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Produced by the Research Support Team Policy Research Working Paper Series Abstracts Numbers 3171 - 3236 Index WPS # Author Working Paper Title Page Agriculture 3211 Eugene Gurenko and Olivier Mahul Enabling Productive But Asset-Poor Farmers to Succeed: A Risk Financing Framework 15 3218 John Baffes Cotton: Market Setting, Trade Policies, and Issues 17 3222 Donald Mitchell Sugar Policies: Opportunity for Change 18 3226 Ndiame Diop, John Beghin, Groundnut Policies, Global Trade Dynamics, and Mirvat Sewadeh and the Impact of Trade Liberalization 20 3234 Eric V. Edmonds and Nina Pavcnik Product Market Integration and Household Labor Supply in a Poor Economy: Evidence from Vietnam 22 3235 Eric V. Edmonds Household Composition and the Response of Child Labor Supply to Product Market Integration: Evidence from Vietnam 23 Infrastructure 3177 Vivien Foster and Osvaldo Irusta Does Infrastructure Reform Work for the Poor? A Case Study on the Cities of La Paz and El Alto in Bolivia 4 3185 Vivien Foster and Maria Caridad Araujo Does Infrastructure Reform Work for the Poor? A Case Study from Guatemala 7 3207 Antonio Estache and Andrds G6mez-Lobo The Limits to Competition in Urban Bus Services in Developing Countries 14 3215 George R. G. Clarke and Scott J. Wal1sten Has the Internet Increased Trade? Evidence from Industrial and Developing Countries 16 3221 TomA s Serebrisky What Do We Know about Competition Agencies in Emerging and Transition Countries? Evidence on Workload, Personnel, Priority Sectors, and Training Needs 18 3224 John S. Wilson, Catherine L. Mann, Assessing the Potential Benefit of Trade Facilitation: and Tsunehiro Otsuki A Global Perspective 19 Domestic finance 3173 Marina Halac and Sergio L. Schmukler Distributional Effects of Crises: The Role of Financial Transfers 3 3175 Dimitri Vittas The Use of "Asset Swaps" by Institutional Investors in Africa 4 3178 Thorsten Beck, Asll Demirgiq-Kunt, Small and Medium Enterprises, Growth, and Poverty and Ross Levine Cross-Country Evidence 5 3183 John W. Carson Conflicts of Interest in Self-Regulation: Can Demutualized Exchanges Successfully Manage Them? 6 3194 Thorsten Beck, Asl1 Demirgig-Kunt, Law and Firms' Access to Finance and Ross Levine 10 ii Index WPS # Author Working Paper Title Page 3199 Craig Thorburn On the Measurement of Solvency of Insurance Companies: Recent Developments that will Alter Methods Adopted in Emerging Markets 11 3201 Fumika Ouchi A Literature Review on the Use of Expert Opinion in Probabilistic Risk Analysis 12 3202 Gerard Caprio, Luc Laeven, Governance and Bank Valuation and Ross Levine 12 3203 Patrick Honohan Financial Development, Growth, and Poverty: How Close are the Links? 13 3204 Thorsten Beck, Asl Demirgid-Kunt, The Determinants of Financing Obstacles Luc Laeven, and Vojislav Maksimovic 13 3208 Gregorio Impavido, Craig Thorburn, A Conceptual Framework for Retirement Products: and Mike Wadsworth Risk Sharing Arrangements between Providers and Retirees 14 3210 Maria Soledad Martinez Peria and How Foreign Participation and Market Concentration Ashoka Mody Impact Bank Spreads: Evidence from Latin America 15 3211 Eugene Gurenko and Olivier Mahul Enabling Productive But Asset-Poor Farmers to Succeed: A Risk Financing Framework 15 3212 Augusto de la Torre and Sergio L. Coping with Risk through Mismatches: Domestic and Schmukler International Financial Contracts for Emerging Economies 15 3227 Dahlia El-Hawary, Wafik Grais, Regulating Islamic Financial Institutions: and Zamir Iqbal The Nature of the Regulated 20 3229 Jeppe Ladekarl and Sara Zervos Housekeeping and Plumbing: The Investability of Emerging Markets 21 Environment 3180 Franck Lecocq and Jean-Charles Hourcade Equitable Provision of Long-Term Public Goods: The Role of Negotiation Mandates 6 3181 Kenneth M. Chomitz and Franck Lecocq Temporary Sequestration Credits: An Instrument for Carbon Bears 6 3201 Fumika Ouchi A Literature Review on the Use of Expert Opinion in Probabilistic Risk Analysis 12 Industry 3189 Peter F. Orazem and Milan Vodopivec Do Market Pressures Induce Economic Efficiency? The Case of Slovenian Manufacturing, 1994-2001 8 3221 TomAs Serebrisky What Do We Know about Competition Agencies in Emerging and Transition Countries? Evidence on Workload, Personnel, Priority Sectors, and Training Needs 18 3232 Leora 1Iapper, Luc Laeven, Business Environment and Firm Entry: and Raghuram Rajan Evidence from International Data 22 Index iii WPS # Author Working Paper Title Page Private sector development 3175 Dimitri Vittas The Use of "Asset Swaps" by Institutional Investors in Africa 4 3178 Thorsten Beck, Asl1 Demirgiig-Kunt, Small and Medium Enterprises, Growth, and Poverty: and Ross Levine Cross-Country Evidence 5 3182 Azam Chaudhry The International Finance Corporation's MBA Survey: How Developing Country Firms Rate Local Business School Training 6 3199 Craig Thorburn On the Measurement of Solvency of Insurance Companies: Recent Developments that will Alter Methods Adopted in Emerging Markets 11 3204 Thorsten Beck, Ash Demirgiiq-Kunt, The Determinants of Financing Obstacles Luc Laeven, and Vojislav Maksimovic 13 3207 Antonio Estache and Andr6s G6mez-Lobo The Limits to Competition in Urban Bus Services in Developing Countries 14 3211 Eugene Gurenko and Olivier Mahul Enabling Productive But Asset-Poor Farmers to Succeed: A Risk Financing Framework 15 3215 George R. G. Clarke and Scott Has the Internet Increased Trade? Evidence from J. Wallsten Industrial and Developing Countries 16 3221 Tom6s Serebrisky What Do We Know about Competition Agencies in Emerging and Transition Countries? Evidence on Workload, Personnel, Priority Sectors, and Training Needs 18 3224 John S. Wilson, Catherine L. Mann, Assessing the Potential Benefit of Trade Facilitation: and Tsunehiro Otsuki A Global Perspective 19 3229 Jeppe Ladekarl and Sara Zervos Housekeeping and Plumbing: The Investability of Emerging Markets 21 3232 Leora Klapper, Luc Laeven, Business Environment and Firm Entry: and Raghuram Rajan Evidence from International Data 22 Governance 3176 Varun Gauri and Anna Fruttero Location Decisions and Nongovernmental Organization Motivation: Evidence from Rural Bangladesh 4 3186 Stephen Knack and Aminur Rahman Donor Fragmentation and Bureaucratic Quality in Aid Recipients 7 3187 Abigail Barr, Magnus Lindel6w, To Serve the Community or Oneself: and Pieter Serneels The Public Servant's Dilemma 8 3195 Simon J. Evenett and Bernard M. Government Procurement: Market Access, Transparency, Hoekman and Multilateral Trade Rules 10 3200 Aart Kraay and Vikram Nehru When is External Debt Sustainable? 12 iv Index WPS # Author Working Paper Title Page 3202 Gerard Caprio, Luc Laeven, Governance and Bank Valuation and Ross Levine 12 3221 Tombs Serebrisky What Do We Know about Competition Agencies in Emerging and Transition Countries? Evidence on Workload, Personnel, Priority Sectors, and Training Needs 18 3223 Maija Halonen-Akatwijuka Coordination Failure in Foreign Aid 19 Urban development 3228 Jishnu Das and Jeffrey Hammer Strained Mercy: The Quality of Medical Care in Delhi 20 Transition 3189 Peter F. Orazem and Milan Vodopivec Do Market Pressures Induce Economic Efficiency? The Case of Slovenian Manufacturing, 1994-2001 8 3196 Beata Smarzynska Javorcik and Technological Asymmetry among Foreign Investors Kamal Saggi and Mode of Entry 11 3232 Leora Klapper, Luc Laeven, Business Environment and Firm Entry: and Raghuram Rajan Evidence from International Data 22 Poverty 3172 Vicente Paqueo and Gladys Lopez-Acevedo Supply-Side School Improvement and the Learning Achievement of the Poorest Children in Indigenous and Rural Schools: The Case of PARE 3 3174 Franqois Bourguignon, Francisco H. G. Inequality of Outcomes and Inequality of Opportunities Ferreira, and Marta Men6ndez in Brazil 3 3176 Varun Gauri and Anna Fruttero Location Decisions and Nongovernmental Organization Motivation: Evidence from Rural Bangladesh 4 3178 Thorsten Beck, Asl Demirgidg-Kunt, Small and Medium Enterprises, Growth, and Poverty: and Ross Levine Cross-Country Evidence 5 3179 Richard H. Adams, Jr. and John Page International Migration, Remittances, and Poverty in Developing Countries 5 3191 Michael Lokshin, Nithin Umapathi, Robustness of Subjective Welfare Analysis in a Poor and Stefano Paternostro Developing Country: Madagascar 2001 9 3211 Eugene Gurenko and Olivier Mahul Enabling Productive But Asset-Poor Farmers to Succeed: A Risk Financing Framework 15 3216 Dorte Verner Making the Poor Count Takes More than Counting the Poor: A Quick Poverty Assessment of the State of Bahia, Brazil 16 3219 Christian A. Emini and Hippolyte A Financial Social Accounting Matrix for the Integrated Fofack Macroeconomic Model for Poverty Analysis: Application to Cameroon with a Fixed-Price Multiplier Analysis 18 Index v WPS # Author Working Paper Title Page 3225 Aart Kraay When is Growth Pro-Poor? Cross-Country Evidence 19 3226 Ndiame Diop, John Beghin, Groundnut Policies, Global Trade Dynamics, and Mirvat Sewadeh and the Impact of Trade Liberalization 20 3228 Jishnu Das and Jeffrey Hammer Strained Mercy: The Quality of Medical Care in Delhi 20 3231 Chris Sakellariou and Harry Anthony Incidence Analysis of Public Support to the Private Education Patrinos Sector in COte d'Ivoire 21 3233 Patricia Apps Gender, Time Use, and Models of the Household 22 Rural development 3209 Ghazala Mansuri and Vijayendra Rao Community-Based (and Driven) Development: A Critical Review 14 3211 Eugene Gurenko and Olivier Mahul Enabling Productive But Asset-Poor Farmers to Succeed: A Risk Financing Framework 15 International economics 3173 Marina Halac and Sergio L. Schmukler Distributional Effects of Crises: The Role of Financial Transfers 3 3188 Bernard Hoekman and Kamal Saggi Trading Market Access for Competition Policy Enforcement 8 3190 Maurice Schiff and Yanling Wang On the Quantity and Quality of Knowledge: The Impact of Openness and Foreign Research and Development on North-North and North-South Technology Spillovers 9 3192 C6sar Calder6n, Norman Loayza, Greenfield Foreign Direct Investment and Mergers and Luis Serv6n and Acquisitions: Feedback and Macroeconomic Effects 9 3193 Denise Eby Konan and Keith E. Maskus Quantifying the Impact of Services Liberalization in a Developing Country 10 3195 Simon J. Evenett and Bernard M. Hoekman Government Procurement: Market Access, Transparency, and Multilateral Trade Rules 10 3196 Beata Smarzynska Javorcik and Technological Asymmetry among Foreign Investors Kamal Saggi and Mode of Entry 11 3197 B. Essama-Nssah Building and Running General Equilibrium Models in EViews 11 3198 Hiau Looi Kee, Marcelo Olarreaga, Market Access for Sale: Latin America's Lobbying and Peri Silva for U.S. Tariff Preferences 11 3200 Aart Kraay and Vikram Nehru When is External Debt Sustainable? 12 3205 J. Michael Finger Poor People's Knowledge: Helping Poor People to Earn from their Knowledge 13 3206 C6line Carrere and Maurice Schiff On the Geography of Trade: Distance is Alive and Well 14 3210 Maria Soledad Martinez Peria and How Foreign Participation and Market Concentration Ashoka Mody Impact Bank Spreads: Evidence from Latin America 15 vi Index WPS # Author Working Paper Title Page 3212 Augusto de la Torre and Sergio L. Coping with Risk through Mismatches: Domestic and Schmukler International Financial Contracts for Emerging Economies 15 3213 Robert Feenstra and Hiau Looi Kee On the Measurement of Product Variety in Trade 16 3214 Eugenia Baroncelli, Ekaterina Krivonos, Trademark Protection or Protectionism? and Marcelo Olarreaga 16 3215 George R. G. Clarke and Scott J. Has the Internet Increased Trade? Evidence from Wallsten Industrial and Developing Countries 16 3224 John S. Wilson, Catherine L. Mann, Assessing the Potential Benefit of Trade Facilitation: and Tsunehiro Otsuki A Global Perspective 19 3226 Ndiame Diop, John Beghin, Groundnut Policies, Global Trade Dynamics, and Mirvat Sewadeh and the Impact of Trade Liberalization 20 3229 Jeppe Ladekarl and Sara Zervos; Housekeeping and Plumbing: The Investability of Emerging Markets 21 3232 Leora Klapper, Luc Laeven, Business Environment and Firm Entry: and Raghuram Rejan Evidence from International Data 22 3234 Eric V. Edmonds and Nina Pavcnik Product Market Integration and Household Labor Supply in a Poor Economy: Evidence from Vietnam 22 3235 Eric V. Edmonds Household Composition and the Response of Child Labor Supply to Product Market Integration: Evidence from Vietnam 23 Social development 3171 Vicente Paqueo, Gladys Lopez-Acevedo, On the Use of Transparent Formulae to Allocate Federal and Suhas Parandekar Education Transfers 3 3172 Vicente Paqueo and Gladys Lopez-Acevedo Supply-Side School Improvement and the Learning Achievement of the Poorest Children in Indigenous and Rural Schools: The Case of PARE 3 3175 Dimitri Vittas The Use of "Asset Swaps" by Institutional Investors in Africa 4 3176 Varun Gauri and Anna Fruttero Location Decisions and Nongovernmental Organization Motivation: Evidence from Rural Bangladesh 4 3182 Azam Chaudhry The International Finance Corporation's MBA Survey: How Developing Country Firms Rate Local Business School Training 6 3187 Abigail Barr, Magnus Lindel6w, To Serve the Community or Oneself: and Pieter Serneels The Public Servant's Dilemma 8 3208 Gregorio Impavido, Craig Thorburn, A Conceptual Framework for Retirement Products: and Mike Wadsworth Risk Sharing Arrangements between Providers and Retirees 14 3209 Ghazala Mansuri and Vijayendra Rao Community-Based (and Driven) Development: A Critical Review 14 Index vii WPS # Author Working Paper Title Page 3216 Dorte Verner Making the Poor Count Takes More than Counting the Poor: A Quick Poverty Assessment of the State of Bahia, Brazil 16 3217 Jishnu Das, Stefan Dercon, James When Can School Inputs Improve Test Scores? Habyarimana, and Pramila Krishnan 17 Labor and employment 3179 Richard H. Adams, Jr. and John Page International Migration, Remittances, and Poverty in Developing Countries 5 3216 Dorte Verner Making the Poor Count Takes More than Counting the Poor: A Quick Poverty Assessment of the State of Bahia, Brazil 16 3219 Christian A. Emini and Hippolyte Fofack A Financial Social Accounting Matrix for the Integrated Macroeconomic Model for Poverty Analysis: Application to Cameroon with a Fixed-Price Multiplier Analysis 18 3231 Chris Sakellariou and Harry Anthony Incidence Analysis of Public Support to the Private Education Patrinos Sector in C6te d'Ivoire 21 3232 Leora Klapper, Luc Laeven, Business Environment and Firm Entry: and Raghuram Rajan Evidence from International Data 22 3233 Patricia Apps Gender, Time Use, and Models of the Household 22 3234 Eric V. Edmonds and Nina Pavcnik Product Market Integration and Household Labor Supply in a Poor Economy: Evidence from Vietnam 22 3235 Eric V. Edmonds Household Composition and the Response of Child Labor Supply to Product Market Integration: Evidence from Vietnam 23 Macroeconomics and growth 3173 Marina Halac and Sergio L. Schmukler Distributional Effects of Crises: The Role of Financial Transfers 3 3178 Thorsten Beck, Ash Demirgti-Kunt, Small and Medium Enterprises, Growth, and Poverty: and Ross Levine Cross-Country Evidence 5 3184 Viktoria Hnatkovska and Norman Loayza Volatility and Growth 7 3192 C6sar Calder6n, Norman Loayza, Greenfield Foreign Direct Investment and Mergers and Luis Serv6n and Acquisitions: Feedback and Macroeconomic Effects 9 3197 B. Essama-Nssah Building and Running General Equilibrium Models in EViews 11 3212 Augusto de la Torre and Sergio L. Coping with Risk through Mismatches: Domestic and Schmukler International Financial Contracts for Emerging Economies 15 3219 Christian A. Emini and Hippolyte Fofack A Financial Social Accounting Matrix for the Integrated Macroeconomic Model for Poverty Analysis: Application to Cameroon with a Fixed-Price Multiplier Analysis 18 3225 Aart Kraay When is Growth Pro-Poor? Cross-Country Evidence 19 3230 Brian Pinto and Farah Zahir India: Why Fiscal Adjustment Now 21 viii Index WPS # Author Working Paper Title Page Education 3171 Vicente Paqueo, Gladys Lopez-Acevedo, On the Use of Transparent Formulae to Allocate Federal and Suhas Parandekar Education Transfers 3 3172 Vicente Paqueo and Gladys Lopez-Acevedo Supply-Side School Improvement and the Learning Achievement of the Poorest Children in Indigenous and Rural Schools: The Case of PARE 3 3174 Frangois Bourguignon, Francisco H. G. Inequality of Outcomes and Inequality of Opportunities Ferreira, and Marta Men6ndez in Brazil 3 3182 Azam Chaudhry The International Finance Corporation's MBA Survey: How Developing Country Firms Rate Local Business School Training 6 3216 Dorte Verner Making the Poor Count Takes More than Counting the Poor: A Quick Poverty Assessment of the State of Bahia, Brazil 16 3217 Jishnu Das, Stefan Dercon, James When Can School Inputs Improve Test Scores? Habyarimana, and Pramila Krishnan 17 3231 Chris Sakellariou and Harry Anthony Incidence Analysis of Public Support to the Private Education Patrinos Sector in COte d'Ivoire 21 3234 Eric V. Edmonds and Nina Pavcnik Product Market Integration and Household Labor Supply in a Poor Economy: Evidence from Vietnam 22 3235 Eric V. Edmonds Household Composition and the Response of Child Labor Supply to Product Market Integration: Evidence from Vietnam 23 3236. Gladys Lopez-Acevedo Professional Development and Incentives for Teacher Per formance in Schools in Mexico 23 Health and population 3187 Abigail Barr, Magnus Lindeliw, To Serve the Community or Oneself: and Pieter Serneels The Public Servant's Dilemma 8 3216 Dorte Verner Making the Poor Count Takes More than Counting the Poor: A Quick Poverty Assessment of the State of Bahia, Brazil 16 3220 Peyvand Khaleghian and Monica Public Management and Essential Public Health Das Gupta Functions 18 3228 Jishnu Das and Jeffrey Hammer Strained Mercy: The Quality of Medical Care in Delhi 20 Public sector management 3171 Vicente Paqueo, Gladys Lopez-Acevedo, On the Use of Transparent Formulae to Allocate Federal and Suhas Parandekar Education Transfers 3 3176 Varun Gauri and Anna Fruttero Location Decisions and Nongovernmental Organization Motivation: Evidence from Rural Bangladesh 4 Index ix WPS # Author Working Paper Title Page 3186 Stephen Knack and Aminur Rahman Donor Fragmentation and Bureaucratic Quality in Aid Recipients 7 3187 Abigail Barr, Magnus Lindel6w, To Serve the Community or Oneself: and Pieter Serneels The Public Servant's Dilemma 8 3220 Peyvand Khaleghian and Monica Public Management and Essential Public Health Das Gupta Functions 18 3223 Maija Halonen-Akatwijuka Coordination Failure in Foreign Aid 19 3230 Brian Pinto and Farah Zahir India: Why Fiscal Adjustment Now 21 Policy Research Working Paper Series 3 3171. On the Use of Transparent 3172. Supply-Side School 3173. Distributional Effects Formulae to Allocate Federal Improvement and the of Crises: The Role of Education Transfers Learning Achievement of Financial Transfers the Poorest Children in Vicente Paqueo, Gladys Lopez-Acevedo, Indigenous and Rural Schools: Marina Halac and Sergio L. Schmukler and Suhas Parandekar The Case of PARE (December 2003) (December 2003) Vicente Paqueo and Gladys Lopez- Financial crises affect income distribution One of the key questions that arise in dis- Acevedo by way of different channels. Halac and cussions of education decentralization is (December 2003) Schmukler argue that financial transfers how federal education resources should be are an important channel which has been allocated among the various states, and In the past, research findings indicated overlooked by the literature. They study within states, among communities or that most of the differences in student the role of financial transfers by analyz- schools. In general, there are two learning was due to socioeconomic factors ing some of the most severe Latin approaches: (1) bilateral negotiations and that, therefore, the effect of direct American crises during the past decades between the federal government and educational interventions to reduce learn- (Chile 1981-83, Mexico 1994-95, Ecuador states with little transparency as to the ing inequality was very limited. However, 1998-2000, Argentina 2001-02, and rules, and (2) formula-based distribution. Paqueo and Lopez-Acevedo show that Uruguay 2002). First, the authors Paqueo, Lopez-Acevedo, and Parandekar learning achievement could increase investigate transfers to the financial show that, based on econometric analysis through appropriately designed and sector-those from nonparticipants to on federal education transfers data in reasonably well-implemented interven- participants of the financial sector. Mexico, the former approach can lead to tions. An examination of Mexico's PARE Second, they explore who receives these allocation results that appear contrary to program reveals that an increase in learn- financial transfers by identifying the stated policy objectives like equity ing achievement could be possible for winners and losers within the financial improvement and greater social inclusion rural and indigenous schools. The authors' sector. Their analysis suggests that finan- in education. overall conclusion is that supply-side cial transfers during crises are large and The authors then argue that contrary interventions can have substantial effects expected to increase income inequality. to common belief, the use of capitation or on the learning achievement of children This paper-a product ofMacroeconom- per student allocation can improve not in indigenous and rural schools in ics and Growth, Development Research only efficiency but also equity. They poor areas. But greater attention needs Group-is part of a larger effort in the present a theoretical model to analyze this to be paid to the poorest of the disadvan- group to understand financial crises. Cop- hypothesis. The authors discuss several taged children. This positive conclusion, ies of the paper are available free from the variations of the capitation formula, and however, should be tempered by results of World Bank, 1818 H Street NW, Washing- present an analysis of the characteristics the urban sample, confirming earlier ton, DC 20433. Please contact Emily of the winners and losers of their applica- findings of the negative relationship Khine, room MC3-347, telephone 202-473- tion, using Mexico as an illustration. between PARE and student learning 7471, fax 202-522-3518, email address This paper-a joint product of the growth. kkhine@worldbank.org. Policy Research Social Protection Sector Unit, the Poverty This paper-ajoint product ofthe Social Working Papers are also posted on the Sector Unit, and the Education Sector Protection Sector Unit and the Poverty Web at http://econ.worldbank.org. The Unit, Latin America and the Caribbean Sector Unit, Latin America and the authors may be contacted at mhalac Region-is part of a larger effort in the Caribbean Region-is part of a larger @worldbank.org or sschmukler region to improve social spending. Copies effort in the region to analyze the impact of @worldbank.org. (52 pages) of the paper are available free from the education interventions on disadvantaged World Bank, 1818 H Street NW, Washing- children. Copies of the paper are available ton, DC 20433. Please contact Roberto free from the World Bank, 1818 H Street 3174. Inequality of Outcomes Guzman, room 17-168, telephone 202- NW, Washington, DC 20433. Please contact and Inequality of Opportunities 473-2993, fax 202-522-1201, email Roberto Guzman, room 17-168, telephone in Brazil address rguzman@worldbank.org. Policy 202-473-2993, fax 202-522-1201, email Research Working Papers are also posted address rguzman@worldbank.org. Policy Frangois Bourguignon, Francisco on the Web at http://econ.worldbank.org. Research Working Papers are also posted H. G. Ferreira, and Marta Men6ndez The authors may be contacted at vpaqueo on the Web at http-//econ.worldbank.org. (December 2003) @worldbank.org, gacevedo@worldbank. The authors may be contacted at vpaqueo org, or sparandekar@worldbank.org. (15 @worldbank.org or gacevedo@worldbank. Bourguignon, Ferreira, and Men6ndez pages) org. (15 pages) depart from John Roemer's theory of equality of opportunities. They seek to determine what part of observed outcome inequality may be attributed to differ- ences in observed "circumstances," including family background, and what part is due to "personal efforts." The au- thors use a microeconometric technique to 4 Policy Research Working Paper Series simulate what the distribution of assets corresponded in 2001 to 159 3176. Location Decisions and outcomes would look like if circumstances percent of GDP, a level that was surpassed Nongovernmental Organization were the same for everybody. They apply by only four high-income countries. But Motivation: Evidence from Rural this technique to Brazilian data from the because of the imposition of exchange con- Bangladesh 1996 household survey, both for earnings trols, they lacked international diversifi- and for household incomes. The authors cation. In July 1995 South Africa was the Varun Gauri and Anna Fruttero show that observed circumstances are a first developing country that explicitly al- (December 2003) major source of outcome inequality in lowed its pension funds and other insti- Brazil, probably more so than in other tutional investors to make use of "asset Nongovernmental organizations (NGOs) countries for which information is swaps." play an increasingly important role in available. Nevertheless, the level of in- But the South African authorities did development assistance, but little system- equality after observed circumstances are not authorize the use of properly specified atic evidence is available about their ob- equalized remains very high in Brazil. swap contracts as described by Bodie and jectives and choices in developing coun- This paper-a joint product of the Merton, but rather permitted institutional tries. Gauri and Fruttero develop two styl- Office of the Senior Vice President and investors to "obtain foreign investments ized accounts of NGO motivation: one in Chief Economist, and the Poverty Team, by way of swap arrangements." which donor contracts determine location Development Research Group-is part As Vittas argues in this paper, the decisions, and another in which altruistic of a larger effort in the Bank to understand asset swap mechanism turned out to be motivations are the principal determi- income inequality. Copies of the paper cumbersome and inefficient. However, it nants. The authors then use data from the are available free from the World Bank, did allow institutional investors to attain 1995 and 2000 rounds of the Bangladesh 1818 H Street NW, Washington, DC some level ofinternational diversification. Households and Income and Expenditure 20433. Please contact Patricia Sader, Other developing countries should Survey to analyze location decisions of room MC3-556, telephone 202-473-3902, consider authorizing their institutional NGO programs established between those fax 202-522-1153, email address investors to engage in international asset two sample years. The data show that net psader@worldbank.org. Policy Research swaps. But they should authorize the use change in a community's NGO program Working Papers are also posted on the of properly designed swap contracts, was unrelated to the community's need Web at http://econ.worldbank.org. The preferably based on baskets of liquid and that NGOs were ready to establish authors may be contacted at fbourguignon securities, permit only global investment new programs in new areas without be- @worldbank.org or fferreira@worldbank. banks to act as counterparties, require the ing concerned of duplicating the efforts of org. (43 pages) use of global custodians, properly monitor other NGOs. The findings suggest that credit risk, maintain adequate collateral, contracts with donors, implicit or explicit, and adopt market-to-market valuation probably play a crucial role in determin- 3175. The Use of "Asset rules. ing the incentives that affect NGO pro- Swaps" by Institutional Asset swaps are clearly a second-best gram location choices. Investors In South Africa option compared to the lifting of exchange This paper-a product of Public Ser- controls. However, they may facilitate risk vices, Development Research Group-is Dimitri Vittas diversification in the presence of such con- part of a larger effort in the group to ana- (December 2003) trols. And they may even have a role to lyze the incentives of service providers. play in their absence. Copies of the paper are available free from Leading financial economists have pro- This paper-a product of the Financial the World Bank, 1818 H Street NW, posed the use of international asset swaps Sector Operations and Policy Depart- Washington, DC 20433. Please contact (Merton 1990, Bodie and Merton 2002) as ment-is part of a larger effort in the Hedy Sladovich, room MC3-607, tele- a way of efficiently achieving interna- department to study the functioning of phone 202-473-7698, fax 202-522-1154, tional diversification without eroding the pension funds and other institutional email address hsladovich@worldbank.org. level of foreign exchange reserves and investors. Copies of the paper are avail- Policy Research Working Papers are also weakening local market development, able free from the World Bank, 1818 H posted on the Web at httpi/econ. International asset swaps entail limited Street NW, Washington, DC 20433. worldbank.org. The authors may be con- foreign currency flows (only net gains or Please contact Priscilla Infante, room tacted at vgauri@worldbank.org or af295 losses need to be exchanged). They protect MC9-904, telephone 202-473-7642, fax @nyu.edu. (25 pages) foreign investors from market manipula- 202-522-7105, email address pinfante tion and expropriation risk and have much @worldbank.org. Policy Research Work- lower transaction costs than outright in- ing Papers are also posted on the Web at 3177. Does Infrastructure vestments. http*//econ.worldbank.org. The author Reform Work for the Poor? But asset swaps are constrained by the may be contacted at dvittas@worldbank. A Case Study on the Cities attractiveness of local markets to foreign org. (34 pages) of La Paz and El Alto in Bolivia investors, and by various regulatory is- sues covering counter-party risk and col- Vivien Foster and Osvaldo Irusta lateral considerations, and accounting, (December 2003) valuation, and reporting rules. Institutional investors are well From 1994 onward, Bolivia undertook a developed in South Africa. Their total major reform of its infrastructure sectors. Policy Research Working Paper Series 5 Foster and Irusta examine the impact of 3178. Small and Medium and remittances for 74 low- and middle- the reforms from the perspective of poor Enterprises, Growth, and Poverty: income developing countries. Four key households in the adjacent cities of La Paz Cross-Country Evidence findings emerge: and El Alto, particularly in terms of ac- * International migration--defined as cess to services. Different policies adopted Thorsten Beck, Ash Demirgdq-Kunt, the share of a country's population living across the infrastructure sectors led to and Ross Levine abroad-has a strong, statistical impact diverging outcomes. (December 2003) in reducing poverty. On average, a 10 In the water and sewerage sector, the percent increase in the share of interna- concessionaire was placed under legal Beck, Demirgtig-Kunt, and Levine explore tional migrants in a country's population obligation to meet connection targets in the relationship between the relative size will lead to a 1.9 percent decline in the low income neighborhoods, while custom- ofthe small and medium enterprise (SME) share of people living in poverty ($1.00 a ers were given the facility to spread pay- sector, economic growth, and poverty us- person a day). ment of connection charges over a two year ing a new database on the share of SME * Distance to a major labor-receiving period and opt for a lower cost labor in the total manufacturing labor region-like the United States or OECD "condominial connection." As a result the force. Using a sample of 76 countries, they (Europe)-has an important effect on rate of expansion of services increased by find a strong association between the im- international migration. Developing 70 percent relative to the pre-reform portance of SMEs and GDP per capita countries that are located closest to the period. growth. This relationship, however, is not United States or OECD (Europe) are also In the telecommunications sector, fixed robust to controlling for simultaneity bias. those countries with the highest rates of and cellular services tell very different So, while a large SME sector is character- migration. stories. On the one hand, fixed line istic of successful economies, the data fail * An inverted U-shaped curve exists services remained inaccessible to the poor to support the hypothesis that SMEs ex- between the level of country per capita due to the membership fee of US$1,500 ert a causal impact on growth. Further- income and international migration. charged by the cooperative, or the alter- more, the authors find no evidence that Developing countries with low or high per native nonmember option of paying a SMEs reduce poverty. Finally, they find capita GDP produce smaller shares of US$23 monthly rental fee. On the other qualified evidence that the overall busi- international migrants than do middle- hand, cellular coverage increased tenfold ness environment facing both large and income developing countries. The authors from 1996-99 as the advent ofcompetition small firms-as measured by the ease of find no evidence that developing countries led to huge reductions both in connection firm entry and exit, sound property rights, with higher levels ofpoverty produce more and calling charges, while the introduc- and contract enforcement-influences migrants. Because of considerable travel tion of prepayment cards greatly facili- economic growth. costs associated with international migra- tated the control of expenditure. This paper-a product of Finance, De- tion, international migrants come from The expansion that took place did not velopment Research Group-is part of a those income groups which are just above bypass the poor. While first quintile house- larger effort in the group to understand the poverty line in middle-income devel- holds saw barely any improvement in ac- the role of SMEs. Copies of the paper are oping countries. cess to utility services in the period lead- available free from the World Bank, 1818 * International remittances--defined ing up to the 1994 reforms, in the five years H Street NW, Washington, DC 20433. as the share of remittances in country that followed coverage rates for these Please contact Agnes Yaptenco, room GDP-have a strong, statistical impact in households rose by more than 20 percent- MC3-439, telephone 202-473-1823, fax reducing poverty. On average, a 10 per- age points for water and sewerage, and 202-522-1155, email address ayaptenco cent increase in the share of international more than 10 percentage points for electric- @worldbank.org. Policy Research Work- remittances in a country's GDP will lead ity and telephones. Overall, 80 percent of ing Papers are also posted on the Web at to a 1.6 percent decline in the share of new water and sewerage connections and httpf//econ.worldbank.org. The authors people living in poverty. 65 percent of new electricity and telephone may be contacted at tbeck@worldbank. This paper-a product of the Poverty connections went to residents in the poor- org, ademirguckunt@worldbank, or Reduction Group, Poverty Reduction est neighborhoods of La Paz and El Alto. rlevine@csom.umn.edu. (46 pages) and Economic Management Network-is This paper-a product of the Finance, part of a larger effort in the network to Private Sector, and Infrastructure Unit, understand better how international Latin America and the Caribbean Re- 3179. International Migration, migration and remittances affect poverty gion-is part of a larger effort in the re- Remittances, and Poverty in developing countries. Copies of the gion to understand and evaluate the so- in Developing Countries paper are available free from the World cial impacts of the infrastructure reforms Bank, 1818 H Street NW, Washington, that took place in the 1990s. Copies of the Richard H. Adams, Jr. and John Page DC 20433. Please contact Nelly Obias, paper are available free from the World (December 2003) room MC4-834, telephone 202-473-1986, Bank, 1818 H Street NW, Washington, DC fax 202-522-3283, email address nobias 20433. Please contact Vivien Foster, room Few studies have examined the impact of @worldbank.org. Policy Research 15-005, telephone 202-458-9574, fax 202- international migration and remittances Working Papers are also posted on the 522-3552, email address vfoster on poverty in a broad cross-section of de- Web at http://econ.worldbank.org. The @worldbank.org. Policy Research Work- veloping countries. Adams and Page try authors may be contacted at radams ing Papers are also posted on the Web at to fill this gap by constructing a new data @worldbank.org orjpage@worldbank.org. http://econ.worldbank.org. (29 pages) set on poverty, international migration, (37 pages) 6 Policy Research Working Paper Series 3180. Equitable Provision of Long- takesontheliabilityofrenewingit,orre- lacking. On the whole, only the African Term Public Goods: The Role of placing it with a permanent credit, the and Middle Eastern firms were signifi- Negotiation Mandates temporary credit must sell at a discount cantly dissatisfied with the quality of lo- compared with a permanent credit. cal MBA graduates. The survey results Franck Lecocq and Jean-Charles Hourcade Chomitz and Lecocq show that this dis- show that MBAs worldwide are not fully (December 2003) count depends on the expected change in satisfying the needs of firms. Each of the price of a permanent credit. Temporary other regions of the world has its own Lecocq and Hourcade examine the norma- credits have value only if restrictions on particular weaknesses, and at the same tive aspects of sharing the costs of provid- carbon emissions are not expected to time some common weaknesses (such as ing global and long-term public goods tighten substantially. The intuition is il- work experience and communication between poor and rich countries. In a one- lustrated by assessing the value of a hy- skills) stand out. These results show that period optimization model, who provides pothetical temporary sulfur dioxide se- a "cookie-cutter" approach to training public goods strictly depends on whether questration credit using historical data on MBAs cannot work. Rather, MBA pro- or not individual weights in the planner's actual sulfur dioxide allowance prices. grams have to be tailored to suit the needs welfare function are based on initial This paper-a product ofInfrastructure of the local business community while also endowments. But with long-term public and Environment, Development Research teaching common business fundamentals. goods, banning wealth redistribution at Group-is part of a larger effort in the This paper-a product of the Global first period still allows for several equilib- group to assess policies for mitigating cli- Business School Network, International riums depending on parties' willingness mate change. Copies of the paper are Finance Corporation-is part of a larger to acknowledge changes in negotiating available free from the World Bank, 1818 effort to build the capacity of business powers over time, and on whether they H Street NW, Washington, DC 20433. schools in developing countries to train care only for their own descendants. The Please contact Viktor Soukhanov, room local managers. Copies of the paper are authors show that "adaptative" and "uni- MC2-205, telephone 202-473-5721, fax available free from the World Bank, 1818 versal" mandates lead to far more robust 202-522-3230, email address vsoukhanov H Street NW, Washington, DC 20433. equilibrium. In all cases, a simple rule of @worldbank.org. Policy Research Work- Please contact Rosemarie Pena, room thumb for allocating expenditures at first ing Papers are also posted on the Web at F7K-282, telephone 202-473-9623, fax period emerges, independent of both the http://econ.worldbank.org. The authors 202-974-4301, email address rpena@ifc. optimal level of public goods and the sec- may be contacted at kchomitz org. Policy Research Working Papers are ond-period distribution of expenditures. @worldbank.org or flecocq@worldbank. also posted on the Web at http-//econ. This paper-a product ofInfrastructure org. (13 pages) worldbank.org. The author may be con- and Environment, Development Research tacted at achaudhry@ifc.org. (37 pages) Group-is part of a larger effort in the group to assess policies for mitigating cli- 3182. The International Finance mate change. Copies of the paper are Corporation's MBA Survey: How 3183. Conflicts of Interest available free from the World Bank, 1818 Developing Country Firms Rate in Self-Regulation: H Street NW, Washington, DC 20433. Local Business School Training Can Demutualized Exchanges Please contact Viktor Soukhanov, room Successfully Manage Them? MC2-205, telephone 202-473-5721, fax Azam Chaudhry 202-522-3230, email address vsoukhanov (December 2003) John W. Carson @worldbank.org. Policy Research Work- (December 2003) ing Papers are also posted on the Web at Graduate education in business adminis- httpJ/econ.worldbank.org. Franck Lecocq tration was developed in the United States Carson examines the implications of may be contacted at flecocq@worldbank. around the turn of the twentieth century. demutualization of financial exchanges org. (39 pages) MBA and similar graduate-level business for their roles as self-regulatory organiza- programs took hold more slowly in other tions. Many regulators and exchanges countries, but the number of such pro- believe that conflicts of interest increase 3181. Temporary Sequestration grams expanded rapidly from the 1960s when exchanges convert to for-profit busi- Credits: An Instrument for onward. In an effort to determine what nesses. Demutualization also changes the Carbon Bears firms from other countries require from nature of an exchange's regulatory role as business school graduates, the Interna- broker-dealers' ownership interests are Kenneth M. Chomitz and Franck Lecocq tional Finance Corporation conducted a reduced. These factors are leading to (December 2003) survey ofthe quality ofbusiness education reduced regulatory roles for exchanges in in these countries. The survey results many jurisdictions. Temporary crediting of carbon storage is imply that the strengths and weaknesses The resulting changes have significant a proposed instrument that allows entities of developing and transition country implications for regulation of financial with emissions reductions obligations to MBAs seem to overlap with those ofMBAs markets, especially as exchanges are the defer some obligations for a fixed period from the U.S.: managers in the U.S. and only self-regulating organizations (SROs) oftime. This instrument provides a means in the developing countries find that the in most countries. Major changes in the ofguaranteeing the environmental integ- technical and analytical skills ofMBAs are role of exchanges require a rethinking of rity of a carbon sequestration project. But well developed while practical training the allocation of regulatory functions and because the user of the temporary credit and communication skills are significantly the role of self-regulation, as well as stron- Policy Research Working Paper Series 7 ger mechanisms to mitigate conflicts of tive link is exacerbated in countries that within six kilometers from a public interest. are poor, institutionally underdeveloped, telephone. Carson looks at the views of both ex- undergoing intermediate stages of finan- Although real electricity tariffs in- changes and regulators on these issues in cial development, or unable to conduct creased by 60-80 percent following the Asian, European, and North American countercyclical fiscal policies. They find reform, residential consumers have been jurisdictions where major exchanges have evidence that this negative relationship shielded by a "social tariff"policy that has converted to for-profit businesses. He actually reflects the harmful effect from kept charges at pre-reform levels. This finds that views on the conflicts of inter- volatility to growth. Furthermore, the au- policy, which costs US$50 million a year, est faced by demutualized exchanges vary thors find that the negative effect ofvola- does little to benefit poor households. The widely. In addition, the tools and processes tility on growth has become considerably reason is that 60 percent of poor house- used by exchanges and regulators to man- larger in the past two decades and that it holds are not connected to the electricity age conflicts also differ significantly across is mostly due to large recessions rather network, and those that are consume jurisdictions. The author concludes than normal cyclical fluctuations. modest amounts of electricity and hence that new and greater conflicts result from This paper-a product ofMacroeconom- capture only 10 percent of the total value demutualization and canvasses the ics and Growth, Development Research of the subsidy. In contrast, poor house- regulatory responses in the jurisdictions Group-is part of a larger effort in the holds without access to electricity pay examined. group to understand the effects of volatil- about US$11 a kilowatt-hour (or 80 times This paper-a product of the Financial ity. Copies of the paper are available free the electricity tariff) to light their homes Sector Operations and Policy Depart- from the World Bank, 1818 H Street NW, with candles and wick lamps. The re- ment-is part of a larger effort in the Washington, DC 20433. Please contact sources used to finance the "social tariff" department to study the development of Tourya Tourougui, room MC3-301, tele- would therefore be better used in further securities markets in emerging markets. phone 202-458-7431, fax 202-522-3518, accelerating the pace of new connections Copies of the paper are available free from email address ttourougui@worldbank.org. for currently underserved households. the World Bank, 1818 H Street NW, Policy Research Working Papers are also This paper-a product of the Finance Washington, DC 20433. Please contact posted on the Web at http*//econ. Private Sector, and Infrastructure Unit, Rose Vo, room MC9-626, telephone worldbank.org. Norman Loayza may be Latin America and the Caribbean Re- 202-473-3722, fax 202-522-2031, email contacted at nloayza@worldbank.org. (40 gion-is part of a larger effort in the re- address hvol@worldbank.org. Policy pages) gion to understand the social impacts of Research Working Papers are also posted infrastructure reform. Copies of the paper on the Web at http:/econ.worldbank.org. are available free from the World Bank, The author may be contacted at 3185. Does Infrastructure Reform 1818 H Street NW, Washington, DC johnwcarson@sympatico.ca. (29 pages) Work for the Poor? A Case Study 20433. Please contact Vivien Foster, room from Guatemala 15-005, telephone 202-458-9574, fax 202- 522-3552, email address vfoster 3184. Volatility and Growth Vivien Foster and Maria Caridad Araujo @worldbank.org. Policy Research Work- (January 2004) ing Papers are also posted on the Web at Viktoria Hnatkovska and Norman Loayza http://econ.worldbank.org. Maria Caridad (January 2004) Following the 1996 Peace Accords, Gua- Araujo may be contacted at araujo temala embarked on a major program of @are.berkeley.edu. (76 pages) Hnatkovska and Loayza study the empiri- infrastructure reform involving the re- cal, cross-country relationship between structuring and privatization of the elec- macroeconomic volatility and long-run tricity and telecommunications sectors 3186. Donor Fragmentation economic growth. They address four and a substantial increase in infrastruc- and Bureaucratic Quality central questions: ture investments partially financed by in Aid Recipients * Does the volatility-growth link privatization proceeds. As a result, the depend on country and policy character- pace of new connections to electricity, Stephen Knack and Aminur Rahman istics, such as the level of development or water, and sanitation services increased (January 2004) trade openness? by more than 40 percent. Moreover, house- * Does this link reflect a statistically holds in traditionally excluded sectors- This paper analyzes the impact of donor and economically significant causal effect the poor, rural, and indigenous popula- fragmentation on the quality of govern- from volatility to growth? tions-were twice as likely to be the ben- ment bureaucracy in aid-recipient na- * Has this relationship been stable over eficiaries of a new infrastructure connec- tions. A formal model of a donor's decision time and has it become stronger in recent tion than they had been prior to the Peace to hire government administrators to decades? Accords. The teledensity index increased manage donor-funded projects predicts * Does the volatility-growth connection by a factor of five from 4.2 in 1997 to 19.7 that the number of administrators hired actually reveal the impact of crises in 2001, largely because of the growth in declines as the donor's share of other rather than the overall effect of cyclical cellular telephones, which now outnum- projects in the country increases, and as fluctuations? ber fixed lines. The number of public tele- the donor's "altruism" (concern for the The authors find that macroeconomic phones in rural areas increased by 80 success of other donors' projects) in- volatility and long-run economic growth percent since the Peace Accords, so that creases. These hypotheses are supported are indeed negatively related. This nega- 80 percent of rural households are now by cross-country empirical tests using an 8 Policy Research Working Paper Series index of bureaucratic quality available for the risk of being caught and sanctioned) the stick (the tariff) is more effective in aid-recipient nations over the 1982-2001 is high, and when service providers face sustaining bilateral cooperation than the period. Declines in bureaucratic quality an elected rather than a randomly selected carrot (the transfer). Furthermore, the are associated with higher donor fragmen- monitor. Monitors put more effort into scope for cooperation is maximized when tation (reflecting the presence of many monitoring when they face reelection and both instruments are used. An implication donors, each with a small share of aid), when the public servant receives a higher ofthe analysis is that developing countries and with smaller shares of aid coming wage. Communities reelect monitors who have incentives to support an explicit from multilateral agencies, a proxy for do- put more effort into exposing embezzle- WTO prohibition of export cartels. nor "altruism." ment. Framing-whereby players are re- This paper-a product of Trade, Devel- This paper-a product of Public Ser- ferred to as "health workers" and "commu- opment Research Group-is part of a vices, Development Research Group-is nity members" rather than by abstract larger effort in the group to analyze issues part of a larger effort in the group to iden- labels-affects neither mean embezzle- on the agenda of the WTO. Copies of the tify ways in which donors inadvertently ment nor mean monitoring effort, but sig- paper are available free from the World undermine institutional development in nificantly increases the variance in both. Bank, 1818 H Street NW, Washington, DC aid recipient countries. Copies of the pa- This suggests that different types of ex- 20433. Please contact Paulina Flewitt, per are available free from the World perimental subjects respond differently to room MC3-333, telephone 202-473-2724, Bank, 1818 H Street NW, Washington, DC the framing, possibly because they adhere fax 202-522-1159, email address pflewitt 20433. Please contact Hedy Sladovich, to different norms. @worldbank.org. Policy Research Work- room MC3-607, telephone 202-473-7698, This paper-a product of Public Ser- ing Papers are also posted on the Web at fax 202-522-1154, email address vices, Development Research Group-is http'I/econ.worldbank.org. The authors hsladovich@worldbank.org. Policy Re- part of a larger effort in the group to use may be contacted at bhoekman search Working Papers are also posted on new approaches (behavioral experiments) @worldbank.org or ksaggi@mail.smu.edu. the Web at httpI/econ.worldbank.org. The to explore corruption and the intrinsic (36 pages) authors may be contacted at sknack motivation of public service providers. @worldbank.org or rahman.aminur Copies of the paper are available free from @ucl.ac.uk. (30 pages) the World Bank, 1818 H Street NW, 3189. Do Market Pressures Washington, DC 20433. Please contact Induce Economic Efficiency? Hedy Sladovich, room MC3-607, tele- The Case of Slovenian 3187. To Serve the Community phone 202-473-7698, fax 202-522-1154, Manufacturing, 1994-2001 or Oneself: The Public Servant's email address hsladovich@worldbank.org. Dilemma Policy Research Working Papers are also Peter F. Orazem and Milan Vodopivec posted on the Web at http://econ. (January 2004) Abigail Barr, Magnus Lindelow, worldbank.org. Magnus Lindelow may be and Pieter Serneels contacted at mlindelow@worldbank.org. The Slovenian transition represents a slow (January 2004) (28 pages) but steady liberalization of constraints on competition. Using a unique longitudinal Embezzlement of resources is hampering data set on all manufacturing firms in public service delivery throughout the 3188. Trading Market Access for Slovenia over the period 1994-2001, developing world. Research on this issue Competition Policy Enforcement Orazem and Vodopivec analyze how firm is hindered by problems of measurement. efficiency changed in response to changing To overcome these problems, Barr, Bernard Hoekman and Kamal Saggi competitive pressures, holding constant Lindeldw, and Serneels use an economic (January 2004) firm attributes. Results show that the pe- experiment to investigate the determi- riod was one of atypically rapid growth of nants of corrupt behavior. They focus on Motivated by discussions at the World total factor productivity (TFP) relative to three aspects of behavior: Trade Organization (WTO) on multilat- levels in OECD countries, and that the rise * Embezzling by public servants. eral disciplines with respect to competi- in firm efficiency occurs across almost all * Monitoring effort by designated tion law, Hoekman and Saggi develop a industries and firm types-large or small, monitors. two-country model that explores the in- state or private, and domestic or foreign- * Voting by community members when centives of a developing country to offer owned. Changes in firm ownership type provided with an opportunity to select a increased market access (by way of a tar- have no impact on firm efficiency. Rather, monitor. iff reduction) in exchange for a ban on for- competitive pressures that sort out ineffi- The experiment allows the authors to eign export cartels by its developed coun- cient firms of all types and retain the most study the effect of wages, effort try trading partner. They show that such efficient, coupled with the entry of new observability, rules for monitor assign- a bargain is feasible and can generate a private firms that are at least as efficient ment, and professional norms. Their ex- globally welfare-maximizing outcome. as surviving firms, prove to be the major perimental subjects are Ethiopian nurs- The authors also explore the incentives for source of TFP gains. Market competition ing students. bilateral cooperation when the developing from new entrants, foreign-owned firms, The authors find that service providers country uses transfers to "pay"for compe- and international trade also raise firm ef- who earn more embezzle less, although tition enforcement by the developed coun- ficiency in the industry. Results strongly the effect is small. Embezzlement is also try. A comparison of the two cases shows confirm that market competition fosters lower when observability (associated with that there exist circumstances in which efficiency. Policy Research Working Paper Series 9 This paper-a product of the Social Pro- Please contact Paulina Flewitt, room 3192. Greenfield Foreign Direct tection Team, Human Development Net- MC3-333, telephone 202-473-2724, fax Investment and Mergers and work-is part of a larger effort in the net- 202-522-1159, email address pflewitt Acquisitions: Feedback and work to investigate sources of growth of @worldbank.org. Policy Research Work- Macroeconomic Effects labor market productivity. Copies of the ing Papers are also posted on the Web at paper are available free from the World http://econ.worldbank.org. Maurice Schiff C6sar Calder6n, Norman Loayza, Bank, 1818 H Street NW, Washington, DC may be contacted at mschifl@worldbank. and Luis Serv6n 20433. Please contact Melvina Clarke, org. (21 pages) (January 2004) room G7-112, telephone 202-473-1752, fax 202-522-3252, email address mclarke Foreign direct investment (FDI) flows to @worldbank.org. Policy Research Work- 3191. Robustness of Subjective developing countries surged in the 1990s ing Papers are also posted on the Web at Welfare Analysis in a Poor to become their leading source of external http://econ.worldbank.org. Milan Developing Country: financing. This rise in FDI volume was Vodopivec may be contacted at Madagascar 2001 accompanied by a marked change in its mvodopivec@worldbank.org. (35 pages) composition: investment taking the form Michael Lokshin, Nithin Umapathi, of acquisition of existing assets (mergers and Stefano Paternostro and acquisitions) grew much more rapidly 3190. On the Quantity and Quality (January 2004) than investment in new assets of Knowledge: The Impact of ("greenfield" FDI), particularly in coun- Openness and Foreign Research Lokshin, Umapathi, and Paternostro tries undertaking extensive privatization and Development on North-North analyze the subjective perceptions of of public enterprises. This raises two is- and North-South Technology poverty in Madagascar in 2001 and their sues. First, is the mergers and acquisi- Spillovers relationship to objective poverty indica- tions boom a onetime effect of tors. They base their analysis on survey privatization, or is it likely to be followed Maurice Schiff and Yanling Wang responses to a series of subjective by a rise in greenfield investment? Second, (January 2004) perception questions. The authors extend do these two types of FDI have different the existing empirical methodology for macroeconomic causes and consequences Knowledge accumulation means either estimating subjective poverty lines on in relation to aggregate investment and new knowledge (an increase in its qual- the basis of categorical consumption growth? Calder6n, Loayza, and Serv6n ity), greater access to existing knowledge adequacy questions. Based on this focus on establishing the stylized facts in (an increase in its quantity), or both. Schiff methodology they calculate the house- terms of time precedence between both and Wang examine the relative contribu- hold-specific, subjective poverty lines and types of FDI, investment, and growth, us- tion of these two components of knowledge compare the poverty profiles derived from ing annual data for the period 1987-2001 to total factor productivity (TFP) for different subjective welfare questions. The and a large sample of industrial and de- North-North and North-South trade-re- results show that the aggregate poverty veloping countries. The authors find that lated knowledge diffusion, with quantity measures derived from consumption in all samples higher mergers and acqui- proxied by openness, and quality by the adequacy questions accord quite well with sitions is typically followed by higher research and development (R&D) content the poverty measures based on objective greenfield investment, while the reverse of trade. The measure offoreign R&D used poverty lines. The subjective welfare is true only for developing countries. In in the literature on trade-related knowl- analysis can be used in poor developing industrial and developing countries alike, edge diffusion imposes equal contribu- countries for evaluating socioeconomic both types of FDI lead domestic invest- tions to TFP of openness and of R&D con- and distributional impacts of various ment, but not the reverse. Finally, neither tent of trade. The authors' analysis shows policy interventions. type of FDI appears to precede economic that R&D has a greater impact on TFP This paper-a product of the Poverty growth in developing or industrial coun- than openness for North-North trade and, Team, Development Research Group- tries, but FDI does respond positively to conversely, openness has a greater impact is part of a larger effort in the group to increases in the growth rate. on TFP than R&D for North-South trade. understand the relationship between This paper-a product ofMacroeconom- These results imply that the impact of subjective and objective economic welfare. ics and Growth, Development Research openness on TFP in developing (indus- Copies of the paper are available free Group-is part of a larger effort in the trial) countries is larger (smaller) than from the World Bank, 1818 H Street group to understand international capital previously obtained in this literature, and NW, Washington, DC 20433. Please flows. Copies of the paper are available that developing countries can obtain contact Patricia Sader, room MC3-556, free from the World Bank, 1818 H Street larger productivity gains from trade lib- telephone 202-473-3902, fax 202-522- NW, Washington, DC 20433. Please con- eralization than previously thought. 1153, email address psader@worldbank. tact Tourya Tourougui, room MC3-301, This paper-a product of Trade, Devel- org. Policy Research Working Papers telephone 202-458-7431, fax 202-522- opment Research Group-is part of a are also posted on the Web at http:l 3518, email address ttourougui larger effort in the group to examine the econ.worldbank.org. The authors may @worldbank.org. Policy Research Work- link between trade and international tech- be contacted at mlokshin@worldbank. ing Papers are also posted on the Web at nology diffusion. Copies of the paper are org, numapathi@worldbank.org, or http://econ.worldbank.org, The authors available free from the World Bank, 1818 spaternostro@worldbank.org. (29 pages) may be contacted at nloayza@worldbank. H Street NW, Washington, DC 20433. org or lserven@worldbank.org. (30 pages) 10 Policy Research Working Paper Series 3193. Quantifying the Impact This paper-a product of the Trade, 20433. Please contact Agnes Yaptenco, of Services Liberalization Development Research Group-is part of room MC3-439, telephone 202-473-1823, in a Developing Country a larger effort in the department to mea- fax 202-522-1155, email address sure the benefits of services trade. Copies ayaptenco@worldbank.org. Policy Re- Denise Eby Konan and Keith E. Maskus of the paper are available free from the search Working Papers are also posted on (January 2004) World Bank, 1818 H Street NW, Washing- the Web at http//econ.worldbank.org. The ton, DC 20433. Please contact Paulina authors may be contacted at tbeck Konan and Maskus consider how service Flewitt, room MC3-333, telephone 202- @worldbank.org, ademirguckunt liberalization differs from goods liberaliza- 473-2724, fax 202-522-1159, email ad- @worldbank.org, or rlevine@csom.umn. tion in terms ofwelfare, the level and com- dress pflewitt@worldbank.org. Policy Re- edu. (35 pages) position of output, and factor prices within search Working Papers are also posted on a developing economy, in this case Tuni- the Web at http://econ.worldbank.org. The sia. Despite recent movements toward lib- authors may be contacted at email konan 3195. Government Procurement: eralization, Tunisian service sectors @hawaii.edu or maskus@colorado.edu. (30 Market Access, Transparency, remain largely closed to foreign participa- pages) and Multilateral Trade Rules tion and are provided at high cost relative to many developing nations. The authors Simon J. Evenett and Bernard M. Hoekman develop a computable general equilibrium 3194. Law and Firms' Access (January 2004) (CGE) model of the Tunisian economy to Finance with multiple products and services and Evenett and Hoekman examine the effects three trading partners. They model goods Thorsten Beck, Ash Demirgag-Kunt, on national welfare and market access of liberalization as the unilateral removal of and Ross Levine two public procurement practices- product tariffs. Restraints on services (January 2004) discrimination against foreign suppliers trade involve both restrictions on cross- of goods and services and non- border supply (mode 1 in the GATS) and Why does a country's legal origin influence transparency of the procedures used to on foreign ownership through foreign its firms' access to finance? Using data allocate government contracts to firms. direct investment (mode 3 in the GATS). from over 4,000 firms in 38 countries, Both types of policies have become promi- The former are modeled as tariff-equiva- Beck, Demirgig-Kunt, and Levine show nent in international trade negotiations, lent price wedges while the latter are that firms in countries with French legal including the Doha Round of the WTO comprised of both monopoly-rent distor- origin face significantly higher obstacles trade talks. Traditionally, the focus of in- tions (arising from imperfect competition in accessing external finance than firms ternational trade agreements has been on among domestic producers) and ineffi- in common law countries. Next, their re- market access. However, many develop- ciency costs (arising from a failure of sults indicate that French legal origin ing countries have opposed the launch of domestic service providers to adopt least- countries tend to have (1) less adaptable negotiations to extend the principle of cost practices). legal systems, as defined by the degree to nondiscrimination to procurement. As a They find that goods-trade liberaliza- which case law and principles of equity result, the current focus in the Doha tion yields a gain in aggregate welfare and rather than simply statutory law are ac- Round is on an effort to launch discussions reorients production toward sectors of cepted foundations of legal decisions, and on agreeing to principles of transparency benchmark comparative advantage. How- (2) less politically independentjudiciaries, in procurement. While transparency will ever, a reduction of services barriers in a as defined by the degree of tenure of su- not constrain the ability of governments way that permits greater competition preme court judges and their jurisdiction to discriminate in favor of domestic firms, through foreign direct investment gener- over cases involving the government. Fi- it could nonetheless improve market ates larger welfare gains. Service liberal- nally, the authors find that the adaptabil- access by reducing corruption. ization also requires lower adjustment ity of a country's legal system is more The authors assess and compare the costs, measured in terms ofsectoral move- important for explaining the obstacles impact of eliminating discrimination and ment of workers, than does goods-trade that firms face in contracting for external fostering greater domestic competition liberalization. And it tends to increase finance than the political independence of in procurement markets and enhancing economic activity in all sectors and raise the judiciary. So, they distinguish among transparency in state contracting. Their the real returns to both capital and labor. competing explanations of why law mat- analysis concludes that greater domestic The overall welfare gains of comprehen- ters for financial development by empiri- competition on procurement markets sive service liberalization amount to more cally documenting the links running from and greater transparency will improve than 5 percent of initial consumption. The international differences in legal origin to economic welfare. But there is no clear-cut bulk of these gains come from opening the operation of the financial system at the effect on market access of ending discrimi- markets for finance, business services, firm level. nation or improving transparency. This and telecommunications. Because these This paper-a product of Finance, De- mismatch between market access and are key inputs into all sectors of the velopment Research Group-is part of a welfare effects may account for the slower economy, their liberalization cuts costs larger effort in the group to understand progress in negotiating procurement dis- and drives larger efficiency gains overall. the links between legal institutions and ciplines in trade agreements than for tra- The results point to the potential impor- financial development. Copies of the pa- ditional border measures such as tariffs, tance of deregulating services provision per are available free from the World given that market access is the driving for economic development. Bank, 1818 H Street NW, Washington, DC force behind trade agreements. Policy Research Working Paper Series 11 This paper-a product of Trade, Devel- room MC3-333, telephone 202-473-2724, contacted at bessamanssahCworldbank. opment Research Group-is part of a fax 202-522-1159, email address org. (36 pages) larger effort in the group to analyze issues pflewitt@worldbank.org. Policy Research that have been put on the agenda of trade Working Papers are also posted on the negotiations. Copies of the paper are avail- Web at http://econ.worldbank.org. The 3198. Market Access for Sale: able free from the World Bank, 1818 H authors maybe contacted at bsmarzynska Latin America's Lobbying Street NW, Washington, DC 20433. @worldbank.orgorksaggi@mail.smu.edu. for U.S. Tariff Preferences Please contact Paulina Flewitt, room (37 pages) MC3-333, telephone 202-473-2724, fax Hiau Looi Kee, Marcelo Olarreaga, 202-522-1159, email address pflewitt and Peri Silva @worldbank.org. Policy Research Work- 3197. Building and Running (February 2004) ing Papers are also posted on the Web at General Equilibrium Models http://econ.worldbank.org. Bernard in EViews Kee, Olarreaga, and Silva assess the Hoekman may be contacted at bhoekman foreign lobbying forces behind the tariff @worldbank.org. (27 pages) B. Essama-Nssah preferences that the United States grants (January 2004) to Latin American and Caribbean coun- tries. The authors extend the basic frame- 3196. Technological Asymmetry A crucial step in policy analysis involves work developed by Grossman and among Foreign Investors and computing consequences ofpolicy actions. Helpman (1994) to explain the relation- Mode of Entry Essama-Nssah shows how to implement ship between foreign lobbying and tariff numerically a general equilibrium model preferences. Their results suggest that Beata Smarzynska Javorcik and Kamal Saggi in EViews. Computable general equilib- returns to Latin American and Caribbean (January 2004) rium models are now commonly used in exporters lobbying for tariff preferences in both industrial and developing countries the United States are around 50 percent. How does the preferred entry mode of for- to assess the impact of external shocks or The reason for these large returns is the eign investors depend on their technologi- economic policies on the structure of the relatively low estimated weight given to cal capability relative to that of their ri- economy or the distribution of welfare. social welfare in the U.S. government's vals? Javorcik and Saggi develop a simple The current version of EViews offers a set objective function when deciding whether model of entry mode choice and evaluate of tools for building and solving simula- or not to grant tariff preferences to Latin its main testable implication using data tion models in general. The same tools American and Caribbean exporters. on foreign investors in Eastern European make it possible to conduct policy analy- This paper-a product of Trade, Devel- countries and the successor states of the sis within a general equilibrium frame- opment Research Group-is part of a former Soviet Union. The model considers work. Based on the generalized Salter- larger effort in the group to study the is- competition between two asymmetric for- Swan framework and macroeconomic data sues related to trade and growth. Copies eign investors and captures the following for Indonesia, the author shows how to of the paper are available free from the tradeoffs: while a joint venture helps a process a social accounting matrix, specify World Bank, 1818 H Street NW, Washing- foreign investor secure a better position and calibrate the model, and run simula- ton, DC 20433. Please contact Michelle in the product market compared with its tions. The results replicate welfare and Chester, room MC3-322, telephone 202- rival, it also requires that profits be shared structural effects of shocks and policies 458-2010, fax 202-522-1159, email ad- with the local partner. The model predicts consistent with the underlying conceptual dress mchester@worldbank.org. Policy that the efficient foreign investor is less framework. They also reveal the key role Research Working Papers are also posted likely to choose a joint venture and more played by structural parameters, such as on the Web at http://econ.worldbank.org. likely to enter directly relative to the in- the elasticity of export transformation and The authors may be contacted at hlkee efficient investor. The authors' empirical that of import substitution, in determin- @worldbank.org, molarreaga@worldbank. analysis supports this prediction: foreign ing the extent of structural adjustment to org, or pasilva@students.uiuc.edu. (32 investors with more sophisticated tech- shocks and the relevance of the policy pages) nologies and marketing skills (relative to response. other firms in their industry) tend to pre- This paper-a product of the Poverty fer direct entry to joint ventures. This Reduction Group, Poverty Reduction and 3199. On the Measurement of empirical finding is robust to controlling Economic Management Network-is part Solvency of Insurance Companies: for host country-specific effects and other of a larger effort in the network to build Recent Developments that will commonly cited determinants of entry and disseminate tools for economic analy- Alter Methods Adopted in mode. sis. Copies of the paper are available free Emerging Markets This paper-a product of Trade, Devel- from the World Bank, 1818 H Street NW, opment Research Group-is part of a Washington, DC 20433. Please contact Craig Thorburn larger effort in the group to examine the Oykiao Kootzemew, room MC4-620, tele- (February 2004) impact of foreign direct investment on phone 202-473-5075, fax 202-522-3283, economic development. Copies of the pa- email address okootzemew@worldbank. Solvency-both as an economic require- per are available free from the World org. Policy Research Working Papers are ment in the market and as a regulatory Bank, 1818 H Street NW, Washington, DC also posted on the Web at http:// and supervisory tool-is critical to all 20433. Please contact Paulina Flewitt, econ.worldbank.org. The author may be insurance markets. Current market 12 Policy Research Working Paper Series conditions, coupled with expected institu- these results are robust to a variety of approaches, with the emphasis on the tional changes, will place particular alternative specifications, and that their latter. It is generally agreed that math- burdens on emerging and developing core specifications have substantial out- ematical approaches tend to yield more ac- markets. Institutional solvency, effective of-sample predictive power. The authors curate estimates than behavioral ap- risk management within companies, effec- also explore the quantitative implications proaches. After a short description of tive supervisory oversight, and the devel- of these results for the lending strategies behavioral approaches, the author opment of market disciplines are all of official creditors. discusses mathematical approaches in linked. Thorburn proposes that the effec- This paper-a joint product of Invest- detail, presenting three aggregation mod- tive implementation of the emerging re- ment Climate, Development Research els: non-Bayesian axiomatic models, gime needs a careful and diligent phased Group, and Heavily Indebted Poor Coun- Bayesian models, and psychological process of capacity-building. The first pri- tries (Africa and Latin America), Poverty scaling models. She also discusses issues orities are identified as a strong supervi- Reduction and Economic Management of stochastic dependence. sor, a basic solvency margin requirement, Network-is part of a larger effort in the This paper is a product of the Evaluation and the initiation of efforts to gather ap- Bank to study debt sustainability issues. Group, World Bank Institute. Copies ofthe propriate data sets. This can be followed Copies of the paper are available free from paper are available free from the World by advancing development ofmore sophis- the World Bank, 1818 H Street NW, Bank, 1818 H Street NW, Washington, DC ticated solvency regulation, increased use Washington, DC 20433. Please contact 20433. Please contact Fumika Ouchi, room of technical expertise, and increased use Anna Bonfield, room MC3-354, telephone J4-066, telephone 202-458-1437, fax 202- of market disciplines as the community 202-473-1248, fax 202-522-3518, email 522-1655, email address fouchi and financial markets become more able address abonfield@worldbank.org. Policy @worldbank.org. Policy Research Working to exercise such discipline. Research Working Papers are also posted Papers are also posted on the Web at This paper-a product of the Financial on the Web at http://econ.worldbank.org. http//econ.worldbank.org. (17 pages) Sector Operations and Policy Depart- The authors may be contacted at akraay ment-is part of a larger effort in the @worldbank.org or vnehru@worldbank. department to study the influence of in- org. (49 pages) 3202. Governance and Bank surance sector developments in emerging Valuation and developing economies. Copies of the paper are available free from the World 3201. A Literature Review Gerard Caprio, Luc Laeven, and Bank, 1818 H Street NW, Washington, DC on the Use of Expert Opinion Ross Levine 20433. Please contact Craig Thorburn, in Probabilistic Risk Analysis (February 2004) room MC9-717, telephone 202-473-4932, fax 202-522-3198, email address Fumika Ouchi Which public policies and ownership cthorburn@worldbank.org. Policy Re- (February 2004) structures enhance the governance of search Working Papers are also banks? Caprio, Laeven, and Levine con- posted on the Web at http://econ. Risk assessment is part of the decision- struct a new database on the ownership worldbank.org. The author may be con- making process in many fields of disci- of banks internationally and then assess tacted at cthorburn@worldbank.org. (43 pline, such as engineering, public health, the ramifications of ownership, share- pages) environment, program management, holder protection laws, and supervisory regulatory policy, and finance. There has and regulatory policies on bank valua- been considerable debate over the philo- tions. Except in a few countries with very 3200. When is External Debt sophical and methodological treatment of strong shareholder protection laws, banks Sustainable? risk in the past few decades, ranging from are not widely held, but rather families or its definition and classification to meth- the state tend to control banks. The au- Aart Kraay and Vikram Nehru ods of its assessment. Probabilistic risk thors find that: (February 2004) analysis (PRA) specifically deals with * Larger cash flow rights by the control- events represented by low probabilities of ling owner boosts valuations. Kraay and Nehru empirically examine the occurring with high levels of unfavorable * Stronger shareholder protection laws determinants of "debt distress," which consequences. Expert judgment is often a increase valuations. they define as periods in which countries critical source ofinformation in PRA, since * Greater cash flow rights mitigate the resort to exceptional finance in any of empirical data on the variables of inter- adverse effects of weak shareholder pro- three forms: (1) significant arrears on est are rarely available. Ouchi reviews the tection laws on bank valuations. external debt, (2) Paris Club resched- literature on the use of expert opinion in These results are consistent with the uling, and (3) nonconcessional Inter- PRA, in particular on the approaches to views that expropriation of minority national Monetary Fund lending. Us- eliciting and aggregating experts' assess- shareholders is important internationally, ing probit regressions, the authors ments. The literature suggests that the that laws can restrain this expropriation, find that three factors explain a sub- methods by which expert opinions are and concentrated cash flow rights repre- stantial fraction of the cross-country collected and combined have a significant sent an important mechanism for govern- and time-series variation in the inci- effect on the resulting estimates. The au- ing banks. Finally, the evidence does not dence of debt distress: the debt bur- thor discusses two types of approaches to support the view that empowering official den, the quality of policies and insti- eliciting and aggregating expert judg- supervisory and regulatory agencies will tutions, and shocks. They show that ments-behavioral and mathematical increase the market valuation of banks. Policy Research Working Paper Series 13 This paper-a product of the Financial 3204. The Determinants The international community has paid Sector Operations and Policy Depart- of Financing Obstacles considerable attention to problems asso- ment-is part of a larger effort in the ciated with intellectual property that poor department to study the governance of fi- Thorsten Beck, Ash Demirgdq-Kunt, countries buy-such as the increased cost nancial institutions. Copies of the paper Luc Laeven, and Vojislav Maksimovic of pharmaceuticals brought on by the are available free from the World Bank, (February 2004) WTO's agreement on the Trade Related 1818 H Street NW, Washington, DC Aspects of Intellectual Property (TRIPS). 20433. Please contact Rose Vo, room MC9- The authors use survey data on a sample This paper is about the other half of the 624, telephone 202-473-3722, fax 202-522- of over 10,000 firms from 80 countries to development-intellectual property links. 2031, email address hvol@worldbank.org. assess (1) how successful a priori classifi- It is about the knowledge poor people own, Policy Research Working Papers are also cations are in distinguishing between fi- create, and sell rather than about what posted on the Web at http://econ. nancially constrained and unconstrained they buy. worldbank.org. The authors may be firms, and (2) more generally, the deter- The paper calls attention to a broad contacted at gcaprio@worldbank.org or minants of financing obstacles of firms. range of poor people's knowledge that has 1laeven@worldbank.org. (48 pages) They find that older, larger, and foreign- commercial potential. It highlights the owned firms report less financing ob- incentives for and concerns of poor stacles. Their findings thus confirm the people-which may be different from 3203. Financial Development, usefulness of size, age, and ownership as those of corporate research, northern Growth, and Poverty: a priori classifications of financing con- nongovernmental organizations, or even How Close are the Links? straints, while they shed doubts on other entertainment stars from developing classifications used in the literature. Their countries who already enjoy an interna- Patrick Honohan results also suggest that institutional tional audience. The studies find that (February 2004) development is the most important increased earnings is sometimes a matter country characteristic explaining cross- of poor people acquiring commercial skills. The causal link between finance and country variation in firms' financing Legal reform, though often necessary, is growth is one of the most striking empiri- obstacles. frequently not sufficient. Moreover, the cal macroeconomic relationships uncovered This paper-a product of Finance, De- paper concludes that the need for novel in the past decade. As this branch of the velopment Research Group-is part of a legal approaches to protect traditional literature matures, the focus shifts from larger effort in the group to understand knowledge has been overemphasized. growth to other aspects of economic pros- firms'financing constraints. Copies of the Standard instruments such as patents perity, and from financial depth to multi- paper are available free from the World and copyrights are often effective. Rather dimensional measures of financial develop- Bank, 1818 H Street NW, Washington, DC than legal innovation, there is a need for ment. Honohan reviews the evolution ofthe 20433. Please contact Agnes Yaptenco, economic and political empowerment of literature and contributes by: room MC3-439, telephone 202-473-1823, poor people so that they have the skills to * Showing that financial depth is nega- fax 202-522-1155, email address use such instruments and the influence to tively associated with headcount poverty, ayaptenco@worldbank.org. Policy Re- insist that institutional structures even after taking account of mean income search Working Papers are also posted on respond to their interests. Finally, the and inequality, the Web at http://econ.worldbank.org. The paper concludes that there is minimal * Illustrating the pitfalls in equating authors may be contacted at tbeck conflict between culture and commerce. financial development with financial @worldbank.org, ademirguckunt There are many income-earning expres- depth. @worldbank.org, Ilaeven@worldbank.org, sions of culture, and it is incorrect to * Proposing alternative measures of or vmaksimovic@rhsmith.umd.edu. (35 presume that expressions of culture must financial development that, though pages) always be income-using. summary, capture its multidimensional This paper-a product of Trade, nature. Development Research Group-is part of This paper-a product of Finance, 3205. Poor People's Knowledge: a larger effort in the group to examine Development Research Group, and the Helping Poor People to Earn from from the bottom up rather than the top Financial Sector Operations and Policy Their Knowledge down how international arrangements Department-is part of a larger effort in such as the WTO's agreement on intellec- the Bank to study the links between J. Michael Finger tual property can help poor people. finance, growth, and poverty. Copies ofthe (February 2004) Copies ofthe paper are available free from paper are available free from the World the World Bank, 1818 H Street NW, Bank, 1818 H Street NW, Washington, DC How can we help poor people to earn more Washington, DC 20433. Please contact 20433. Please contact Agnes Yaptenco, from their knowledge rather than from Paulina Flewitt, room MC3-333, tele- room MC3-439, telephone 202-473-1823, their sweat and muscle? This paper draws phone 202-473-2724, fax 202-522-1159, fax 202-522-1155, email address lessons from projects intended to promote email address pflewitt@worldbank.org. ayaptenco@worldbank.org. Policy Re- and protect the innovation, knowledge, Policy Research Working Papers are also search Working Papers are also posted on and creative skills of poor people in poor posted on the Web at http://econ. the Web at http://econ.worldbank.org. The countries, particularly to improve the worldbank.org. The author may be author may be contacted at phonohan earnings of poor people from such knowl- contacted at michael.finger@trinity.edu. @worldbank.org. (31 pages) edge and skills. (31 pages) 14 Policy Research Working Paper Series 3206. On the Geography of Trade: 3207. The Limits to Competition vestment opportunities available to pro- Distance is Alive and Well in Urban Bus Services In viders. Investment and longevity risk Developing Countries should be shared between providers and C61ine Carrere and Maurice Schiff annuitants so that supply constraints can (February 2004) Antonio Estache and Andr6s be relaxed. Alternative annuity products, G6mez-Lobo which imply risk sharing, could be backed It has been widely argued that, with the (February 2004) by substantially lower capital investments decline in trade costs (for example, or, equivalently, provided at substantially transport and communication costs), the Estache and G6mez-Lobo make the case lower prices to consumers. importance of distance has declined over for the return of regulation in the organi- This paper-a product of the Financial time. If so, this would be a boon for zation of urban bus services in developing Sector Operations and Policy Depart- countries located far from the main countries. During the past three decades ment-is part of a larger effort in the de- centers of economic activity. Carrere urban public transport policy has gone partment to study the functioning of an- and Schiff examine the evolution of through several phases. The 1980s and nuity markets around the world and policy countries' distance of trade (DOT) 1990s were characterized by liberalization options for their development. Copies of from 1962-2000. They find that the of the sector from public ownership and the paper are available free from the DOT falls over time for the average monopoly provision. The experience of World Bank, 1818 H Street NW, Washing- country in the world, and that the num- several countries, in particular Chile, in- ton, DC 20433. Please contact Patricia ber of countries with declining DOT dicates that a full liberalization of the Braxton, room MC9-904, telephone 202- is close to double those with increasing sector may not be the welfare-maximizing 473-2720, fax 202-522-7105, email ad- DOT. Thus, distance has become more option. The authors discuss the market dress pbraxton@worldbank.org. Policy Re- important over time for a majority of failures that justify this claim and present search Working Papers are also posted on countries. The authors examine various the regulatory options available in this the Web athttp*//econ.worldbank.org. The hypotheses to explain this phenomenon. emerging new role of government. authors may be contacted at One conclusion is that the evolution of the Throughout the paper .they illustrate gimpavido@worldbank.org, cthorburn DOT is unrelated to that of the overall ideas with examples from Chile, Co- @worldbank.org, or mike.wadsworth trade costs but depends on the relative lombia, and a few other countries. @eu.watsonwyatt.com. (37 pages) evolution of its components. The authors This paper-a product of the World also examine the impact on the DOT of Bank Institute-is part of a larger effort changes in production, customs, and in the institute to identify emerging policy 3209. Community-Based domestic transport costs; air relative issues in infrastructure. Copies of the (and Driven) Development: to land and ocean transport costs; paper are available free from the World A Critical Review competition, exchange rate policy, re- Bank, 1818 H Street NW, Washington, DC gional integration, uneven growth, and 20433. Please contact Gabriela Chenet- Ghazala Mansuri and Vijayendra Rao counter-season trade; and just-in-time Smith, room J3-304, telephone 202-473- (February 2004) inventory management. An interesting 6370, fax 202-676-9874, email address finding is that, though regional integra- gchenet@worldbank.org. Policy Research Community-based (and driven) develop- tion has a negative impact on the DOT, Working Papers are also posted on the ment (CBD/CDD) projects have become an the countries forming trade blocs had a Web at http://econ.worldbank.org. Anto- important form of development assistance, DOT that was growing faster or falling nio Estache may be contacted at with the World Bank's portfolio alone ap- more slowly than that of excluded coun- aestache@worldbank.org. (39 pages) proximating 7 billion dollars. Mansuri and tries. The authors also offer some insights Rao review the conceptual foundations of into how these changes may affect the CBD\CDD initiatives. Given the impor- home bias in consumption and the border 3208. A Conceptual Framework tance ofthe topic, there are, unfortunately, effect. for Retirement Products: Risk a dearth of well-designed evaluations of This paper-a product of Trade, Sharing Arrangements between such projects. But there is enough quanti- Development Research Group-is part Providers and Retirees tative and qualitative evidence from stud- of a larger effort in the group to examine ies that have either been published in peer- the geography of trade. Copies of the Gregorio Impavido, Craig Thorburn, reviewed publications or have been con- paper are available free from the and Mike Wadsworth ducted by independent researchers to glean World Bank, 1818 H Street NW, Washing- (February 2004) some instructive lessons. The authors find ton, DC 20433. Please contact Paulina that projects that rely on community Flewitt, room MC3-333, telephone Voluntary annuity markets are, in most participation have not been particularly 202-473-2724, fax 202-522-1159, email countries, smaller than what the theoreti- effective at targeting the poor. There is address pflewitt@worldbank.org. Policy cal and part of the empirical literature some evidence that CBD/CDD projects Research Working Papers are also would suggest. There are both demand create effective community infrastructure, posted on the Web at http://econ. and supply constraints that hamper the but not a single study establishes a causal worldbank.org. The authors may be development of annuity markets. In par- relationship between any outcome andpar- contacted at c.carrere@u-clermontl.fr or ticular, traditional products available in ticipatory elements of a CBD project. Most mschiff@worldbank.org. (62 pages) most countries can require excessive mini- CBD projects are dominated by elites and, mum capital requirements for given in- in general, the targeting of poor communi- Policy Research Working Paper Series 15 ties as well as project quality tend to be recent evolution of banking sectors' savings, and borrowing). The authors pro- markedly worse in more unequal commu- market structures in developing coun- vide numerical and graphical examples to nities. However, a number of studies find a tries. Martinez Peria and Mody analyze illustrate the relevance of this financial U-shaped relationship between inequality the impact ofthese factors on Latin Ameri- approach to the specific issues of agricul- and project outcomes. The authors also find can bank spreads during the late 1990s. tural risk management. that a distinction between potentially "be- Their results suggest that foreign banks This paper-a product of the Financial nevolent" forms of elite domination and were able to charge lower spreads relative Sector Operations and Policy Depart- more pernicious types of "capture" is likely to domestic banks. This was more so for ment-is part of a larger effort in the de- to be important for understanding project de novo foreign banks than for those that partment to develop effective risk man- dynamics and outcomes. Several qualita- entered through acquisitions. The overall agement and financial products for agri- tive studies indicate that the sustainability level of foreign bank participation seemed culture. Copies of the paper are available of CBD initiatives depends crucially on an to influence spreads indirectly, primarily free from the World Bank, 1818 H Street enabling institutional environment, which through its effect on administrative costs. NW, Washington, DC 20433. Please con- requires upward commitment. Equally, the Bank concentration was positively and tact Eugene Gurenko, room MC9-707, literature indicates that community lead- directly related to both higher spreads and telephone 202-458-5414, fax 202-614- ers need to be downwardly accountable to costs. 0920, email address egurenko avoid a variant of "supply-driven demand- This paper-a product of Finance, @worldbank.org. Policy Research Work- driven development." Qualitative evidence Development Research Group-is part of ing Papers are also posted on the Web at also suggests that external agents strongly a larger effort in the group to understand http://econ.worldbank.org. Olivier Mahul influence project success. However, facili- banking sector market structure changes may be contacted at omahul tators are often poorly trained and inexpe- in developing countries. Copies of the @worldbank.org. (21 pages) rienced, particularly when programs are paper are available free from the World rapidly scaled up. Overall, a naive applica- Bank, 1818 H Street NW, Washington, DC tion of complex contextual concepts like 20433. Please contact Agnes Yaptenco, 3212. Coping with Risk "participation," "social capital," and "em- room MC3-439, telephone 202-473-1823, through Mismatches: powerment" is endemic among project fax 202-522-1155, email address Domestic and International implementers and contributes to poor de- ayaptenco@worldbank.org. Policy Re- Financial Contracts sign and implementation. In sum, the evi- search Working Papers are also posted on for Emerging Economies dence suggests that CBD\CDD is best done the Web at httpJ/econ.worldbank.org. The in a context-specific manner, with a long authors may be contacted at Augusto de la Torre and time-horizon, and with careful and well- mmartinezperia@worldbank.org or Sergio L. Schmukler designed monitoring and evaluation amody@imf.org. (32 pages) (February 2004) systems. This paper-a product of Rural Develop- De la Torre and Schmukler argue that ment, Development Research Group-is 3211. Enabling Productive short termism, dollarization, and the use part of a larger research effort within the But Asset-Poor Farmers to of foreign jurisdictions are endogenous group on evaluating community-driven Succeed: A Risk Financing ways of coping with systemic risks preva- development projects. Copies of the paper Framework lent in emerging markets. They represent are available free from the World Bank, a symptom at least as much as a problem. 1818 H Street NW, Washington, DC 20433. Eugene Gurenko and Olivier Mahul These coping mechanisms are jointly de- Please contact Patricia Sader, room MC3- (February 2004) termined and the choice of one of them 556, telephone 202-473-3902, fax 202-522- involves risk tradeoffs. Various conclu- 1153, email address psader@worldbank. Gurenko and Mahul examine how mar- sions can be derived from the analysis. org. Policy Research Working Papers are ket-based risk financing instruments First, because of the dominance of dollar also posted on the Web at httpJ/ could enable asset-poor but productive contracts over short-duration contracts, econ.worldbank.org. The authors may be farmers exposed to production shocks to dedollarization might be much more dif- contacted at gmansuri@worldbank.org or engage in riskier but higher-return agri- ficult to achieve than often believed. Sec- vrao@worldbank.org. (77 pages) cultural activities. The financing of these ond, one-dimensional policies aimed at exogenous shocks is addressed in a con- reducing currency and duration mis- ceptual framework based on an optimal matches might just displace risk and not 3210. How Foreign Participation allocation of capital where the farm is diminish it. Third, as systemic risks rise, and Market Concentration Impact viewed as a business unit. The approach the market equilibrium settles in favor of Bank Spreads: Evidence from allows for (1) testing the business viabil- investor protection against price risk Latin America ity of a specified crop by assessing the (through dollar and short-duration con- minimum business capital required to tracts) at the expense of exposure to credit Maria Soledad Martinez Peria ensure the continuity of the business af- risk. Finally, the option value to litigate and Ashoka Mody ter the occurrence of an adverse produc- in the event of default might explain this (February 2004) tion shock; and (2) designing an optimal equilibrium outcome. risk financing program to finance the This paper-a joint product of the Of- Increasing foreign participation and high minimum capital requirements using a fice of the Chief Economist, Latin America concentration levels characterize the combination of instruments (insurance, and the Caribbean Region, and Macroeco- 16 Policy Research Working Paper Series nomics and Growth, Development Re- 3214. Trademark Protection have made it easier to export goods and search Group-is part of a larger effort in or Protectionism? services. Clarke and Walisten find that the Bank to understand financial devel- higher Internet penetration in developing opment and globalization. Copies of the Eugenia Baroncelli, Ekaterina Krivonos, countries is correlated with greater ex- paper are available free from the World and Marcelo Olarreaga ports to industrial countries, but not with Bank, 1818 H Street NW, Washington, DC (February 2004) trade between developing countries or 20433. Please contact Emily Khine, room with exports from industrial countries. In- MC3-347, telephone 202-473-7471, fax Baroncelli, Krivonos, and Olarreaga terpreting the correlations is difficult be- 202-522-3518, email address kkhine explore the extent to which discrimination cause causation may run from Internet @worldbank.org. Policy Research Work- against foreign applicants in the trade- use to exports or from trade openness to ing Papers are also posted on the Web at mark registration process can be used Internet use. To test whether Internet use http://econ.worldbank.org. The authors as a "behind-the-border" barrier to affects export behavior, the authors may be contacted at adelatorre imports. Prima-facie evidence shows endogenize Internet use by using coun- @worldbank.org or sschmukler that in some developing countries the tries' regulation of data services and @worldbank.org. (40 pages) ratio of trademark registration to Internet provision as instrumental vari- applications is much higher for national ables. The results are robust to than for foreign applicants, which is endogenizing Internet penetration, sug- 3213. On the Measurement consistent with the notion of discrimina- gesting that access to the Internet does of Product Variety in Trade tion against foreign firms. The authors affect the export performance of firms in develop a simple model that suggests developing countries. In other words, Robert Feenstra and Hiau Looi Kee that incentives to discriminate are Internet access appears to stimulate ex- (February 2004) stronger when foreign firms produce ports from poor countries to rich countries. products that are close in quality to Moreover, the analysis suggests that regu- Product variety plays an important role the product produced by domestic latory policies affecting telecommunica- in the theoretical work on monopolistic firms. This hypothesis is then tested tions and Internet development indirectly competition and trade, and recent empiri- and empirically confirmed in three of affect trade, further emphasizing the im- cal work has begun to quantify this for the four countries in their sample, portance of deregulating potentially com- aggregate and disaggregate import de- suggesting that discretion and discrimi- petitive services in the telecommunica- mands. Feenstra and Kee discuss the nation in the trademark registration tions industry. measurement of product variety in trade, process can sometimes be used as a This paper-a product of Investment using a broad cross-section of industrial protectionist tool. Climate, Development Research Group- and developing countries and disaggregat- This paper-a product of Trade, Devel- is part of a larger effort in the group to ing across sectors. The authors calculate opment Research Group-is part of a understand regulatory infrastructure sec- the export variety of countries in their larger effort in the group to understand tor reforms. Copies of the paper are avail- sales to the United States, and relate the the role of trademarks in international able free from the World Bank, 1818 H export variety indexes to country trade. Copies of the paper are available Street NW, Washington, DC 20433. productivities. They confirm that coun- free from the World Bank, 1818 H Street Please contact Paulina Sintim-Aboagye, tries with greater product variety in ex- NW, Washington, DC 20433. Please con- room MC3-427, telephone 202-473-7644, ports also have higher productivity. This tact Paulina Flewitt, room MC3-333, tele- fax 202-522-1155, email address may be due to their development of and phone 202-473-2724, fax 202-522-1159, psintimaboagye@worldbank.org. Policy access to these products. email address pflewitt@worldbank.org. Research Working Papers are also posted This paper-a product of Trade, Devel- Policy Research Working Papers are also on the Web at http:H/econ.worldbank.org. opment Research Group-was prepared posted on the Web at http:H/econ. The authors may be contacted at gclarke for the session on "Dissecting Interna- worldbank.org. The authors may be con- @worldbank.org or swallsten@aei.org. (28 tional Trade: The Dimensions of National tacted at ebaroncelli@worldbank.org, pages) Market Penetration," American Econom- ekrivonos@worldbank.org, or molarreaga ics Association, January 4, 2004. Copies @worldbank.org. (28 pages) of the paper are available free from the 3216. Making the Poor Count World Bank, 1818 H StreetNW, Washing- Takes More than Counting ton, DC 20433. Please contact Michelle 3215. Has the Internet the Poor: A Quick Poverty Chester, room MC3-322, telephone 202- Increased Trade? Evidence Assessment of the State 458-2010, fax 202-522-1159, email ad- from Industrial and of Bahia, Brazil dress mchester@worldbank.org. Policy Developing Countries Research Working Papers are also posted Dorte Verner on the Web at http:H/econ.worldbank.org. George R. G. Clarke and Scott (February 2004) The authors may be contacted at J. Wallsten refeenstra@ucdavis.edu or hlkee (February 2004) The state of Bahia, Brazil has made @worldbank.org. (11 pages) progress in reducing poverty and improv- If the Internet made it easier for firms to ing social indicators in the past decade. enter new markets by reducing commu- Despite this progress, Bahia's poverty is nication and search costs, then it may also among the highest and its social indica- Policy Research Working Paper Series 17 tors are among the lowest in Brazil. Cur- 3217. When Can School Inputs 3218. Cotton: Market Setting, rently, 41 percent of Bahia's population Improve Test Scores? Trade Policies, and Issues live in households below the poverty level, a drop of 14 percentage points since 1993. Jishnu Das, Stefan Dercon, John Baffes Moreover, poverty is less deep than in James Habyarimana, and (February 2004) 1993, but deeper than in 1981. The fall in Pramila Krishnan Bahia's social indicators, such as infant (February 2004) The value of world cotton production in mortality and adult illiteracy, corroborate 2000-01 has been estimated at about the improvement in measured income The relationship between school inputs $20 billion, down from $35 billion in 1996- poverty. Part of the reason why the pov- and educational outcomes is critical for 97 when cotton prices were 50 percent erty indicators of Bahia are worse than in educational policy. Das, Dercon, higher. Although cotton's share in world other countries with similar per-capita Habyarimana, and Krishnan recognize merchandise trade is insignificant income is because of income inequality. In that households will respond optimally to (about 0.12 percent), it is very important 2000 the Gini coefficient for Bahia was changes in school inputs and study how to a number of developing countries. 0.61. such responses affect the link between Cotton accounts for approximately 40 The National Household Survey Data, school inputs and cognitive achievement. percent of total merchandise export PNAD, from 1981-2001 reveal that To incorporate the forward-looking behav- earnings in Benin and Burkina Faso, living in Bahia does not by itself affect ior of households, the authors present a and 30 percent in Chad, Mali, and the probability of falling below the household optimization model relating Uzbekistan. Its contribution to GDP in poverty line in Brazil. Hence, other household resources and cognitive these and other developing countries is characteristics are more important achievement to school inputs. In this substantial, ranging between 5 and 10 for poverty reduction than geographical framework, if household and school percent. Cotton supports the livelihoods location. The strongest poverty correlates inputs are technical substitutes in the of millions in developing countries (at are education, experience, race, rural production function for cognitive least 10 million in West and Central location, gender, and labor market achievement, the impact of unanticipated Africa) where it is a typical, and often association. Analyses reveal that the inputs is larger than that of anticipated dominant, smallholder cash crop. The probability of being poor is decreasing inputs. The authors test the predictions cotton market also has been subject to with increasing educational attainment. of the model for nonsalary cash grants considerable market intervention- The gender of the household head does to schools using a unique data set subsidization in the European Union not matter for poverty according to from Zambia. They find that household and the United States, and taxation the poverty profile, but when we control educational expenditures and school cash in Africa and Central Asia. During for education and other individual grants are substitutes with a coefficient the past three seasons, annual direct characteristics, female-headed house- of elasticity between -0.35 and -0.52. support averaged $4.5 billion. Baffes holds have a much larger likelihood Consistent with the optimization model, reviews the market setting and policy of being poor than do male-headed anticipated funds have no impact on cog- issues and gives recommendations on households. Household size also matters nitive achievement, but unanticipated how industrial and developing cotton- for poverty. Larger households are funds lead to significant improvements in producing countries can improve the more likely to experience poverty than learning. This methodology has important policy environment. smaller households, and the effect is implications for educational research and This paper-a product of the Develop- concave. Moreover, households with policy. ment Prospects Group-is part of a larger members under age five appear more This paper-a product of Public effort in the group to gain an in-depth likely to fall below the poverty line than Services, Development Research Group- understanding of the structure of families with no children below five is part of a larger effort in the group to commodity markets. Copies of the years old. The presence of old-aged people understand the role of governments in paper are available free from the World (above 65 years of age) in the household improving the delivery of basic services. Bank, 1818 H Street NW, Washington, is an important factor contributing to Copies of the paper are available free from DC 20433. Please contact John Baffes, poverty reduction. the World Bank, 1818 H Street NW, room MC2-200, telephone 202-458-1880, This paper-a product of the Social Washington, DC 20433. Please contact fax 202-522-1151, email address Development Family, Latin America and Hedy Sladovich, room MC3-607, tele- jbaffes@worldbank.org. Policy Research the Caribbean Region-is part of a larger phone 202-473-7698, fax 202-522-1154, Working Papers are also posted on the effort to reduce poverty in the region. email address hsladovich@worldbank. Web at http://econ.worldbank.org. (76 Copies of the paper are available free from org. Policy Research Working Papers are pages) the World Bank, 1818 H Street NW, also posted on the Web at http:// Washington, DC 20433. Please contact econ.worldbank.org. Jishnu Das may be Grissel Prieto, room 16-226, telephone contacted at jdasl@worldbank.org. (54 202-473-6346, fax 202-522-3540, email pages) address gprieto@worldbank.org. Policy Research Working Papers are also posted on the Web at http://econ.worldbank.org. The author may be contacted at dverner @worldbank.org. (57 pages) 18 Policy Research Working Paper Series 3219. A Financial Social 3220. Public Management and regions can be discarded. The analysis of Accounting Matrix for the Essential Public Health Functions the needs assessment questionnaire Integrated Macroeconomic shows that there are significant heteroge- Model for Poverty Analysis: Peyvand Khaleghian and Monica Das Gupta neities among competition agencies'man- Application to Cameroon (February 2004) dates, exempted sectors, professional per- with a Fixed-Price Multiplier sonnel endowment, and capacity needs. Analysis Khaleghian and Das Gupta provide an An important lesson for the design of overview of how different approaches to training courses is that competition agen- Christian A. Emini and Hippolyte improving public sector management re- cies do not need introductory courses. Fofack late to so-called core or essential public There is a significant demand for training (February 2004) health functions, such as disease surveil- on substance, on how to solve day-to-day lance, health education, monitoring and technically challenging cases. Responses Cameroon is engaged in the Poverty evaluation, workforce development, en- confirm the growing importance of com- Reduction Strategy Paper (PRSP) forcement of public health laws and regu- petition policy issues in infrastructure process, which emphasizes increased lations, public health research, and health services (such as market foreclosure and focus on poverty reduction in the design policy development. The authors summa- access to essential facilities) and the need and implementation of growth and rize key themes in the public management to foster coordination between sector regu- adjustment strategies. The Integrated literature and draw lessons for their ap- lators and competition agencies. Macroeconomic Model for Poverty plication to these core functions. This paper-a product of the Finance Analysis (IMMPA) recently developed at This paper-a joint product of the Hu- and Private Sector Development Division, the World Bank provides an analytical man Development Sector Unit, Europe World Bank Institute-is part of a larger structure for supporting the PRSP and Central Asia Region, and Public Ser- effort in the institute to increase under- process and quantifying poverty reduction vices, Development Research Group-is standing of competition policy and infra- strategies. Drawing on that framework, part of a larger effort in the Bank to structure regulation. Copies of the paper Emini and Fofack provide a detailed understand the role of government in are available free from the World Bank, financial social accounting matrix improving the delivery of basic services. 1818 H Street NW, Washington, DC (SAM) for the Cameroonian economy to Copies of the paper are available free from 20433. Please contact Gabriela Chenet- serve as input into the construction of the World Bank, 1818 H Street NW, Smith, room J3-304, telephone 202-473- an IMMPA model for Cameroon. An Washington, DC 20433. Please contact 6370, fax 202-676-9874, email address analysis of this financial SAM shows Hedy Sladovich, room MC3-607, tele- gchenet@worldbank.org. Policy Research that the dramatic fall in investment phone 202-473-7698, fax 202-522-1154, Working Papers are also posted on the during the crisis period persisted in email address hsladovich@worldbank.org. Web at http://econ.worldbank.org. The the post-devaluation growth period in Policy Research Working Papers are also author may be contacted at the late 1990s. Continued low investment posted on the Web at http://econ. tserebrisky@worldbank.org. (27 pages) has implications for ongoing high worldbank.org. The authors may be con- unemployment rates and poor welfare tacted at pkhaleghian@worldbank.org or indicators. The authors illustrate this mdasgupta@worldbank.org. (26 pages) 3222. Sugar Policies: with simulations based on fixed-price Opportunity for Change multiplier analysis that highlight the potential growth and welfare benefits of 3221. What Do We Know about Donald Mitchell increased public investment, following Competition Agencies in (February 2004) hypothetical debt relief and reduction Emerging and Transition of external debt servicing within the Countries? Evidence on Sugar is one of the most policy distorted framework of the heavily indebted poor Workload, Personnel, Priority of all commodities, and the European countries initiative. Sectors, and Training Needs Union, Japan, and the United States are This paper-a product of the Poverty among the worst offenders. But internal Reduction and Economic Management Tom&s Serebrisky changes in the E.U. and U.S. sugar and Division, World Bank Institute-is part of (February 2004) sweetener markets and international a larger effort in the institute to under- trade commitments make change un- stand the impact of adjustment policies on During 2003, the World Bank Institute avoidable and provide the best opportu- the poor in PRSP countries. Copies of the sent a needs assessment questionnaire to nity for policy reform in several decades. paper are available free from the World 48 competition agencies in transition and The nature of reforms can have very dif- Bank, 1818 H Street NW, Washington, DC emerging countries in Africa, Asia, Eu- ferent consequences for developing coun- 20433. Please contact Maria Gosiengfiao, rope, and Latin America. Responses were tries. If existing polices in the E.U. and the room J4-280, telephone 202-473-3363, fax classified according to the World Bank's U.S. are adjusted to accommodate higher 202-676-9810, email address analytical regional grouping and the evi- imports under international commit- mgosiengfiao@worldbank.org. Policy Re- dence allows a cross-regional comparison ments, many low-cost producers, such as search Working Papers are also posted on ofcompetition agencies' workload, person- Brazil, will lose because they do not cur- the Web at http://econ.worldbank.org. nel, priority sectors, and training needs. rently have large quotas and are not in- Hippolyte Fofack may be contacted at The view of competition authorities as a cluded among the preferential countries. hfofack@worldbank.org. (49 pages) homogenous group across countries and The benefits of sugar policy reform are Policy Research Working Paper Series 19 greatest under multilateral reform, and information is particularly importantwhen imports and exports for a country and for according to recent studies, the global the parties have similar priorities. A joint the world will increase with improve- welfare gains of removal of all trade pro- database on planned projects and budget ments in these trade facilitation tection are estimated to total as much as allocations in each recipient countrywould measures. Potential gains from trade $4.7 billion a year. In countries with the provide such information. The author's facilitation reforms are predicted by using highest protection (Indonesia, Japan, point is that such databases should have the estimated parameters. The gains from Eastern Europe, Western Europe, and the both information on current projects and trade facilitation are presented by com- U.S.), net imports would increase by an forward-looking information on the paring the gains across geographical re- estimated 15 million tons a year, which planned activities needed to improve aid gions and trade facilitation categories, and would create employment for nearly one coordination. She also analyzes the aid fun- by domestic and partner improvements. million workers in developing countries. gibility problem in an incomplete informa- The total gain in trade flow in manufac- World sugar prices would increase by as tion setting and finds that incomplete in- turing goods from trade facilitation im- much as 40 percent, while sugar prices in formation reduces the fungibility problem. provements in all the four areas is esti- countries that heavily protect their mar- On the otherhand, incomplete information mated to be $377 billion. All regions gain kets would decline. Developing countries introduces coordination failure and the in imports and exports. Most regions gain that have preferential access to the E.U. allocationcan beinferior for both therecipi- more in terms of exports than imports, in or U.S. sugar markets are likely to lose ent and the donor, large part through increasing exports to some of these preferences as sugar poli- This paper-a product of Public Ser- the OECD market. The most important cies change. However, the value of pref- vices, Development Research Group-was ingredient in getting these gains, particu- erential access is less than it appears be- prepared as a background paper for the larly to the OECD market, is the country's cause many of these producers have high 2004 World Development Report: Making own trade facilitation efforts. The detailed production costs and would not produce at Services Work for Poor People. Copies of presentation of the results of the analysis world market prices. this paper are available free from the may help inform policy decisions and This paper-a product of the Develop- World Bank, 1818 H Street NW, Washing- capacity building choices. ment Prospects Group-is part of a larger ton, DC 20433. Please contact Hedy This paper-a joint product of the effort in the group to gain in-depth under- Sladovich, room MC3-607, telephone 202- Transport Unit, Urban Development De- standing of the structure of commodity 473-7698, fax 202-522-1154, email ad- partment, and Trade, Development Re- markets, including policy distortions. dress hsladovich@worldbank.org. Policy search Group-is part of a larger effort in Copies of the paper are available free from Research Working Papers are also posted the Bank to explore the link between trade the World Bank, 1818 H Street NW, on the Web at http://econ.worldbank.org. and development. Copies of the paper are Washington, DC 20433. Please contact The author may be contacted at available free from the World Bank, 1818 Katherine Rollins, room MC2-348, tele- Maija.Halonen@bristol.ac.uk. (50 pages) H Street NW, Washington, DC 20433. phone 202-458-7317, fax 202-522-3564, Please contact Michelle Chester, room email address krollins@worldbank.org. MC3-322, telephone 202-458-2010, fax Policy Research Working Papers are also 3224. Assessing the Potential 202-522-1159, email address mchester posted on the Web at http://econ. Benefit of Trade Facilitation: @worldbank.org. Policy Research Work- worldbank.org. The author may be con- A Global Perspective ing Papers are also posted on the Web at tacted at dmitchell@worldbank.org. (55 http://econ.worldbank.org. The authors pages) John S. Wilson, Catherine L. Mann, maybe contacted atjswilson@worldbank. and Tsunehiro Otsuki org or totsuki@worldbank.org. (41 pages) (February 2004) 3223. Coordination Failure in Foreign Aid The relationships between trade facilita- 3225. When is Growth Pro-Poor? tion, trade flows, and capacity building are Cross-Country Evidence Maija Halonen-Akatwijuka complex and challenging to assess, both (February 2004) empirically and in implementation. Aart Kraay Wilson, Mann, and Otsuki measure and (March 2004) Halonen-Akatwijuka analyzes the alloca- estimate the relationship between trade tion of foreign aid to various sectors in a facilitation and trade flows across 75 coun- Growth is pro-poor if the poverty measure recipient developing country. Donors tend tries in global trade, considering four of interest falls. According to this defini- to favor social sectors over other public important categories: port efficiency, tion there are three potential sources of expenditure programs. Due to incomplete customs environment, regulatory environ- pro-poor growth: (1) a high rate of growth information, donors may concentrate too ment, and service sector infrastructure. A of average incomes; (2) a high sensitivity much on priority sectors, leaving lower- gravity model is employed that accounts of poverty to growth in average incomes; priority yet important sectors lacking for bilateral trade flows in manufactured and (3) a poverty-reducing pattern of funds. Alternatively there may be gaps in goods in 2000-01 between the 75 coun- growth in relative incomes. Kraay empiri- services in priority areas because of the tries, using traditional factors such as cally decomposes changes in poverty in a information problem. The author finds GDP, distance, language, and trade areas, large sample of developing countries dur- that the more similar preferences the do- and is augmented by the trade facilitation ing the 1980s and 1990s into these three nors have, the more scope there is for co- measures in the four categories for each components. In the medium to long run, ordination failure. Therefore improving country. The results suggest that both most of the variation in changes in 20 Policy Research Working Paper Series poverty can be attributed to growth in av- depressing the world prices of groundnut atically manage them. They consider that erage incomes, suggesting that policies products at the expense of smaller devel- the industry is still in a development pro- and institutions that promote broad-based oping countries mainly located in Africa. cess whose eventual outcome is the con- growth should be central to the pro-poor Under free trade, African exporters would vergence of the practice of Islamic finan- growth agenda. Most of the remainder of gain because they are net sellers of cial intermediation with its conceptual the variation in poverty is due to poverty- groundnut products. In India, consumers foundations. The authors contrast the reducing patterns of growth in relative would be better off with lower consumer risks and regulations needed in the case incomes, rather than differences in the prices resulting from the removal of pro- of Islamic financial intermediation oper- sensitivity of poverty to growth in aver- hibitive tariffs and large imports of ating according to core principles and cur- age incomes. Cross-country evidence pro- groundnut products. The cost of adjust- rent practice. They outline implications vides relatively little guidance as to the ment would fall on Indian farmers and for approaches to capital adequacy, licens- policies and institutions that promote crushers. In China, crush margins would ing requirements, and reliance on market these other sources of pro-poor growth. improve because of the large terms of discipline. They then propose an organi- This paper-a product of Investment trade effects in the groundnut oil market zation of the industry that would allow it Climate, Development Research Group- relative to the seed market. China's to develop in compliance with its prin- is part of a larger effort in the group to groundnut product exports would expand ciples and prudent risk management, and better understand pro-poor growth. Cop- dramatically. Net buyers of groundnut facilitate its regulation. ies of the paper are available free from the products in OECD countries would be This paper-a product of the Financial World Bank, 1818 H Street NW, Washing- worse off. The authors draw implications Sector Global Partnerships Department- ton, DC 20433. Please contact Rina for the Doha negotiations. is part of a larger effort in the department Bonfield, room MC3-354, telephone 202- This paper is a product of the Interna- to promote the stability and development 473-1248, fax 202-522-3518, email ad- tional Trade Group, Poverty Reduction of financial systems through strengthen- dress abonfield@worldbank.org. Policy and Economic Management Network. ing the Bank's cooperation with concerned Research Working Papers are also posted Copies ofthe paper are available free from international financial bodies. The paper on the Web at http://econ.worldbank.org. the World Bank, 1818 H Street NW, contributes to the discussion on the regu- The author may be contacted at akraay Washington, DC 20433. Please contact lation of Islamic finance, an area of in- @worldbank.org. (40 pages) Zeba Jetha, room MC2-424, telephone creased international cooperation, most 202-458-4321, fax 202-522-7551, email notably with the recent creation of the address zjetha@worldbank.org. Policy Islamic Financial Services Board. Copies 3226. Groundnut Policies, Global Research Working Papers are also posted of the paper are available free from the Trade Dynamics, and the Impact on the Web at http://econ.worldbank.org. World Bank, 1818 H Street NW, Washing- of Trade Liberalization The authors may be contacted at ton, DC 20433. Please contact Elena ndiop@worldbank.org or msewadeh Mekhova, room MC9-646, telephone 202- Ndiame Diop, John Beghin, @worldbank.org. (35 pages) 458-5984, fax 202-522-2031, email ad- and Mirvat Sewadeh dress emekhova@worldbank.org. Policy (March 2004) Research Working Papers are also posted on the Web at http://econ.worldbank.org. Groundnut products are of central 3227. Regulating Islamic The authors may be contacted at wgrais economic importance to millions of Financial Institutions: @worldbank.orgorziqbal@worldbank.org. smallholders in Africa, India, and South- The Nature of the Regulated (48 pages) ern China. The products generate 60 per- cent of rural cash income and account for Dahlia El-Hawary, Wafik Grais, about 70 percent of the rural labor force and Zamir Iqbal 3228. Strained Mercy: The Quality in Senegal and The Gambia. Groundnut (March 2004) of Medical Care in Delhi trade is heavily distorted, and this has affected the competitive position of vari- More than 200 Islamic financial institu- Jishnu Das and Jeffrey Hammer ous players in world markets. Using a tions (IFIs) operate in 48 countries. Their (March 2004) partial-equilibrium, multi-market, inter- combined assets exceed $200 billion, with national model, Diop, Beghin, and an annual growth rate between 12 percent The quality ofmedical care is a potentially Sewadeh analyze the trade and welfare and 15 percent. The regulatory regime important determinant of health out- effects of several groundnut trade liberal- governing IFIs varies significantly across comes. Nevertheless, it remains an under- ization scenarios compared with the re- countries. A number of international or- studied area. The limited research that cent historical baseline. They evaluate net ganizations have been established with exists defines quality either on the basis welfare as the sum of consumers' equiva- the mandate to set standards that would of drug availability or facility character- lent variation, quasi-profits in farming, strengthen and harmonize prudential istics, but little is known about how pro- quasi-profits in crushing, and taxpayers' regulations as they apply to IFIs. El- vider quality affects the provision of revenues and outlays implied by distor- Hawary, Grais, and Iqbal contribute to the health care. Das and Hammer address tions. The authors find that trade liberal- discussion on the nature of prudential this gap through a survey in Delhi with ization in groundnut markets has a strong standards to be developed. They clarify the two related components. They evaluate South-South dimension with policies in risks that IFIs are exposed to and the type "competence" (what providers know) India, and to a lesser extent China, heavily of regulations that are needed to system- through vignettes and practice (what Policy Research Working Paper Series 21 providers do) through direct clinical obser- they weigh expected returns versus risk crisis, and then again after 1997-98, when vation. Overall quality as measuredby the and subsequently allocate their funds. The fiscal deficits returned to the 10 percent competence necessary to recognize and authors hypothesize that the determina- of GDP range and government debt grew handle common and dangerous conditions tion of whether a country is investable or further. Pinto and Zahir analyze the is quite low, albeit with tremendous varia- not is influenced by a number of factors, deterioration in India's public finances and tion. While there is some correlation with especially related to size, quality of present evidence suggesting that, in the simple observed characteristics, there is "housekeeping," (macroeconomic policies, absence of a fiscal adjustment, low still an enormous amount of variation political economy, local financial markets, inflation and high reserves may have been within such categories. Further, even when corporate governance, and so on), and pursued at the expense of long-run growth providers know what to do they often do not efficiency of "plumbing" (legal and and poverty reduction. Resolving this do it in practice. This appears to be true in regulatory framework, custody, clearing inflation-external vulnerability-growth both the public and private sectors though and settlement, taxes, and so on). By policy "trilemma" requires fiscal adjust- for very different, and systematic, reasons. interviewing many types of these inves- ment. In making their case, the authors In the public sector providers are more tors in both the United States and the show, first, that fiscal fundamentals have likely to commit errors of omission-they United Kingdom, the authors delve into weakened after 1997-98 even when com- are less likely to exert effort compared with their decisionmaking processes as well as pared with the pre-1991 crisis period. This their private counterparts. In the private attempt to uncover the factors they has continued in spite of the recent record sector, providers are prone to errors of indicate matter most in defining the lows in interest rates. Second, the fiscal commission-they are more likely to investable universe. They determine the stance is not conducive to long-run growth behave according to the patient's expecta- relative importance of such housekeeping and poverty reduction because capital tions, resulting in the inappropriate use of and plumbing factors while highlighting spending has been cut to accommodate medications, the overuse ofantibiotics, and the role of external issues, such as index higher interestpayments and other current increased expenditures. This has important benchmarking and U.S. foreign policy. spending, with expenditures on the social policy implications for our understanding The authors recognize from the outset that sectors stagnating. Third, without a fiscal of how market failures and failures ofregu- the most profound effects on investment adjustment, the debt burden is likely to lation in the health sector affect the poor. flows, or the required minimum expected reach unmanageable levels by the end of This paper-a product of Public Services, returns, arise from improvements or the Tenth Plan period. In contrast, a phased Development Research Group-is part of deteriorations in macroeconomic policies. adjustment beginning now and focusing on a larger effort in the group to understand However, at the margin, improvements a relatively small set of reforms is likely to the delivery ofbasic services by the govern- can be made in country policies that will, improve debt dynamics substantially over ment and private sector in low-income for a given macroeconomic situation, im- the same horizon, while also promoting countries. The study was funded by the prove the ability of a country to attract faster growth and poverty reduction. Research Support Budget under the international investment flows. This paper-a product of the Poverty research project "Health Care Providers This paper-a product of the Financial Reduction and Economic Management and Markets in Delhi." Copies of the paper Sector Operations and Policy Depart- Unit, South Asia Region-is based on the are available free from the World Bank, ment-is part of a larger effort in the de- macro-fiscal chapter of "India: Sustaining 1818 H Street NW, Washington, DC 20433. partment to study the functioning of pen- Reform, Reducing Poverty," a World Bank Please contact Hedy Sladovich, room sion funds and other institutional inves- Development Policy Review released in MC3-607, telephone 202-473-7698, fax 202- tors. Copies of the paper are available free July 2003. Copies of this paper are avail- 522-1152, email address hsladovich from the World Bank, 1818 H Street NW, able free from the World Bank, 1818 H @worldbank.org. Policy Research Working Washington, DC 20433. Please contact Street NW, Washington, DC 20433. Please Papers are also posted on the Web at Noemi Dacanay, room MC9-904, tele- contact Sarah Lipscomb, mail stop http://econ.worldbank.org. The authors phone 202-473-4068, fax 202-522-7105, MC4-406, telephone 202-473-3718, email may be contacted atjdasl@worldbank.org email address ndacanay@worldbank.org. address slipscomb@worldbank.org. Policy or jhammerCworldbank.org. (27 pages) Policy Research Working Papers are also Research Working Papers are also posted posted on the Web at http://econ. on the Web at http://econ.worldbank.org. worldbank.org. The authors may be con- The authors may be contacted at bpinto2 3229. Housekeeping and tacted at jladekarl@worldbank.org or @worldbank.orgorfzahir@worldbank.org. Plumbing: The Investability szervos@worldbank.org. (32 pages) (32 pages) of Emerging Markets Jeppe Ladekarl and Sara Zervos 3230. India: Why Fiscal 3231. Incidence Analysis of Public (March 2004) Adjustment Now Support to the Private Education Sector in C6te d'lvoire Ladekarl and Zervos look at the invest- Brian Pinto and Farah Zahir ment allocation process employed by port- (March 2004) Chris Sakellariou and Harry Anthony folio investors in emerging markets. In Patrinos particular, they examine the first of a two- India's growth performance has been im- (March 2004) stage decision process: first, investors cre- pressive over the past two decades. But its ate a subset of investable countries to be sustainability has been in question, first Sakellariou and Patrinos analyze the analyzed later in further detail; second, with the 1991 fiscal balance-of-payments equity effects of public subsidization of 22 Policy Research Working Paper Series private schools in C6te d'Ivoire, update more slowly in countries with onerous approach of this kind and uses it to iden- previous analyses, and attempt to assess regulations on entry. This suggests tify the specialized assumptions that how efficiently public spending is entry regulations are neither benign are used when they are missing. She targeted. The subsidy per student in nor welfare improving. The authors also discusses the limitations of private (and public) schools increases at also find less entry into labor- available time-use survey datasets higher quintiles. Students from families intensive industries in countries with that are due to deficiencies in survey in the highest quintile receive more than labor regulations that restrict the ability design. The more serious and common twice the subsidy received by students to fire workers. They do not imply that all problems are illustrated, using as case from families in the lowest quintile, regulations inhibit entry. In particular, studies the Statistics South Africa 2000 compared with four times more in the case regulations that enhance the enforcement Time-Use Survey and the time-use of students attending public schools. How- of intellectual property rights or those that module in the Nicaraguan 1998 Living ever, the subsidy system is progressive as lead to a better developed financial sector Standards Measurements Survey. there is a clear tendency for the share of do lead to greater entry in industries that This paper is a product of the Gender family education expenditure covered by do more research and development or Division, Poverty Reduction and Economic subsidies to decline at higher quintiles. industries that need more external Management Network. Copies ofthe paper This element of progressivity is stronger finance. Finally, other aspects of the are available free from the World Bank, in the case of private school attendance. environment also matter: for instance, the 1818 H Street NW, Washington, DC 20433. This paper-a product of the Education general availability of skilled labor Please contact Dawn Ballantyne, room Sector Unit, Latin America and the Car- enhances entry in industries that require MC4-432, telephone 202-458-7198, fax 202- ibbean Region-is part of a larger effort skilled labor. 522-3237, email address dballantyne in the region to evaluate education poli- This paper-a product of the Financial @worldbank.org. PolicyResearch Working cies. Copies of the paper are available free Sector Operations and Policy Depart- Papers are also posted on the Web at from the World Bank, 1818 H Street NW, ment-is part of a larger effort in the httpi/econ.worldbank.org. The author may Washington, DC 20433. Please contact department to study access to financing. be contacted at pfapps@law.usyd.edu.au. Roberto Guzman, room 17-168, telephone Copies of the paper are available free from (64 pages) 202-473-2993, fax 202-522-3135, email the World Bank, 1818 H Street NW, address rguzman@worldbank.org. Policy Washington, DC 20433. Please contact Research Working Papers are also posted Agnes Yaptenco, room MC3-439, tele- 3234. Product Market Integration on the Web at http://econ.worldbank.org. phone 202-473-1823, fax 202-522-1155, and Household Labor Supply The authors may be contacted at acsake email address ayaptenco@worldbank. in a Poor Economy: Evidence @ntu.edu.sg orhpatrinos@worldbank.org. org. Policy Research Working Papers are from Vietnam (31 pages) also posted on the Web at http:// econ.worldbank.org. The authors may be Eric V. Edmonds and Nina Pavcnik contacted at lklapper@worldbank.org, (March 2004) 3232. Business Environment llaeven@worldbank.org, or rrajan@imf. and Firm Entry: Evidence org. (59 pages) Edmonds and Pavcnik consider how from International Data product market integration in a country's primary agricultural export alters the Leora Klapper, Luc Laeven, 3233. Gender, Time Use, economic activities of men and women in and Raghuram Rajan and Models of the Household a poor economy. Between 1993 and 1997, (March 2004) Vietnam relaxed its rice export quota and Patricia Apps freed internal restrictions on the trade of Using a comprehensive database of firms (March 2004) rice across regions. These reforms contrib- in Western and Eastern Europe, Klapper, uted to an almost 30 percent increase in Laeven, and Rajan studyhow the business Apps explains why time-use data are es- the real price of rice. Using a panel of environment in a country drives the sential for analyzing issues of gender eq- rural Vietnamese communities that spans creation of new firms. They focus on regu- uity and intrahousehold allocation of re- the period of policy change, the authors lations governing entry, although they sources, comparing living standards, and relate the regional and intertemporal also examine the effects of a developed estimating the behavioral effects of variation in the price of rice to changes in financial sector, a well-trained labor force, changes in policy variables. First, she the economic activities of children, young strong enforcement of intellectual prop- shows that the neglect of these data in adults, and adults by gender. They find erty rights, and strict labor laws. The much of the literature on household be- that higher rice prices are associated with authors find entry regulations hamper havior in both industrial and developing lower participation in wage work by boys, entry, especially in industries that natu- economies can be traced to unrealistic girls, and young adults, and lower rally should have high entry. They find assumptions on domestic production and participation in household production by that naturally "high entry" industries the mistaken idea that nonmarket time adults. Moreover, higher rice prices are grow less, have lower profitability, and can be viewed as leisure. She argues that associated with less time devoted to house- account for a lower share of the economy an approach is required that makes ex- hold production for all age groups and in countries with onerous regulations on plicit the need for data on the time family adults devoting more hours to wage work. entry. Also, value added per employee in members spend on domestic work as well Finally, with the exception of children, naturally "high entry" industries grows as on labor supply. The author outlines an labor market responses to changes in rice Policy Research Working Paper Series 23 prices mostly do not differ statistically for This paper is a product of the Gender able free from the World Bank, 1818 H males and females. Division, Poverty Reduction and Eco- Street NW, Washington, DC 20433. This paper is a product of the Gen- nomic Management Network. Copies of Please contact Irma Carrasquero, room 14- der Division, Poverty Reduction and the paper are available free from the 038, telephone 202-473-3725, email ad- Economic Management Network. Copies World Bank, 1818 H Street NW, Washing- dress icarrasquero@worldbank.org. Policy of the paper are available free from the ton, DC 20433. Please contact Dawn Research Working Papers are also posted World Bank, 1818 H Street NW, Washing- Ballantyne, room MC4-432, telephone on the Web at http://econ.worldbank.org. ton, DC 20433. Please contact Dawn 202-458-7198, fax 202-522-3237, email The author may be contacted at Ballantyne, room MC4-432, telephone address dballantyne@worldbank.org. gacevedo@worldbank.org. (49 pages) 202-458-7198, fax 202-522-3237, email Policy Research Working Papers are also address dballantyne@worldbank.org. posted on the Web at http-//econ. Policy Research Working Papers are also worldbank.org. The author may be con- posted on the Web at http://econ. tacted at eric.edmonds@dartmouth.edu. worldbank.org. The authors may be con- (53 pages) tacted at eric.edmonds@dartmouth.edu or nina.pavcnik@dartmouth.edu. (49 pages) 3236. Professional Development and Incentives for Teacher 3235. Household Composition Performance in Schools and the Response of Child in Mexico Labor Supply to Product Market Integration: Evidence Gladys Lopez-Acevedo from Vietnam (March 2004) Eric V. Edmonds The quality of education is a determining (March 2004) factor in competitiveness. In order to glo- bally compete, Mexico would have to raise Market integration raises the relative its standards beyond its current low price of a community's export product. achievement. Several innovations at fed- Edmonds examines how the response of eral and state levels have been developed child labor supply to an increase in the to raise the quality of basic education. One relative price of a primary export product example is Carrera Magisterial (CM), varies with a child's household composi- which is a professional development pro- tion. The specific context for his study gram that was created as part of the Na- is the liberalization of rice markets in Viet- tional Agreement for the Modernization nam in the 1990s. Between 1993 and 1998, of Basic Education in 1992. This program Vietnam lifted export restrictions on rice, is aimed at raising the quality of basic allowing the domestic price to rise toward education through teachers' professional international levels, and eliminated inter- training, new learning presence in nal restrictions on the flow of rice between schools, and improving working and sal- regions of Vietnam. So, the relative price ary conditions. Lopez-Acevedo evaluates of rice increased overall in Vietnam, but the impact of CM. She shows several im- the degree of price change varied across portant results. First, teacher's enroll- communities with the lifting of restric- ment in the CM program has a positive tions on internal flows. The author finds impact on learning achievement. Second, that the response of child labor supply to family characteristics are important in rice price increases is increasing the explaining students' achievement. Third, amount of time children work. Thus, investment in primary school teachers is household composition attributes that are most effective when targeted toward in- associated with higher levels of child labor creasing teachers' practical experience are also associated with larger declines in and developing content-specific knowl- child labor with rice price increases. The edge. And fourth, students in schools with results are consistent with girls particu- a high degree of supervision on the part larly benefiting from product market of the school principal achieve better integration because they work more scores. than boys do. The results suggest that This paper-a product of the Poverty economic factors associated with economic Sector Unit, Latin America and the Car- reform may attenuate differences in the ibbean Region-is part of a larger effort activities of siblings that are typically in the region to understand the factors associated with cultural traditions and that contribute to increase the quality of norms. education. Copies of the paper are avail-