that the presence of domestic machinery       tion and analysis of data from individual textile
production allows interactions with machine users   plants in Kenya and the Philippines. These data
that lead to increases in their rate of productivity  were supplemented by information from manufac-
growth. (Moreover, metalworking activities are      turers of textile machinery, profiles of the perfor-
typically characterized by relatively low capital-  mance of textile producers in developed countries,
labor ratios and by fairly short production runs    and plant-level data recently collected in other
for many products-conditions that are conducive     African countries, as well as historical data from
to their successful development in developing       specific textile plants in Latin America. Recent
countries.)                                         research from textile productivity institutes based
in developing countries was also used to corrobo-
To determine the validity of the foregoing ex-      rate and explain some of the results.
pectations, the performance of the machinery sec-
tor in six countries (Argentina, Brazil, India, the  Two types of analyses were carried out. Within
Republic of Korea, Mexico, and Pakistan) was        each country, the current costs of production for
examined. The results indicate that while the       standard products were calculated for each plant.
sector often produces machinerv at internation-     The sources of differences among plants and the
ally competitive prices, this outcome is far from   extent to which they are attributable to the specific
uniform. Nevertheless, the sector does appear to    machinery utilized or to other operating parame-
offer significant possibilities for efficient expan-  ters were analyzed in detail. Secondly, compari-
sion of production for both domestic use and        sons of productivity were made between operating
exports. But there is little systematic evidence to  plants and their technical counterparts, defined as
corroborate the suggestion that large-scale ma-     those using ostensibly identical physical equip-
chine producers based in developing countries       ment, in developed countries. In addition to meas-
are more responsive to local relative factor prices.  uring differences in productivity that reflect the
At least among these producers, replication of      effectiveness of the use of both equipment and
current or recent machine designs, often under      labor, a methodology was developed to decom-
license from the developers of the equipment, is    pose measured productivity differences into their
the most common pattern. And the study found        proximate sources-excessive product variety that
little systematic evidence of fruitful interaction  precludes long production runs, managerial qual-
between producers and users.                        ity, and a residual category that, in part, consists
of shortcomings in the labor force.
The second phase of this project focused on pro-
ductivity issues related to the choice of technology.  With the same equipment and the same number of
To insure sufficient grounding in reality and       operatives, plants in Kenya and the Philippines
depth of investigation, a specific sector-textile   typically produce considerably less output than
manufacturing-was chosen for study. Detailed        do plants in developed countries. The average
analysis revealed the sensitivity of cost-minimizing  shortfall in the Philippines is 30 percent in spin-
choices to varying levels of productivity achieved  ning and 45 percent in weaving; in Kenya, the
with different technologies. The existing litera-   shortfalls are 31 percent and 38 percent, respec-
ture provides no guide to the most probable         tively. In both countries, a major source of low
efficiency with which each type of technology will  productivity is the excessive number of products
be utilized. In manv operational contexts, the      produced in individual mills. This factor alone
productivity question appears in another form,      was estimated to reduce productivity by 20 per-
namely whether a new plant should be built or an    cent to 30 percent. Readily identifiable manage-
effort made to rehabilitate and restructure exist-  rial deficiencies cause additional decreases in
ing factories to obtain greater output. An answer   productivity.
to this question requires estimates of existing
productivity and of the potential output obtain-    In general, firms using modern conventional tech-
able from the factors currently used in production.  nology produce at higher unit costs than do firms
L_ j I II-I VORI.I BANK



iA\^S,~~-                                                                  -  -.. .. -{ -- - -S -k -- 9}
emploving older equipment. In some cases, if             Reports
newer equipment were operated at productivity
norms given by their manufacturers and realized          Pack. Howard. "Fostering the Capital-Goods Sector in LDCs:
in best-practice mills in developed countries, lower        A Survey of Evidelnce and Requirements." World Bank
relative costs of production would result, but such         Staff Working Paper No. 376, March 1980. *$3.00. Also,
performance is the exception rather the rule in             see "Fostering the Capital-Goods Sector in LDCs," in
the experiences of developing countries that were           Wbrld Detelopment, 9 (March 1981), pp. 227-50, and
e"technolo-          "The Capital-Goods Sector in LDCs: Economic and
eined.suc  an turn,-th   mstinng mode  sTechnical Development," in Moshe Syrquin and Simon
gies-such as open-end spinning and shuttleless              Teitel, (eds.). Trade Stabilitv, Technology, and Equity in
weaving-do not achieve the lowest relative costs,           Latin Amerca New York: Academic Press (1982), pp.
even if thev are operated at best-practice standards.       349-69.
The production foregonie in existing plants be-                     " "Macroeconomic Implications of Factor Sub-
cause of poor productivitv means output lower               stitution in Industrial Processes." World Bank Staff
than could be obtained from current factor inputs           Working Paper No. 377, March 1980. *$3.00. Also see
if operating performance were improved. In one              "Appropriate Industrial Technology: Benefits and
example, a $5 million rehabilitation program de-            Obstacles." in The Annals of the American Academy of
signed to improve managerial and worker perfor-             Political and Social Science, 458 (November 1981), pp.
mance could have vielded comparable benefits                27-40. and "Aggregate Implications of Factor Substitu-
and hence could have precluded the construction             tion in Industrial Processes," infournalofDevelopment
of a new $100 million mill. Benefit-cost ratios for         Economics. I1 (August 1982), pp.1-37.
hvpothetical programs designed to improve pro-                     . "Productivitv and Technical Choice: Appli-
ductivitv compare very favorably with those tvpi-           cations to the Textile Industry." In Journal of Devel-
callv found in feasibility studies for investments to       opment Economics (forthcoming).
create new industrial plants. For maximum impact,
efforts to upgrade the technical capabilities of                   . "Productivity during Industrialization: Evi-
specific firms must be complemented bv measures             dence from Latin America." In Frances Stewart and
to increase competition and product specialization          JeffreyJames. (eds.), The Economics of New Technology
among plants.                                               in Developing Countries. London: Frances Pinter (1982),
pp. 83-102.
Perhaps the most important implication of this
research is its pointing up the inadequacy of            Determinants of Fertility in Egypt
conventional project design, which focuses exclu-
sivelv on the provision of new capital equipment.       RefJ No. 671-81
Rather, project design should take place in the
context of subsector analvsis where potential in-       Collecting nationally representative data in Egypt
creases in output from augmenting the productiv-        on the attitudes and behavior of married men
itv of existing plants is given equal attention. The    regarding fertility and contraceptive practices and
benefit-cost ratios of programs to restructure in-      on the economics of their households was the
dustrv through improvements in productivity             objective of this project. Data from a sample of
should be compared with those of new plants.            2,500 men were linked to data, collected earlier, on
This approach also provides needed guidelines           the fertility of their wives, who were part of a
on the achievable productivity of new plants; such      larger sample of approximately 8,900 women in
guidelines are particularly useful as a check on        the Egyptian Fertility Survey. This two-stage exer-
feasibility studies. Data from a number of coun-        cise was carried out in collaboration with the
tries suggest that regression to the mean is a better   Central Agency for Public Mobilization and Statis-
guide to the achievable productivitv of new plants      tics of Egypt (CAPMAS) in Cairo and the World
than are the invariablv optimistic parameters pre-      Fertility Survey/International Statistical Institute
sented to the project appraiser.                        (WFS/ISI) in London.
TIhe research project was conducted by Howard           The data are the basis of analyses being conducted
Pack of Swarthmore College (consultant) and su-         in a follow-up research project on the relative
pervised bv Larrv E. Westphal in the Bank's             importance of husbands' and wives' attitudes to-
Development Research Department.                        ward family size in determining contraceptive use
a 4 t .*' A,  I;t



16 RIESlARCIH NENNS                             _PRIN( 1984
in Egypt.1 The relationship between household         The findings on the relationship between eco-
economic factors and fertility will also be analyzed  nomic factors and fertility, desired family size,
in terms of cause and consequences for the benefit    and use of contraceptives are more tentative.
of policymakers in Egypt with the aim of targeting    Given the very substantial household differences
family planning efforts more effectively.             in income in rural and urban Egypt, the analysis
was conducted according to location of residence.
The first phase of the analysis, describing the       The relationship of fertility to income, on one
data and simple bivariate relationships, is avail-    hand, and to education, on the other, is uniformly
able in a four-volume report, jointly published by    inverse in urban areas, but somewhat irregular in
CAPMAS and WFS/ISI. (See "Reports" below. All         rural areas. Preferences regarding family size are
volumes will be available shortly in Arabic from      strongly influenced by education and income in
CAPMAS in Cairo.) The third volume contains           both urban and rural areas, with nearly identical
the findings of the Bank-sponsored survey. Multi-     effects in urban areas, but education has stronger
variate analysis of the data is currently under way,  effects than income in rural areas. Data, adjusted
and papers should be available by the end of 1984.   for age, on the use of contraceptives show that in
urban areas, income has a stronger relationship
The major insight obtained from the preliminary       with use than education, while the converse is
analysis of the data on married men is that hus-     true in rural areas. In urban and rural areas,
bands are not as much an obstacle to the adoption     differences in usage across education groups ex-
of family planning practices as previously believed.  ceed differences in motivation to terminate child-
On average, husbands indicate that they want          bearing. For example, the most educated women
slightly more children than their wives, yet a        in rural areas are four and a half times more likely
larger proportion of husbands than wives want no      to be using contraceptives than the least educated
more children. On the whole, husbands and wives       women, but are only slightly more likely to want
convey close agreement on their attitudes toward      no more children. This reflects the cumulative ef-
family size. Large proportions of couples in both     fect of education on contraceptive practice through
urban areas (60 percent) and in rural areas (40       gains in knowledge, access, and motivation.
percent) agree that they do not want more children.
There are, however, sharp regional differences;       Further analysis of the relationship between eco-
in rural Upper Egypt, for example, wives want         nomic factors and fertility is needed in order to
substantiallv more children than their husbands       refine the policy implications of these prelimi-
and are much less likely to want to discontinue       narv findings. The research has been supervised
childbearing.                                         at the World Bank by Susan Hill Cochrane of the
Population, Health and Nutrition Department, in
There are also interesting husband-wife and re-       collaboration with Dr. A. M. Hallouda, president,
gional differences in terms of knowledge of, access   Central Agency of Public Mobilization and Statis-
to, and reported use of contraceptives. While the     tics (CAPMAS) and Dr. Samir Farid of the World
contraceptive pill is universally known and fairly    Fertility Survey/International Statistical Institute
widelv available in Egypt, the intrauterine device    (WFI/ISI).
(IUD) is less known, and other methods are not
known to a majority of the population. Husbands
are less knowledgeable than wives about most
contraceptive methods. Men and women in rural
Upper Egypt have substantially lower levels of
access and knowledge than those in other rural
areas of the country. The use of contraceptives is
quite high-more than 50 percent-in metropoli-
tan and other urban areas, while the level of use in   1. See Abstracts of Current Studies: The Wlbrld Bank Research
rural Lower Egypt is reported to be about 15          Proegrarn 1983, p. 253 ff. for a description of "Determinants of
percent and in rural Upper Egypt to be about 5        Fertilitv in Egypt: An Analyvsis ofthe Second Round of the Egyptian
Fertility Survey" (Ref. No. 672-42). Also see, Research NVews, vol. 2,
percent.                                              no. 3 (Fall 1981), p. 27.
F   1_11E \r()RLD WkNk1



Reports                                                  in collaboration with the World Bank, it was
designed to estimate: (a) incentive indicators, in-
Hallouda, AM.. and Cochrane, S.H. "The Relationship      cluding the nominal protection coefficient. the
Between Education and Cumulative Fertility, Recent    effective protection coefficient, and the effective
Fertilitv and Current Contraceptive Use in Egypt:     subsidy coefficient; and (b) cost-benefit indicators
Some Puzzles and Partial Explanations." Paper pre-   including the domestic-resource cost ratio and
sented to the International Union for the Scientific  economic rates of return. The project has been
Stuidv of Population Seminar on Population Policv in
* of                                              based on firm-level data for four industrial sectors
Egypt. Cairo. October 15-18. 1983.                    -textiles, engineering and mechanical industries,
Hallotuda, A.M. Amin. S.Z., Farid, S.M.; Scott C.; and   chemicals, and food industries. Data on about 80
Cochrane, S.H. (Eds.) Egvptian FertilitY Surtev, 1980  firms were collected during a 1979 survey de-
- 'olume 1, Surtev Design. London and Cairo:         signed specifically for the research project.
CAPMIAS/WFS. 1983.
Nominal protection coefficients were estimated by
Hallouda, A.M.: Amin, S.Z.; Farid, S.M. (Eds.) Egiptian  comparing domestic ex-factory prices with the
Fertiliti' SurveY, 1980- Volume 2. Fertilitv and Familv  CIF import prices of equivalent or similar prod-
Planning. Londoni and Cairo: CAPMAS/WFS, 1983.        ucts. This was necessary, owing to the prevalence
of quantitative import restrictions and price con-
Hallouda, AM.;I Amin, S.Z.; Cochrane. S.H.; and Farid,    rl.Tecmie            fet    o  h   oetcpo
S.M. (Eds.) Eg'ptian Fertilitv Survev, 1.980- Volume 3,  trols. The corbned effects for the domestic pro-
Socio-Economic Iwrt,.  i i... and Comparative Data    ducer of protection measures on its output and
iromn Husbands and W'ives. London and Cairo:         inputs were expressed in the effective protection
CAPMAS/WFS, 1983.                                     coefficient. Finally, the effective subsidy coeffi-
cient indicates the combined effects of protection
NMourad, ES.; Ibrahim, M.A.: Pasaba, M.; and Farid, S.M.  measures, credit, tax, price controls, and fiscal
(Technical Coordinators.) The Egvptian Fertilitv Sur-  subsidies on the value added in processing; it thus
tel'- Volume 4. Statistical Tables. London and Cairo:  shows the contribution of the incentive svstem to
CAPMIAS/NVFS, 1983.                                   the combined remuneration      of the factors of
production. These indicators were used to com-
pare the incentives granted to different activities,
as well as to exports and to import-substitution, in
The Industrial Incentive System                          industrial subsectors and firms. Furthermore, in
in Morocco                                               order to give an indication of the economic effi-
ciency of the various activities, shadow prices
Ref No. 671-85                                           were used to calculate domestic-resource cost ra-
tios and economic rates of return.
This project represents an application of a re-
search methodology that has been successfully            The results of the research project are presented
tested. particularly in the World Bank's study of        in three sectoral reports on textiles, mechanical
economic incentive systems in several Western            and engineering industries, and chemicals, respec-
African countries. It takes into account all govern-     tively, and in a summary report prepared at the
ment policv instruments that have a significant          Ministrv of Commerce, Industry and Tourism in
imnpact on the profitability of productive activities,   1982, ali written in French. The main conclusions
exports and import-substitution, and investment.         were incorporated in a 1984 WVorld Bank report on
Such instruments include import tariffs, quantita-       "Morocco: Industrial Incentives and Export Pro-
tive restrictions or licensing for imports, export       motion."
taxes, as well as preferential interest rates, fiscal
subsidies provided by the various investment             As in other countries having followed a systematic
codes, controls on the allocation of credit, indirect    policy of import-substitution, the level of incen-
taxes, and price controls.                               tives granted to import substitution was found to
be substantially higher than for exports, thus
Conducted between 1979 and 1982 in Morocco at            resulting in an anti-export bias, despite the imple-
the Ministry of Commerce, Industry and Tourism,          mentation of an Export Code by Morocco in 1983



and the introduction of various schemes to allow           Worldwide Investment Analysis: The
exporters duty-free access to imported inputs.             Case of Aluminum
Also, the protective measures used gave rise to
inefficiencies in resource allocation.
Ref: No. 672-43A
At the same time, substantial variations existed
between and within subsectors. In general. firms           The study developed a framework for systematic
in the textiles, leather goods, and exported proc-         analysis of future investment patterns in the
essed food industries-which were long-established          bauxite/alumina/aluminum     industry, taking into
in Morocco-were efficient. In various other                consideration comparative advantages of produc-
industries, newly established firms were often            ing regions of the world during each processing
highlv protected and inefficient.                          stage in production. Its major undertakings were
establishing a comprehensive data base for the
One of the main results of the research project was        industry and selecting and applying the method
also to highlight the impact of the present system         of analysis.
of tariffs, quotas, and indirect taxation on the cost
of inputs to firms. In a number of cases, it was           The approach consisted of formulating a mixed-
found that the structure of incentives was reversed        integer linear programming model to carry out
in the sense that the nominal protection coeffi-           investment analysis, explicitly taking into account
cients were higher for inputs than for output. This        interdependencies among location, scale, tech-
effect was particularly important for exports, and         nology, and product-mix of new expansions in ca-
it was reinforced bv an overevaluation of the              pacity. The methodologv is based on that developed
exchange rate, resulting in a significant taxation         in an earlier research project, "Natural Resources
of exports. Net taxation of activities was also            and Planning: Issues in Trade and Investment"
present for some products when they were sold on           (Ref. No. 671-09).1 Alternative scenarios analyzed
the domestic market, thus indicating that a reform         by the model included variations in projections of
of incentives in Morocco would lead to an im-              demand for aluminum in the year 2000; changes
provement in resource allocation through increases         in investment costs; different levels of availability
in exports, as well as an expansion in some effi-          of power and of electricity costs for aluminum
cient import-substitution activites and a decline in       smelters; variations in levies on bauxite produc-
others.                                                    tion and tariffs on alumina and aluminum imports;
and trade restrictions among countries and regions.
Reports                                                    The model was implemented, using the General
Algebraic Modeling System, developed by the
Horton, Brendan. "La Structure des Incitations dans le     World Bank's Development Research Department,
Secteur Industriel-Rapport de Svnthese." Ministry of   as the model generator.2
Commerce, Industry and Tourism, Morocco, 1982.
The results of the study showed that, due to the
abundance of bauxite reserves in developing coun-
tries that can be extracted relatively cheaply,
" La Structure des Incitations dans le Secteur  more than 90 percent of new      bauxite mining
Industriel-Rapport sur les Industries Chimiques et     morecty is     pecentof new             developng
Parachimiques." Ministrv of Commerce. Industrv and     capacity is expected to be installed in developing
Tour ism, Morocco, 1982.                               countries. Their share in world bauxite mining is
. "La Structure des Incitations dans le Secteur
Industriel-Rapport sur les Industries  ecaniques et
Electriques." Ministrv of Commerce, Industry and
Tourism, Morocco, 1982.                                 1. See Research News. vol. 4, nio. 2 (Summer 1983). Also see David
A. Kendrick anid Ardy J. v ' l,- .L The Planning of Industnal
Investmenl Programis: .4 Methodology (Vashington, D.C. and
. "La Structure des Incitations dans le Secteur  Baltimore: The Johns Hopkins Univeruity Press. 1978).
Industriel-Rapport sur les Industries Textiles." Minis-  2. See Research News. vol. 4, no, I Spring 1983), p. 28. for a
trv of Commerce. Industry and Tourism, Morocco, 1982.  description of the General Algebraic Modeling System- Phase 111.
I I I \IOIlR.I) B X\Nk



'>  hi i;i\ ( r|t, 4 195  ____          ____                                             ff '.,) ij.tRt
likely to increase from less than 50 percent in 1980       NEW        RESEARCH
to about 70 percent in 2000. Under alternative
scenarios, this investment pattern for bauxite min-        Education and Informal
ing did not show great variations, for it is clear         Sector Employment
that these investments depend mainly on the
availability of bauxite.                                   Ref: No. 673-26
However, the pattern of location of new alumina            This project will explore the effects of education
refineries proved to be very sensitive to changes          on labor productivity and earnings in Peru. Spe-
in data, since location is mainly determined by            cial emphasis will be given to earnings differen-
differences in costs, shipping distances, and the          tials among self-employed workers and those in
application of levies and tariffs. Thus, the share of     the so-called "informal sector" of the economy.
developing countries in alumina production could           Because education may affect earnings, in part, by
range from 16 to 50 percent in 2000, depending on          influencing decisions regarding migration and
the scenarios assumed; in 1980, it was 20 percent.         occupational choice, the sample will include both
rural and urban workers and those engaged in
The availability of potential low-cost electricity in      both formal- and informal-sector activities. A spe-
developing countries also makes these countries            cial survey, to be carried out by Peru's Instituto
attractive locations for new aluminum    smelters.         Nacional de Estadistica. will cover 5.000 house-
According to the results of the model, the share of        holds nationwide. The survey is scheduled to go
developing countries in world aluminum smelter             into the field in late 1984.
capacity could increase from 15 percent in 1980 to
about 40 percent by 2000. However, there are               Existing evidence on the economic role of educa-
qualifications to these possible developments: First,     tion is based, for the most part, on samples of
the existence of long-term contracts for relatively        urban wage employees in large firms and govern-
low-cost electricitv supplies in industrial coun-          ment service.' However, in      most developing
tries would enable existing smelters in those loca-        countries, including Peru, such workers represent
tions to continue profitable operations. Second,           onlv a fraction of the labor force. Further, it
such investments are expensive and in many cases           is often argued that institutional factors, such
require heavy infrastructural expenditures, with           as minimum-wage legislation, unionization, and
the result that the advantage of low-cost electricity      legal barriers to entrv, cause formal-sector wages
may be neutralized by high capital costs.                  to exceed market-clearing levels. In contrast,
informal-sector emplovees work in small, unregis-
The study was developed under the supervision             tered enterprises that are unregulated and not
of WVorld Bank staff members Ardy Stoutjesdijk             protected by legal barriers to entrv. Informal-
and Kenji Takeuchi. The principal researchers              sector wages should, therefore, reflect quite accu-
were Alfredo Dammert and Alexander Meeraus                 rately the relative economic value of different
of the Bank's Economic Analvsis and Projections            types of labor. If so, comparing rates of return to
Department and Development Research Depart-                education between formal and informal sector
ment, respectively, in collaboration with the Bank's
Industrial Projects Department and Energy De-
partment and with Martin Brown of the Develop-               1. Among the exceptions is an earlier Bank-supported research
ment Center of the Organisation for Economic               project, which assessed the effects of education on earnings in Nepal
and Thiailand; its foctis was limnited to nionwage workers, mainlv in
Co-operation and Development (OECD).                       agricultuLral houiseholds. Aniother project explored the impact of
eduLcational attaiinent oni labor force participation and earnings,
Reports                                                    also in Thailand, using existing data sets to describe patterns of
poverty and income distribution. See Abstracts of Current Studies
Brown, Martin; Damnmert. Alfredo: Meeraus, Alexander;      191 The Wfbrld Banik Research Program, p. 205. for information on
Bedtdcationi anid Rtural Development in Nepal and Thailand" (Ref.
and Stoutjesdijk, Ardv. "Worldwide Investment Anal-    No. 171.-4q) and Research Aeuas. vol. 4, no. 2 (Summer 1983). p. 22.
vsis: The Case of Altuminum." 'World Bank Staff WVork-  for informationi oni completed research project, 'Income Distribth-
ing P'aper No. 603, 1983. '$5.00.                      tioIn in Thailand" (Ret. No. 671-36).
J -



2t' IRI.SI.\SR(I1 NEW S
workers will give one measure of the degree of     This project in Peru is closely related to an
wage distortion in the formal sector.              ongoing research project in the Ivory Coast, which
aims at providing information on the full range of
This studly attempts to break new ground both      workers in the Ivorian economy.2 Taken together,
conceptually and methodologically. An appropri-    these two projects are expected to provide a unique
ate framework for analyzing earnings in the        comparative picture of the characteristics and
Peruvian context will need to model the public     workings of informal labor markets in the develop-
and private determinants of a sequence of deci-    ing world.
sions that eventually determine productivity and
earnings. These include decisions on how much      Staff of the Bank's Education Department-Peter
and wvhat types of education to invest in, and on  Moock, George Psacharopoulos, and Ana-Maria
whJere and in what occupations to seek employ-     Arriagada-and of the Living Standards Measure-
ment. The returns to investment in education       ment Study in the Development Research Depart-
consist conceptually, therefore, of a direct compo-  ment-Dennis De Tray-are supervising and con-
nent (higher earnings attributable to education's  ducting the project, in collaboration with Alphonse
effect on productivity within the chosen location  MacDonald of the United Nations Statistical Office,
and occupation), as well as an indirect component  Phillip Musgrove of the Pan American Health
(higher earnings attributable to education's effect  Organization, and T. Paul Schultz and Wim
on locational and occupational decisions).         Vijverberg of Yale University. Collaborating
Peruvian institutions include the Instituto Na-
Since the earnings of self-employed workers tend   cional de Estadistica; Ministerio de Educacion;
to fluctuate over time and are difficult to evaluate,  Ministerio de Trabajo; Banco Central de Reserva
the study will pursue several alternatives for meas-  del Peru; Centro de Investigacion de la Universi-
turing such earnings. In addition to attempting    dad del Pacifico; and Departamento de Economia
direct measurement of income in a variety of       de la Universidad Catolica del Perui.
ways, the survey will generate data on household
consumption and savings, which may be used to      National Low-Income Housing Project
approximate permanent income,                      in Ecuador (Small Study)
The survey questionnaires will be based on proto-  Ref. No. 673-30
tvpes developed by the Bank's Living Standards
Measurement Study and designed especially to       Community participation and increased use of
capture information on workers of all types, in-   locally available building materials in low-cost
cluding the self-employed, unpaid family workers,  housing schemes are the concerns of this small
and informal-sector wage employees. In addition    study to be conducted in Ecuador, under supervi-
to information on income and schooling, the study  sion of World Bank staff, in collaboration with
will collect data on household expenditure, time   three Ecuadorian institutions-Junta Nacional de
use, family composition and housing character-     la Vivienda (JNV), Consejo Nacional de Ciencia y
isticsn and brief retrospectivest                  Tecnologia (CONACYT), and Asociacion Latino-
tion andt labor-force activities.                  americano para la promocion del Habitat, el
UTrbanismo v la Arquitectura (ALAHUA).
A two-stage sampling procedure will be used. The
5,000 households to be surveyed will be dispersed  The research will primarily address two issues:
over 150 primarv sampling units, wherever possi-   whether communitv participation and interdisci-
ble corresponding to communities. Data on these    plinary technical assistance are essential in the
communities will also be collected so that the     dein, cnscto anmateance          of commu-
empirical analyses of earnings can take into ac-
count v ariations in labor-market conditions, ac-
cessnt  blic                 envrlabor-mark o onme tal  2. See Research Vews, vol. 4, nio. 3 (Fall/Winter 1983), p. 21, for
cess to pUbliC services, and other environmental   information on "The Distributiooo of W,Velfare in the Ivory Coast,"
conditions that influence individual behavior.     (Ret. No. 673-22).
L   If li \\t)RI 1) B$\NK



nitv facilities and incrementally developed low-     El Savador, Ghana, the Republic of Korea, and
cost housing to ensure the cost-effectiveness of     the Philippines.1 Three major subcomponents of
such projects in Ecuador, and elsewhere; and        research were undertaken, involving the examina-
whether mass-produced, low-cost housing designs      tion of (a) the demand for housing as a "composite
that are affordable and acceptable to low-income     good," focusing on price and income elasticities of
beneficiaries can be developed.                      demand, demographic effects, and differences in
the demand of renters and owners, depending on
Over the 18-month course of the study, it is        security of tenure; (b) determinants of land and
expected that a community-participation and          housing rents and values, focusing on estimating
technical-assistance plan will be developed and     the implicit market prices of housing, infrastruc-
that a feasibility study on housing prototypes that  ture, and neighborhood amenities using hedonic
meet the above-mentioned criteria will be made       price indices; and (c) demand for individual hous-
available in a report, to be followed by a dif-     ing characteristics, such as interior space, quality
fusion/adoption manual.                             of construction, utilities, and accessibility, focus-
ing particularly on estimating schedules of the
The research will be carried out during implemen-    public's "willingness to pav" for different types of
tation of a Bank-financed loan for national low-     housing in different markets.
income housing in Ecuador (Loan 2135-EC). For
the World Bank, Eric A. Canessa and Neil E.         The purpose of Phase II is to extend, apply, and
Boyle of the Latin America and Caribbean Pro-        disseminate the findings of the earlier phase of the
jects Department are supervising the research.       project. At the sectoral level, such application will
be embodied in a series of comparative policy
Housing Demand and Finance in                       analyses of government interventions in urban
Developing Countries (Phase II)                     land and housing markets, specifically in Colom-
bia, Egypt, India, Kenya, Korea, and the Philip-
Ref No. 672-46                                       pines. These analyses will be conducted within a
general analytical framework that deals with the
Cities in developing countries are growing at        impact of proposed and actual interventions, im-
extraordinarv rates, often compressing into de-      portant ones among them being policies on rent
cades the urbanization process that has taken        control, government-subsidized housing, security
centuries in developed countries. In coping with     of land tenure, and housing finance. Many of the
this growth, public authorities have devised a       requisite analytical tools-housing demand and
wide range of policv instruments to influence the    expenditure functions, hedonic indices of housing
rate and character of city expansion, to meet the    and land value, and demand functions for hous-
needs of people for shelter and urban services,      ing characteristics-have been developed.
and to allocate resources in ways that redistribute
both the costs and benefits of urban growth. Ideally,  These tasks will involve collaboration among Bank
such policv formulation should be informed by an     staff, consultants, and research institutions in client
understanding of the behavior of urban markets;      countries, who jointly are expected to tap the
in fact, scant information on market behavior        extraordinarily rich set of data made available
is available to the policvmakers of developing       during the course of the two phases of the project.
countries.                                           The analyses are also expected to be useful in
providing general insights into strategies for
This research project, conducted in two phases, is   sectoral reform in other developing countries.
concerned with increasing understanding of hous-
ing markets in developing countries in order to      At the project level, two workshops, mainly di-
improve public decisions concerning the design of    rected at Bank staff, will be held on the findings
shelter projects and of housing sector strategies.   related to project design and economic analysis.
The first phase. now completed, had a descriptive    They will address a number of issues in project
and behavioral focus, which investigated housing-
demand parameters in a number of countries,           1. See Abstracts oCurrentStudies 1.983: The tforld Bank Research
including Colombia, the Arab Republic of Egypt,     Program, pp. 193-96, for a descriptioni and bibliography of Phase 1.



_)_ IRLSlFARCHII NLANS                                                             SPRiNGl ,0,-1
design, mainly location, affordability, housing    NEW    BOOKS
features, infrastructural investment, the pricing of
shelter and services, and policies for subsidies and  World Debt Tables: External Debt of
cross-subsidies. The second workshop will addi-                                         . .t
tionally feature a modest extension of a computer-  Developmg Countries, 1983-84 Edition
ized site-planning and project-design model known  The World Bank, 1984. 328 pages.
as the "Bertaud Model."2 The advantages derived
from adding information on "willingness to pay"    LC 82-642205
factors for specific housing attributes within a
given population to the modeling framework of      ISBN 0-8213-0315-5 $75.00 paperback
the Bertaud model will be emphasized.
This volume, produced annually by the World
The final activity of Phase II will be to recast and  Bank, contains statistical tables showing the medium-
revise selected written material stemming from     term and long-term external debt of 103 reporting
Phase I to meet the needs of a broader audience,   countries. The tables are compiled from  data
that is, operational staff and audiences in institu-  reported to the World Bank by its members under
tions of client countries.                        the Debt Reporting System.
The research project is being conducted by Ste-    It contains data for public and publiclv guaran-
phen Mayo, Stephen Malpezzi, and David Gross      teed debt, augmented by information (where
of the World Bank's Water Supply and Urban         available) on private nonguaranteed debt and
Development Department, in collaboration with      major economic creditworthiness. The macroeco-
James Follain and Emmanuel Jiminez (consul-        nomic information provided is from standardized
tants) and the Indian Institute of Management      sources; this means that many series, especially
(Bangalore).                                      for African countries, are incomplete. In most
cases, omissions relate to the service accounts of
the balance of payments.
In addition to regional summaries and individual
country tables, tabulations are shown for 102 coun-
tries (all countries, excluding Hungary) and for
groupings by income level. Also, a table shows the
aggregate position of 13 major borrowers, those
NEW       AND                                      countries with disbursed and outstanding medium-
FORTHCOMING                                        term and long-term debt in excess of $13.5 billion
at the end of 1982.
PUBLICATIONS
Although debt indicators can give useful eco-
The World Bank Catalog of Publications-issued      nomic information about developments of debt-
annualltl and available free of charge-contains the  servicing capacity, conclusions drawn from them
full range of publications distributed by the World  will not be valid unless accompanied by careful
Bank. Books published commercially for the World   economic evaluation.
Bank and several formal series, notablv the World
Bank Staff Working Papers, Technical Papers, and
Countrv Studies, are sold at the prices indicated
below. To ensure prompt handling of requests,
include payment where applicable. All publications
mentioned hereunder mav be obtained from:
World Bank Publications                             2. See Research News, vol. 3. no. 2 (Summer 1982), p. 21, for a
P.O. Box 37525                                     description of the "Bertaud Model' in 'A Model for Urban Land
Washington, D.C. 20013, U.S.A.                     and Infrastructure Costing, Pricing, and Design" (Ref. No. 672-81).
k- I II 'ĥAORI.I) B Xk Is__



~~~~~~ -                                     R  ksttSt---- --
1'\_(IN   PkI S_      ---                                                      5J I?   'A
Debt and the Developing World:                     systems. By focusing on the participation of
farmers, research and extension, training, system
Current Trends and Prospects                       management, and monitoring and evaluation, the
eWorld Debt Tables,          T & V system seeks to support critical links in the
(Abridged version of the                           devlopen process.s,>   r
1.983-84 edition)                                  development process.
862 pages.                     Within the framework of a svmposium sponsored
The World Bank, 1984.                              by the World Bank and the United Nations Devel-
ISBN 0-8213-0319-8 $6.50 paperback                 opment Programme in 1982, discussants and exten-
sion system  managers and evaluators from  a
This abridged version of the 1983-84 World Debt    number of countries present their experiences
Tables (see above listing) contains an introductory  with and analyses of the T & V system. Their
essav on "Developments in External Borrowing"      discussion will he of use to agricultural policy-
and data on medium-term and long-term external     makers, project designers, rural sociologists, ex-
debt for 103 countries, classified by income groups.  tension workers, and agricultural researchers.
The data were compiled by the World Bank under
its Debt Reporting Svstem.
The income groups include low-income Africa,       Child and Maternal Health Services in
low-income Asia, middle-income oil importers, and  Rural India: The Narangwal Experiment
oil exporters. The condensed volume also features
a table on disbursed and outstanding medium-       The Johns Hopkins tUniversity Press, 1984.
term and long-term debt by major borrowers-
those with such debt in excess of $13.5 billion at  Vol. 1: Integrated Nutrition and Health Care
the end of 1982: Algeria, Argentina, Brazil, Chile,
Arab Republic of Egypt, India, Indonesia, Israel,  By Arnfried A. Kielmann and others. 288 pages.
Republic of Korea, Mexico, Turkey, Venezuela,
and Yugoslavia.                                    ISBN 0-8018-3064-8 $24.50 hardcover
Vol. 2: Integrated Family Planning and Health
Care
By Carl E. Tavlor and others. 256 pages.
Agricultural Extension by Training and
Visit: The Asian Experience                       ISBN 0-8018-2830-9 $22.50 hardcover
Michael M. Cernea. John K. Coulter, and John F.    The Narangwal experiment was a collaborative
A. Russell. editors                               research project carried out by the World Bank
and The Johns Hopkins University to analvze the
The WVorld Bank, 1984. 176 pages.                  benefits of combining primary health care with
nutrition and family planning services. Field data
ISBN 0-8213-0301-5 $13.50 paperback                were collected in 26 villages in the Punjab, India,
between 1967 and 1974 bv a field staff, which grew
This volume captures nearly ten years of Bank-     from  15 to 150 people. The depth of under-
supported experience, mainly in Asia, with the    standing that came from sharing the lives of the
training and visit system of agricultural extension.  villagers over the period of the studies informs the
The T & V system, as it is known, aims at opening  findings and provides valuable insight into the
and reinforcing lines of communication between     needs and responsiveness of rural people to such
farmers and agricultural researchers in their ef-  programs. Among other findings relevant to health
forts to improve agricultural productivity and     policy is the strong indication of the willingness of
development. Introducing new technologies to      rural residents to pay for services, such as curative
small farmers, in particular, requires sensitivity to  care, for which there is a high level of local
their needs, agroclimatic conditions, and farming  awareness and demand.
-  .I                                 . .   -  .  U



.4 10%:L .RL(II N:l-V S                                                            4lRE,G 1(84
V'olume 1 provides data suggesting that synergism  Developing Electric Power: Thirty Years
between malnutrition and infections is probably   of World Bank Experience
the greatest cause of mortality, morbidity, and
retarded growth and development in children.      Hugh Collier
Over a four-year experimental period, the applica-
tion of nutrition care and general health care,   The Johns Hopkins University Press. 1984. 200
singly or combined, to control infection produced  pages.
dramatic results, including a 40 to 50 percent
decline in child mortality, a 20 percent reduction  LC 83-22655
in the duration of morbidity, and increases in the
weight and height of children. In addition, de-   ISBN 0-8018-3222-5 $22.50 hardcover
tailed information in the volume on the costs of
these programs permits analysis of the cost-      The author assesses the experience and results of
effectiveness of their use in the field.          the World Bank's lending operations for the de-
velopment of electric power in some 30 countries.
Volume 2 addresses the policy question of whether  The book describes the Bank's objectives and
health care and family planning services should   methods and explains how and why they have
be integrated, and it provides arguments and      evolved since the 1950s when the Bank began to
evidence to support such integration. The effec-  lend for development in this sector. It looks at the
tiveness, cost-efficiency, and equity of a combined  issues facing the electric power industry in devel-
approach are analyzed.                            oping countries: investment planning and project
appraisal, expansion of systems, pricing policies,
Carl E. Tavlor of the Johns Hopkins University's  and organization problems that affect power sup-
Department of International Health and Rashid     ply agencies and the sector as a whole.
Faruqee of the World Bank were the research
coordinators of the studies.
Economic Liberalization and
Stabilization Policies in Argentina,
ThegCostionDe       ndustry: Isues                Chile, and Uruguay: Applications
of the Monetary Approach to the
The World Bank, 1984. 140 pages.                  Balance of Payments
LC 83-21685                                       Edited by Nicolas Ardito Barletta, Mario I. Blejer,
and Luis Landau
ISBN 0-8213-0268-X $5.00
The World Bank, 1984. 192 pages.
Construction work represents about one-half of the
gross capital formation and 3 to 8 percent of the  LC 83-25958
gross domestic product in developing countries.
Fostering a domestic capability in construction is  ISBN 0-8213-0305-8 $17.50 paperback
becoming an essential part of the overall develop-
ment process in these countries.                  After the oil crisis of 1973-74, most Latin Ameri-
can countries began a search for new economic
This book profiles the construction industry in   strategies to manage long-standing problems with
developing countries; it discusses problems and   external payments and inflation rates, as well as
constraints and formulates strategies to foster im-  difficulties in sustaining economic growth. Reas-
provement and growth. Drawing heavily from the    sessment of past interventionist and protectionist
experience accumulated in the World Bank in       policies led several countries to introduce gradual
supporting construction industries over the past  liberalization of their foreign trade and financial
ten years, it is of special value to engineers,   markets. The countries of the "Southern Cone" -
businessmen, planners, and policymakers.          Argentina, Chile, and Uruguay-launched partic-
- - t- -No   LD-
r -N
,, I I i l l  \ ) I.I)  B X NK   _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _



ularly bold programs to integrate their economies   but that option, by itself, has not proved to be
with the world economy.                             cost-effective or realistic.
An important theoretical underpinning of their
economic strategies was the market-oriented frame-  The Planning of Investment Programs
work known as the "monetary approach to the        in the Steel Industry
balance of pavments." In this volume 28 inter-
national economists and regional specialists review  David A. Kendrick, Alexander Meeraus, and Jaime
the salient characteristics of the monetary approach,  Alatorre
examine its variations in the three countries, and
evaluate the successes and failures in its applica-  The Johns Hopkins University Press, 1984. 320
tion. The emphasis throughout is on empirical       pages.
evidence, on the dynamic aspects of the adjust-
ment process, and on economic tradeoffs. The        LC 83-18722
issues addressed are cross-referenced throughout
the text.                                           ISBN 0-8018-3197-0 $30.00 hardcover
International Finance for Food Security             ISBN 0-8018-3198-9 $15.00 paperback
Barbara Huddleston, D. Gale Johnson, Shlomo         As a supplier of both capital equipment and of
Reutlinger, and Alberto Valdes                      materials for further processing, the steel industry
has a substantial effect on the cost structure and
The Johns Hopkins University Press, 1984. 96        competitiveness of other economic activities. Its
pages.                                              own cost structure, however, depends to a large
extent on the efficiency of past investments.
LC 88-48109
The steel sector is the focus of the third volume in
ISBN 0-8018-3070-2 $15.00 hardcover                 a World Bank series, entitled "The Planning of
Investment Programs," and edited bv Alexander
The economic justification for creating an interna-  Meeraus and Ardy J. Stoutjesdijk.
tional facility to finance a portion of the food
imports to developing countries when special needs  In the series, mixed-integer programming is used
arise is examined in this studv. A stochastic simula-  for sectorwide analysis of investment problems in
tion model is used to analyze the likely stabilizing  the presence of economies of scale. The thesis is
effect and benefits of the financial facility for   that industrial investment projects should be eval-
different policy scenarios and countries. The au-   uated not individually but in groups of inter-
thors evaluate the possible contribution of such a  dependent projects. Moreover, the investment
facility and assess the merits and the probable     analyst is seen as being responsible not only for
effects of a facility that has been adopted by the  evaluating projects but also for playing a signifi-
International Monetary Fund.                        cant role in the design of projects-that is, in
determining the timing, size, location. technologyv
An international food financial facility is essen-  and product mix.
tially an alternative and complementary arrange-
ment to buffer stocks as a means to reduce shortfalls  The first part of this book provides an overview of
in the food supplies of low-income, food-deficit    the technology of steel production and the prob-
countries. Such a facility would prevent countries  lems of investment analysis in the industrv. The
from suffering precipitous declines in food con-    second part contains an application of investment
sumption resulting from poor harvests, unusually    analysis to the Mexican steel industry. The book
high international food prices, or reduced foreign  introduces a new economic modeling languagc,
exchange earnings. In the past, the most fre-       GAMS, which considerably decreases the time
quently advocated remedv for increasing food        and effort required to construct and use industrial
security called for a large buildup of buffer stocks,  sector models.
Ifi{  .t(.kf I '5



2((II .SWA                                                                           RtNNI IIS
Sub-Saharan Africa: Progress Report on            World Tables: (The Third Edition)
Development Prospects and Programs                LC 83-25609
The, World Bank, September 1983. 40 pages. Free   From the data files of the World Bank
of charge
T'he deteriorating economic situation of African  The Johns Hopkins University Press, 1984.
countries that was characteristic of the 1970s con-
tinues in the 1980s. Since the World Bank issued  Vol. 1, 608 pages.
its report, "Accelerated Development in Sub-
Saharan Africa" in 1981, income per capita in     ISBN 0-8018-3200-1 $50.00 hardcover
Africa has continued to decline, because GDP has
remained unichanged, or has fallen, while popula-  ISBN 0-8018-3201-2 $25.00 paperback
tion has increased.
This progress report highlights some of the contin-  Vol. 2, 192 pages.
uing major problems faced by African govern-
ments in designing and implementing reform in
the context of global deterioration in interna-    ISBN 0-8018-3203-9 $12.50 paperback
tional trade and finance. The paper then exam-
ines changes that the World Bank has introduced
in the level, pattern, and design of its economic  Set of two volumes.
work and operations to support reforms and to
effect its priority commitment to African develop-  ISBN 0-8018-3263-2 $65.00 hardcover
ment. It also reviews the responses of donor
governments to the increased need of African      ISBN 0-8018-3264-0 $32.50 paperback
countries for assistance.
The immediate and continuing economic crisis in   These two volumes contain one of the most com-
Africa is overwhelmingly a production crisis, aris-  plete collections of economic and social time-
ing mainlv from the widespread use of price and   series data for most developing, industrial market,
income structures that are inappropriate, particu-  and East European nonmarket economies. Cover-
larlv for the agriculture sector. Yet within the  ing about 140 countries, the nearly 500 tables
constraints of population growth, limited techno-  encompass the following series, by volume:
logical options. and the current low levels of skill
ancd health, increases in production are possible.  Volume 1 includes five major series of data on:
(a) population, national accounts, and prices; (b)
In some countries, important changes in policy    balance of payments, external public debt, foreign
are taking place, vet not often or fast enough    trade iiidexes, and central government finances;
throughout the continent to alleviate the crisis. As  (c) industrial statistics and trade in manufactures;
counltries embark on policv reform, increased     (d) comparative economic data, according to income
external assistance is criticallv required. Donor  group and geographic region; and (e) purchasing-
support over the long term is. therefore, crucial to  poNver parities and real gross domestic products
the process of development in Africa.             (results of the International Comparison Project).
The report is not intended to be exhaustive in    Volume 2 covers (a) population, demographic
either its coverage of issues or countries. The   characteristics, health and nutrition, education,
examples are intended to illustrate desirable     employment and income, and consumption; (b)
changes rather than to suggest that they are repre-  comparative social data by income group; and (c)
sentative of what has happened in sub-Saharan     comparative social data for developing economies
Africa since 1981.                                by geographic region.
,, I Mt  ORII) BANK



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WORKING PAPERS                                     Case of Aluminum. Martin Brown, Alfredo Dam-
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Paulo, Brazil. Peter M. Townroe. Julv 1983. 112    Philippines, 196-8 an    Apc    atio  o  the
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Stolper-Samuelson-Rybczynski Model of Trade.
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Trade Policy in France. Bernard Bobe. Septem-      $3.00.
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No. 606. Agricultural Prices in China. Nicholas
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No. 580. The Effects of Corruption on Adminis-     No. 608. Sub-Saharan Agriculture: Synthesis and
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No. 609. Shadow Prices for Economic Appraisal
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No. 610. Economic Appraisal of Rural Roads:
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0208-6. $5.00.                                     $10.00.
No. 601. Perspectives on Poverty and Income        No. 612. Financing State and Local Government
Inequality in Brazil: An Analysis of the Changes  in Brazil: Recent Trends and Issues. Dennis J.
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iam G. Tyler. July 1983. 60 pages. ISBN 0-8213-    76 pages plus map. ISBN 0-8213-0255-8. $3.00.
0209-4. $3.00.
No. 602. Turkey: Recent Economic Performance       No. 613. Technological Change and Industrial
and Medium-Term Prospects, 1978-1990. Jeffrey      Development: Issues and Opportunities. Frederick
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0-8213-0210-8. $5.00.                              0257-4. $3.00.
,   \f  : , b.  x .



R I -   RCIE                                                - S
No. 614. Sources of Industrial Growth and Struc-    No. 9.* Meeting the Needs of the Poor for Water
tural Change: The Case of Turkey. Merih Cela-       Supply and Waste Disposal. Fredrick L. Golladay.
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0258-2. $5.00.                                      $3.00.
No. 615. How Secondary School Graduates Per-        No. 12. Water Supply and Sanitation Project
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No. 13. Water Supply and Sanitation Project
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No. 617. Targeting Food Subsidies for the Needy:    ISBN 0-8213-0231-0. $15.00.
The Use of Cost-Benefit Analysis and Institu-
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pages. ISBN 0-8213-0295-7.                          Preparation Handbook. Vol. 3: Case Study (Port
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Economic Growth: Some Empirical Evidence.           $15.00.
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No. 625. Alternative Mechanisms for Financing       member governments and international organiza-
Social Security. Parthasarathi Shome and Lyn        tions that deal with development problems. Where
Sur.Nvmes I   0213  the issues studied have attracted a wide interest,
Squire. November 1983. 64 pages. ISBN 0-8213-       where it appears that the Bank's studv could contrib-
ute substantially to knowledge and understanding of
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TECHNICAL PAPERS                                    concerned are agreeable, such reports are made
available to a wider audience. Potential readers are
advised that these are working documents, not pre-
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Quantitative Analysis of Recent Developments.
Chad Leechor, Harinder S. Kohli, and Sujin Hur.     Bhutan: Development in a Himalayan King-
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7 -~
i  j  lil  *  ()~Rl I) BANK                                                - -__ _ _ __ _ _ _ _ __ _ _ _ _ __ _ _ _-__ _ _ _ _



Hungary: Economic Developments and Reforms.        No. 251. Income Distribution in Post-1964 Brazil:
February 1984. 304 pages plus map. ISBN 0-         New Results. M. Louise Fox. From Journal of
8213-''  - : . SI- 5.00.                           Economic Historn, vol. 43, no. 1 (NMarch 1983), pp.
261-71.
Yugoslavia: Adjustment Policies and Develop-
ment Perspectives. October 1983,. 464 pages plus   No. 252. The Welfare Cost of Taxation: Its
mal). ISBN 0-8213-0189-6. $20.00.                  Meaning and Measurement. Nizar Jetha. From
Bulleti n for International Fiscal Documentationi. vol.
36, no. 10 (October 1982), pp. 453-57.
WORLD BANK REPRINT SERIES
No. 253. Fostering Technological Mastery by
research               Means of Selective Infant-Industry Protection.
The lollowing rccent articles, arislng from reseen  Larry E. Westphal. From  Trade, Stabilitt, Tech-
undertaked at or for the anorld Bank, have been    nologv, and Equitv in Latin America, Moshe Svrquin
reitged   i                                        and Simon Teitel, eds. (New York: Academic
char-ge.                                           Press, 1982), pp. 255-79.
No. 246. The Political Economy of Administered    No. 254. On Exports and Economic Growth.
Protection. J. NM. Finger, H. Keith Hall, and      Gershon Feder. From Journal of Development
I)ouglas R. Nelson. From The American Economic     con       vol. 12 (1982). pp 59-73.
Revieuw, vol. 72, no. 3 (June 1982), pp. 452-66. The
Industrv-Countrv Incidence of "Less than Fair      No. 255. Third World Energy Policies: Demand
Value'" Cases in 'U.S. Import Trade. J. M. Finger.  Management and Conservation. Mohan Muna-
From Quarterlt Rev,ieuw of Economics and Business,  singementgan       Ponservol. Mo.   Ilar
vol. 21, nio. 2 (Snmmer 1981). pp. 260-79.        s1nghe. From Ener,y Polict, vol. 11. no. 1 (March
No. 247. Education and Parental Decision
Making: A Two-Generation Approach. Nancy           No. 256. The Political Economy of Foreign Aid:
Making:sa  A  SusaGenerHtiocn Fpromh. Educa        A World Bank Perspective. Keith Marsden and
Birclsall aincl Suisan Hill Cochrane. From Educa-  Aa    o.Fo       aoradSce%vl ,io
tio  an  Deeopet Lacle        Anderson. and       Alan Roe. From Labour and Society. vol. 8, no. 1
tl'on anad Dezelyopment, Lascelles Aicderson andl
Douglas MI. Windham, eds. (Lexington. NIassa-      (Januarv-March 1983), pp. 3-12. Also available in
chitisetts: D. C. Hleath, 1982). pp. 175-210.      French as No. 256a.
No. 248. A General Equilibrium   Analysis of       No. 257. Contractionary Devaluation, Substitu-
Foreign Exchange Shortages in a Developing        tion in Production and Consumption. and the
'Keal Dervis, Jaime de Melo, and         Role of the Labor Market. James A. Hanson.
Econom.From Journal of International Econoics. vol. 14,
Shermani Robinson. From The Economic Journal,      nom Journ of         pp. 179-894
vol. 91 (December 1981), pp. 891-906.              no. 1 (February 1983), pp. 179-89.
No. 249. A Model of Intraurban Employment          No. 258. The Conceptual Basis of Measures of
Location: An Application to Bogota, Colombia.      Household Welfare and Their Implied Survey
Kvu Sik Lee. From Journal of Urban Economics,      Data Requirements. Christiaan Grootaert. From
vol. 12 (November 1982), pl) 2633-79.              The Rev,iew of Income and Wealth, series 29. no. I
(March 1983), pp. 1-21.
No. 250. From Migrants to Proletarians: Em-
ployment Experience, Mobility, and Wages in       No. 259. Poverty and Income Distribution in
Tanzania. J B. Knight and R. H. Sabot. From       Brazil. Guv Pfeffermannii and Richard NVebb. From
Oxford Bulletin of Economics and Statistics, vol. 44,  The Revieuw of Income anld Tl'ealth, series 29, no. 2
no. 3 (August 1982), pp. 199-226.                 (June 1983), pp. 101-24.
Iii Vdlwi)RI I) 1 \i, L i4



No. 260. A Theory of Interlinked Rural Trans-      No. 263. Technological Effort in Industrial
actions. Pradeep K. Mitra. From Journal of Public  Development: An Interpretative Survey of Re-
Economics, vol. 20 (1983), pp. 167-91.             cent Research. Carl Dahlman and Larry Westphal.
From The Economics of Nex Technology in Devel-
oping Countries, edited by Frances Stewart and
No. 261. The Public/Private Wage Differential     Jeffrey James (London and Colorado: Frances
in a Poor Urban Economy. David L. Lindauer         Pinter Publishers and Westview Press, 1982), pp.
and Richard H. Sabot. From Journal of Develop-     105-37.
ment Economics, vol. 12 (1983), pp. 137-52.
No. 265. The Adjustment Experience of Develop-
No. 262. Labor Market Discrimination in a Poor     ing Countries. Bela Balassa. From IMF Condition-
Urban Economy. J. B. Knight and R. H. Sabot.       ality, John Williamson, ed., (Washington, D.C.:
From Journal of Development Studies, vol. 19, no. 1  Institute for International Economics, 1983), pp.
(October 1982), pp. 67-87.                         145-74.
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The World Bank
Headquarters:
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