92254 MISSION STATEMENT By undertaking research and data collection in key areas and themes, the Knowledge for Change Program supports the development of effective policies and programs in  developing countries with an  aim to  reduce poverty and promote sustainable development. KNOWLEDGE CHANGE for Annual Report 2014 ENDING EXTREME POVERTY PROMOTING SHARED PROSPERITY Foreword In October 2013, the World Bank Group This effort will be complemented by the (WBG) member countries endorsed a basic research being conducted at the new WBG strategy that will guide the World Bank under the KCP on poverty institution’s efforts to achieve its twin dynamics and public service delivery and goals of ending extreme poverty and economic development and structural promoting shared prosperity. change.Another aspect of the change process that can be supported by the Based on the new strategy, the WBG research of KCP II and hopefully KCP III is has undergone a substantive reorganization. This the renewed focus on international coordination and will transform the focus and modalities of the WBG’s cooperation. This focus plays a key role in the shared work and enhance its capacity to deliver development prosperity agenda, not only in the traditional areas solutions that support the twin goals. In support of such as trade and financing, but also in new domains the new strategy, there are three changes that are like taxation policy. Research under the global public currently underway that are of special relevance to goods window can support our understanding of these the Knowledge for Change Program (KCP). new challenges and opportunities as the WBG seeks to shape the post-2015 development agenda and the First, a new WBG Country Engagement Model has formulation of the Sustainable Development Goals been introduced, which will center its focus on the (SDGs). The WBG’s twin goals are not just consistent twin goals. The Country Partnership Frameworks with the emerging SDGs but are reinforced by them. and WBG support will link the country strategies and policies to the goals. This link will be facilitated Third, the World Bank, International Finance Corpora- through stronger analytics developed in Systematic tion, and Multilateral Investment Guarantee Agency Country Diagnostics and reinforced by an enhanced have decided to work more closely together as One emphasis on implementation—with the goal of World Bank Group. This will place the institution in improving results on the ground and learning from a more advantageous position to engage the private experience. KCP can play a vital role in undertaking sector and governments in promoting strong and important research that can underpin the Systematic inclusive growth. There is already a lot of innovative Country Diagnostics. cross-WBG activities, spanning areas such as infra- structure, education and health, access to finance, Second, new Global Practices and Cross-Cutting and climate change, which are some of the areas Solution Areas have been established to enhance KCP also supports. the WBG’s engagement at the global level. These changes will strengthen the focus on developing and The changes that are underway at the Bank magnify deploying global knowledge and best practices in the impact potential of the Knowledge for Change support of policy design and implementation. KCP Program, which has already funded many innovative can advance the knowledge objectives of the global and pathbreaking research projects for the develop- practices through research on key priority themes. ment community. Donors’ continued generosity and These changes will also help strengthen external input will help ensure that KCP plays a key role in partnerships by providing the WBG with a central the new WBG strategy. hub to engage with groups focused on practice. There is a major effort underway in the WBG to strengthen data and research on the twin goals, including the Data for Goals Initiative, to substantially Kaushik Basu improve availability and quality of data on poverty and Senior Vice President and Chief Economist shared prosperity to inform policy and track progress. World Bank ENDING EXTREME POVERTY – PROMOTING SHARED PROSPERITY  • iii Contents Message from the World Bank’s Research Director 1 KCP and the New Bank: The Change Process 9 Progress and Achievements in 2014 13 Table 1. Key Indicators in FY2014 23 KCP III: Going Forward 25 The KCP Finances 29 Table 2. KCP II Parent Accounts Statement 32 Annex 1. KCP II Ongoing Research: Project Highlights 34 Annex 2. KCP II Research Projects in Profile 38 Annex 3. KCP II Projects Portfolio 45 Table A.1. KCP II Applications 45 Table A.2. KCP II Allocations and Disbursements 48 Table A.3. Completed KCP II Projects in FY2014 57 Table A.4. Ongoing KCP II Projects in FY2014 58 Table A.5. New KCP II Projects in FY2014 62 iv  •  ANNUAL REPORT 2014 Message from the World Bank’s Research Director 1 Message from the World Bank’s Research Director 1 The World Bank’s Twin Goals of Ending Poverty and Boosting Shared Prosperity and Their Measurement Challenges T he entrance to the World Bank’s head- The announcement of these two bold yet con- quarters in Washington, DC, is inscribed crete goals places renewed emphasis on an with the words “Our dream is a world free area that has long been at the heart of work of poverty.” In pursuit of this dream, in April 2013 supported by the KCP: data and measurement.1 World Bank President Jim Yong Kim announced Consistent and reliable data play a critical role to the international community two new goals in the design of good policies, motivate eco- to guide the World Bank’s work. The first goal nomic theory, and allow for the monitoring is to end global poverty, reducing the share of and evaluation of economic policies in practice. people living in extreme poverty to 3 percent Indeed, far from being an issue of secondary of the global population by 2030. The second importance, data and measurement are pivotal to goal is to boost shared prosperity, understood assessment of the World Bank’s new goals and, as increasing the average incomes of the bottom thereby, their achievement. To assess progress 40 percent of the population in each country. toward the goals, it is necessary to have a clear The accompanying narrative emphasized that understanding of how progress is defined and both goals should be attained in a sustainable measured. Without a clear understanding of and inclusive manner, ensuring that today’s the meaning of the goals and how to measure development is not reversed tomorrow and does progress, what would be the basis for selectivity not compromise the planet’s future or that of and prioritization? And how would lessons be subsequent generations. learned from past experience? 1  For example, Measuring Inequality and Inequality of Opportunity using DIME Microdata (TF099007), Poverty Mapping in China (TF095034), Tanzania Social Action Funds R3 Survey Support (TF098792), Measuring Development Indicators for Pastoralist Populations (TF098893), LSMS: Improving the Quality and Comparability of Income Data Through Research and Dissemination (TF098797), How to Improve the World Bank’s Global Poverty Monitoring (TF012967), Global Poverty and Inequality Monitoring in the 21st Century (TF015451), and many others. 2  •  ANNUAL REPORT 2014 Asli Demirguc-Kunt Why a goal of 3 percent and is it widespread, however, and it is simply not realistic achievable? to expect to be able to eliminate poverty in these countries by 2030. It is also the case that at any In the past few decades, substantial progress has moment in time there is likely to be some churn- been made in reducing global poverty. Between ing taking place in which some people, possibly 1990 and 2011, the number of people living in for reasons beyond their control, fall into poverty, extreme poverty has more than halved, to around even if only temporarily. It is thus practical to one billion people, or 14.5 percent of the world’s set a global target at a level that is close to zero, population. Seen from a different perspective, but which allows for some heterogeneity at the however, the fact that so many people remain country level. poor is sobering. To estimate the number of people living in extreme poverty, the World Bank Empirically, simple back-of-the-envelope simula- currently uses an international poverty line of tions can be conducted to assess the plausibility $1.25 per day, in 2005 prices. That more than of the goal to end poverty by 2030. When such a billion people in 2011 eked out a living on simulations are based on stylized and highly such a low threshold living standard makes the optimistic assumptions—such as stable and need to increase efforts to reduce global poverty continuous annual growth rates in consumption self-evident. per capita of at least 4 percent in all developing countries and an unchanging distribution of Why set the global target for poverty reduction income—then a global poverty rate of 3 percent to 3 percent of the world’s population by 2030? is achievable. Although per capita growth of 4 Conceptually, it may be desirable to set a target percent in each country is roughly equivalent to end global poverty altogether. However, a to the average for developing countries as a global goal of zero poverty would require fully whole from 2000 to 2010, assuming that all eliminating poverty in each and every country. countries could consistently grow at this rate is Poverty in some countries remains deep and highly implausible. If each developing country ENDING EXTREME POVERTY – PROMOTING SHARED PROSPERITY  • 3 Why focus on shared prosperity and Figure 1. E  nding Global Poverty: what does the income growth of the An Ambitious Target bottom 40 percent measure mean for 40 development efforts? Poverty headcount (% world population $2005 PPP) 35 The World Bank’s second goal, of boosting shared Poverty reduction since 1990 prosperity, also shifts focus toward the poor. Dis- 30 cussion of inclusive growth is not new. However, although there is an extensive literature emphasiz- 25 Countries grow ing the importance of thinking about inclusion of at their 20 respective average the poorest in society in defining goals for develop- over the past ment, until now there has not been agreement on two decades 15 a single summary indicator. The World Bank’s new shared prosperity goal—to boost the incomes of 10 All countries grow at 4% per year the bottom 40 percent of the population—provides 5 an explicit definition of inclusive growth, as well 3% poverty target as a means to measure it. 0 1990 1998 2006 2014 2022 2030 One way to think about the World Bank’s new Source: Based on analysis of World Bank PovcalNet data. shared prosperity goal is as an alternative to aver- Note: For further details on the underlying assumptions for this figure, see World Bank, forthcoming PRR, A Measured Approach age income as the benchmark of development to Ending Poverty and Boosting Shared Prosperity: Concepts, Data, progress. Instead of assessing and measuring and the Twin Goals. economic development in terms of overall aver- age growth in a country, the shared prosperity goal places emphasis on the bottom 40 percent were instead to grow at its respective annual of the population. In other words, good progress average growth rate of the past 20 years, global is judged to occur not only when an economy is poverty would remain at around 6.8 percent of growing but, more specifically, when that growth the world’s population by 2030, a considerable is reaching the least well-off in society. Thus, the distance from the 3 percent target (Figure 1). shared prosperity goal seeks to increase sensitiv- The World Bank’s forthcoming Policy Research ity to distributional issues, shifting the common Report (PRR), A Measured Approach to Ending understanding of development progress away from Poverty and Boosting Shared Prosperity: Concepts, per capita income and emphasizing that good Data, and the Twin Goals, examines an array of growth should benefit the least well-off in society. possible growth outcomes and attendant drops in poverty based on the same type of simulation. Unlike the World Bank’s global poverty goal, the The simulations suggest that the World Bank’s shared prosperity goal is a country-specific goal that dream of ending global poverty by 2030, while does not have an explicit target. It is unbounded in not impossible, is a highly ambitious objective. the sense that boosting shared prosperity requires 4  •  ANNUAL REPORT 2014 a positive growth rate for the average incomes However, the welfare measures chosen by the World of the bottom 40 percent of the population, but Bank are by no means the only relevant ones. there is no target (or limit) for what that growth Different countries might choose to use different rate should be. The shared prosperity indicator is welfare measures to evaluate their policies and thus similar to measures of average income such progress. Careful poverty analysis quickly moves as growth in gross domestic product per capita, in beyond simple measures, such as the headcount, the expression of the indicator (as a simple growth to measures such as the poverty gap, which are rate over time) and in how progress is evaluated informative about the depth of poverty. Similarly, (more growth is better—without a specific target although the Bank’s shared prosperity target rate of growth in each country). emphasizes the performance of the bottom 40 percent, for other purposes countries may find it Growth in the incomes of the bottom 40 percent of useful to track other measures to emphasize the the population can be decomposed into growth in performance of different groups in the income average incomes and growth in the income share distribution. of the bottom 40 percent. Comparison of growth in average incomes of the bottom 40 percent A need for transformational policies with growth in overall average incomes provides information on how inequality is changing: if the The critical role of continued growth in helping income share of the bottom 40 percent is rising, to reduce poverty and boost shared prosperity is inequality is falling and those in the bottom 40 a central theme in the forthcoming PRR. The PRR percent will see faster growth than those in the also suggests, however, that continued growth in line upper 60 percent. In this sense, although it is with what has been experienced in recent decades not an inequality goal in and of itself, the shared will not be sufficient to end poverty. Thus, achieving prosperity measure implicitly places emphasis on the poverty and shared prosperity goals will require changes in inequality in society. concerted action and transformational policies that go well beyond “business as usual” practices. Simulations presented in the forthcoming PRR show how boosting the income growth of the bottom In particular, ending global poverty and boosting 40 percent of the population, relative to average shared prosperity will require focus not just on growth, can add considerable impetus to further overall levels of growth, but attention to the nature poverty reduction toward the 3 percent poverty and patterns of growth. Although the incomes target. It is in this sense that the global poverty of the poorest have tended to be correlated with and shared prosperity goals can be considered average income growth in the past, there are also “twin” goals: faster and more equitable growth notable exceptions, where overall growth has not will lead to progress toward both goals. translated to effective poverty reduction or has taken place alongside increased inequality. Such Both goals represent a choice by the World Bank exceptions suggest that it is not just growth, but to focus on particular welfare measures that also the type of growth (growth that benefits the emphasize progress among the poorest in society. poor) that will be important in achieving the World ENDING EXTREME POVERTY – PROMOTING SHARED PROSPERITY  • 5 Bank’s goals. In particular, growth that increases counts and to make inferences about poverty for the returns to assets held by the poor (especially the population as a whole based on survey data. the returns to their labor, but also to other assets, Poverty assessments at the country level are usu- such as landholdings) is the most likely to translate ally denominated in local currency and based on into effective poverty reduction. Developing policies a poverty line that is nationally determined. Cross- that achieve growth in a sustainable way that does country comparisons therefore require additional not undermine future progress will also be critical. data to count the poor across countries in terms of a common currency and global poverty line. What data do we need to monitor Purchasing power parity (PPP) indexes, produced the twin goals? by the International Comparison Program, perform this role. When survey data are not available on One of the key contributions of the World Bank’s an annual basis, two additional sources of data forthcoming PRR is that it provides a detailed are needed to be able to compare poverty across account of the complete set of data needed to countries in a common (reference) year: inflation measure and assess poverty and shared prosper- data (to account for changes in prices between the ity consistently. Monitoring the goals requires survey year and the reference year) and data on many inputs, but the critical element is compa- growth of real gross domestic product (to account rable household survey data. Household surveys for changes in real economic activity between the provide information on people’s consumption or survey year and the reference year). Data on prices income, which are the key variables for assessing are also needed to account for differences in the poverty and a necessary component for assessing cost of living across different areas within countries. shared prosperity. In the past, poverty has only been periodically assessed and progress in reduc- What can development stakeholders ing poverty was based only on these relatively do to improve measurement infrequent measures. Monitoring progress toward methods and data? the goals in a way that allows comparison across countries and prompt identification of trouble spots A well-functioning system of data sources and tools will require more data and new methods. Although is needed to measure poverty and shared prosperity the number of household surveys has increased in in a way that helps to monitor and improve policy. countries around the world and the quantity and Much remains to be done to address the remaining quality of survey data in some developing countries challenges and gaps in poverty data and analysis. are excellent, overall the frequency and quality of household survey data are highly variable and there First and foremost is the need to strengthen data are also issues of consistency and comparability measurement and collection capacity at the country within and across countries. level. Although the World Bank’s goals are global, they will be achieved through policies at the national But household survey data are not enough. At a level and the path to reaching the global poverty and minimum, population data are also needed to con- shared prosperity goals will be heterogeneous across vert survey-based estimates into national poverty countries. The primary purpose of collecting data 6  •  ANNUAL REPORT 2014 on extreme poverty and shared prosperity should careful design and collection of data is needed. therefore be to inform policy at the national level. There is ample scope to improve the standardiza- The ability to make cross-country comparisons, tion of data. Indeed, there needs to be more stan- while important, is secondary to having a solid dardization of guidelines for estimating poverty evidence base to guide countries’ policies. This and more emphasis on maintaining comparable in turn implies that data collection by national measures of consumption and income. However, statistical agencies should not take a back seat in many cases countries may have good reasons to data collection by international organizations, to follow a particular approach that is different quality of data should not be compromised in favor from that followed in other countries. Although of cross-country comparability, and donors should this heterogeneity comes at the cost of comparabil- accordingly be cautious in the emphasis they give ity across countries, the benefits of data that can to cross-country comparisons. The example of the provide locally useful information may at times Living Standards Measurement Study approach to outweigh this cost. In all cases, the quality of working closely with national statistical agencies national data, rather than its comparability, should has been important in this respect. be the primary concern. The implication is that donors need to be realistic about how much can be The timeliness and frequency of data collection inferred from cross-country comparisons, not only need to increase. Even where data have been because poverty and shared prosperity estimates collected, processing lags can be lengthy and in may be imprecise, but also because of heterogene- some cases governments are reluctant to provide ity in data across countries. This underscores the access. Greater support to enhance the capac- importance of informing funding decisions on the ity of statistical agencies and more funding for basis of a wide spectrum of evidence, rather than improved data systems are needed. Even more only a few indicators. emphasis needs to be placed on the importance of open access to data. Beyond producing more New technologies and statistical approaches frequent surveys, however, more attention to the can help to bridge some of the gaps in data ENDING EXTREME POVERTY – PROMOTING SHARED PROSPERITY  • 7 measurement and assessment. For example, tech- the first-best solution is to strengthen countries’ nological innovations, such as computer-assisted capacity to collect data in a manner that produces interviews or mobile phone–based data collec- high-quality, time-sensitive, and well documented tion, can help improve the frequency of surveys, inputs for policy making. The development com- especially in geographically dispersed countries. munity urgently needs to mobilize efforts to spur The use of technologies that can improve data the availability of data for the purpose of poverty collection and the use of well-designed survey-to- analysis. survey imputations should be scaled up. However, 8  •  ANNUAL REPORT 2014 KCP and the New Bank: The Change Process 2 KCP and the New Bank: The Change Process 2 I n October 2013, the World Bank Group’s member countries endorsed a new WBG strategy that will guide the institution’s efforts to achieve the twin goals of ending extreme poverty and promoting shared prosperity. The new strategy is built on an internal change process that has been taking place within the WBG over the past year. The new strategy comes at a time of dramatic change in the global economy. The private sector is driving employment growth in much of the developing world. Increases in connectivity, often facilitated by technology, are changing the nature of trade, business, and finance. And private investment has become the dominant mode of capital transfer worldwide. The new strategy will enable the WBG to engage adaptively with development problems in an increasingly dynamic economic environment. What is involved in the new WBG strategy? And that the Bank has garnered to support policies how do the changes relate to the work of the and programs. Bank services will encompass the Knowledge for Change Program? complete cycle from financing and policy design, through implementation, to evaluation of results. A New Model of Country Engagement The changes will further leverage the resources of KCP The WBG has reformulated its problem-solving by systematically linking the knowledge it creates on engagement—shifting its focus away from the the drivers of economic development to operational project cycle toward a concentration on creating staff and their clients. For example, the KCP window on development solutions for its clients. This type of Poverty Dynamics and Public Service Delivery focuses engagement is facilitated by the new WBG Country on enhancing knowledge capacity on the implementa- Engagement Model, which aims to sharpen client tion challenges faced by clients and on understanding focus on the twin goals. This focus will be further the constraints faced by policy beneficiaries. augmented by an increase in financial capacity 10  •  ANNUAL REPORT 2014 One World Bank facilitated by education and health, two global practice focus areas, and must navigate the adaptive New Global Practices and Cross-Cutting Solution challenges of climate change and fragility, conflict, Areas have been established to enhance the WBG’s and violence, which are two cross-cutting solu- engagement at the global level, providing clients tion areas. On the other hand, effective economic with customized solutions that integrate technical development and structural change is essential to knowledge with financial services. These practices the improvement of education systems and mitiga- and solution areas will catalyze and leverage the tion of conflict. combined resources and expertise within and across the institution, allowing the institution to work Working with Partners Toward more closely together at the corporate, country, the Goals and regional levels. The WBG is expanding its efforts to partner with KCP’s window on Economic Development and external organizations. No one institution—the Structural Change, established in 2010, plays an World Bank Group included—can ensure that coun- important role in this process. The purpose of this tries reach the twin goals. At an operational level, window is to analyze the policies and factors that the WBG will call on all development actors—at are necessary to make it possible for a developing every scale, from village cooperatives to multimil- country to upgrade its industrial structure continu- lion dollar programs with regional or even global ously and develop rapidly. Economic development reach—to work in concert toward meeting the goals. and structural change have a reciprocal relationship with global practices and cross-cutting themes. Built on the recognition that global issues require On the one hand, structural change is driven and collective action and coordination across countries, ENDING EXTREME POVERTY – PROMOTING SHARED PROSPERITY  • 11 KCP’s third window on Global Public Goods, estab- regions and even within countries—demanding lished in 2005, directly addresses and provides new, more carefully targeted solutions. The threat support to change within the Bank. The change of climate change grows ever larger—requiring also has implications for the research commu- countries and international organizations to work nity within the Bank, calling on KCP to further in unison. New public health hazards are emerg- increase its collaboration with universities, think ing, from the recent outbreak of the Ebola virus tanks, and other research institutions to support to the dramatic growth in deaths caused by traffic research activities related to the WBG’s overarch- accidents in recent years—highlighting the need to ing themes of (i) poverty dynamics and delivery manage the risks that accompany the benefits of of  public services; (ii) investment climate and globalization and economic development. trade and integration; (iii) global public goods; and (iv) economic development and structural change. The new WBG strategy is focused on enabling the institution to focus on its twin goals in a rapidly The Development Agenda, changing world. Research on how best to drive and Old and New manage these challenges must continue to guide thinking as the WBG carries out its new strategy. The long fought battle of poverty reduction is KCP has the capacity to serve as a transparent and quickly being accompanied by new development efficient vehicle for bringing together the intellectual challenges: the rate of extreme poverty is now half and financial resources of the global community at what it was in 1990, but the progress varies across this important moment in the history of the WBG. 12  •  ANNUAL REPORT 2014 Progress and Achievements in 2014 3 Progress and Achievements in 2014 3 K CP II was originally scheduled to end on April 30, 2016. However, all the donors recently agreed to a no-cost extension through June 30, 2017, in light of the available funds of more than $4 million. This extension allowed a final Call for Proposals with new research projects commencing in July 2014 that can run through the typical three years of implementation. In parallel, efforts are underway for the establishment of KCP III (see page 26), which will be a reformed KCP that is aligned with the Bank Group’s twin goals and reflects the themes for new development research. KCP III will be set up with a more flexible structure that is not limited to the four windows under KCP II, which are Poverty Dynamics and Public Service Delivery, Investment Climate & Trade and Integration, Global Public Goods, and Economic Development and Structural Change. The KCP III Concept Note was cleared internally in the Bank in June 2014 and is now going through the administrative set-up process with an anticipated activation before the end of calendar year 2014. Several donors have made firm multiyear pledges to continue their support to KCP. In the final FY2014 Call for Proposals, the KCP the Ministries of Finance and Environment of the Internal Management Committee approved 29 new Brazilian government, which provided valuable projects for a total of $4.3 million. Grant sizes range inputs to the program design. from $50,000 to $450,000. Of the 29 new projects (Table A.5), four have strong capacity-building com- There are 61 ongoing projects (Table A.4) in various ponents and received excellent ratings from external stages of implementation and the progress reports ex ante reviewers. In addition, a grant funded by prepared by the task team leaders are available on Norway for NKr 12 million for the Economic Valu- the KCP website. Four projects (one per window) ation of Changes in Amazon Forest Area project are highlighted in Annex I. was approved virtually by the Internal Management Committee in May 2014; this research program aims Twenty-one projects (Table A.3) were completed in to expand and improve empirical knowledge of FY2014. The project outputs include high-quality the local and regional-scale economic values from papers, databases, data sets, and research tools cover- the Amazon rainforest and its ecosystem services. ing a broad range of development topics and issues. The research also aims to show how changes in the value of ecosystem services are differentiated Table A.3 provides a full list of the completed geographically. The program has been developed in projects and the completion reports prepared by close collaboration with the Brazilian government the Task Team Leaders are available on the KCP and with the heavy involvement of the Bank’s office website. Highlights of the completed projects are in Brazil. In addition, the program is supported by provided below by window. 14  •  ANNUAL REPORT 2014 potential prospect of payments for environmental Window Poverty Dynamics and services, have translated into higher demand for I Public Service Delivery land globally. To increase productivity and safeguard against this pressure depriving the most vulnerable of their land, countries need to improve their land Window I addresses issues at the heart of poverty administration institutions. reduction: empowerment and sustainable develop- ment as well as public service delivery for human The Gender Impacts of Low-Cost Titling in a development. In FY2014, four projects were com- Post-Conflict Environment: The Case of Rwanda pleted in this window and 15 projects are ongo- project addressed the land tenure issue. With ing. The four completed projects covered a wide increased pressure on land resources, improving range of topics, such as public service delivery property rights will be critical for African countries (TF013079: The Role of Public Works Programs in to realize their potential. However, there were no Enhancing Food Security: The Malawi Social Action operational approaches to do so in a way that is Fund), pro-poor growth (TF099270: Implications scalable and can be adapted to African conditions for Poverty of Productivity Growth in Agriculture & and economically viable in light of the region’s Non-Agriculture), social inclusion (TF010841: Gen- low land values. Most country programs are too der Impacts of Low-Cost Titling in a Post-Conflict costly to be affordable by the majority of people Environment: The Case of Rwanda), and poverty and have thus failed to achieve broad coverage or measurement and inequality (TF012968: Change- sustainability. Rwanda is the first African country able Inequalities: Facts, Perceptions, and Policies).. to implement an approach building on its Economic Development and Poverty Reduction Strategy, which How does land titling impact the identifies land registration as a critical element productivity of land use? to improve the productivity of land use, improve the functioning of land markets, reduce conflicts, Increased global demand for land and higher empower women, and improve overall governance. and more volatile food prices, together with the Rwanda’s Land Tenure Regularization program is ENDING EXTREME POVERTY – PROMOTING SHARED PROSPERITY  • 15 a national program for first-time registration of all the estimated 11 million land parcels in the country. This project used a rigorous evaluation strategy Box 1. How to measure inequality? to assess impacts on conflict, gender, and legal knowledge. The project carried out analysis of the baseline survey and identifying the short-term In the fight against poverty, it is important to know where impacts of an innovative, low-cost, nationwide land the poor live and whether their poverty is transitory or titling project. This is the first study to exploit a chronic. The project Changeable Inequalities: Facts, Per- randomized impact evaluation design to estimate ception, and Policies aimed to answer these questions. First, the project undertook a careful reexamination of the effects of a nationwide land titling program, fundamental data issues concerning estimates of national- such as the one implemented in Rwanda. In par- level and global inequality. Second, the project explored ticular, the evaluation helps to identify successes the measurement of inequality of opportunity and its and point out caveats to support the Government of links with economic growth. Third, the project updated Rwanda in designing complementary interventions. the global inequality database and continues to monitor trends in global inequality. The credibility of the results not only ensures the This research program has contributed toward the survey- usefulness of the study for the Rwandan govern- to-census imputation techniques, which can be used to ment, but also generates the potential for the generate poverty and inequality measures at a very small findings to have an impact on policy well beyond regional level, such as poverty maps. In addition, the the Rwandan context. African governments have methods developed in this project can be used to estimate already shown a growing interest in the Land chronic poverty rates. By identifying the characteristics of the chronic poor, this type of poverty can be reduced Tenure Regularization program and delegations more effectively. For example, a recent application of from Nigeria and Ethiopia have visited the Rwanda this method to Rwanda highlighted the importance of Natural Resource Authority in Kigali and in the field. agricultural programs for tackling chronic poverty, which generated substantial interest by policy makers. How do public works programs enhance food security? This research has continued to shape the dialogue on global inequality. Further, it puts into perspective the rapid income gains in some developing countries, on the To improve public service delivery, KCP supports one hand, and the increasing inequality that has been evaluation and analysis of delivery options. The observed in many countries on the other hand. project The Role of Public Works Programs in Enhancing Food Security conducted research on The project has generated significant outputs, including the large-scale public works component of the 10 working papers, five journal articles, and one book Malawi Social Action Fund. chapter. The study addressed two research questions of broad interest. First, the project examined the impact of the public works program as an 16  •  ANNUAL REPORT 2014 income-promoting mechanism via its impact on Jordan), stability and growth (TF098652: On FDI agricultural productivity through increased access Spillovers), migration (TF010695: Database of Emi- to yield-improving inputs. Second, the project gration Laws and Policies in Developing Countries), design increased understanding of the implications governance (TF095860: Reticent Respondents and of alternative payment schemes. This study has Cross-Country Survey Data on Corruption), and important implications for the design of public banking and finance (TF015344: Global Financial works programs in general, as well as for under- Development Report, TF014284: Bank Capital and standing the interactions of public works programs Systemic Stability: A Cross-Country Analysis, and with other government programs. TF011089: Currency Wars). The project had two notable innovations. First, it How does job matching impact job integrated a large-scale random control test with growth? the actual government implementation of a social protection program. The second innovation was Job growth is a major factor contributing to poverty to integrate the data collection exercise of the reduction. The project Generating Job Matches impact evaluation within the sample of the exist- between Firms and Young Women in Jordan ing national household survey that is part of the involved setting up a pre-employment center that Living Standards Measurement Study – Integrated evaluated job candidates through a mixture of Surveys on Agriculture project, thus providing real-world skill assessments and psychometric three rounds of high-frequency data in the sample screening. The project investigated whether such of a longitudinal data set administered in 2010/11 evaluation would lower hiring costs, resulting in and 2014/15. higher employment for the youth involved. The results found that youth turned down poten- tial job openings because the jobs were not suit- able or not on the right career path. This prestige Window Investment Climate & reservation is an important factor contributing to II Trade and Integration the unemployment of educated Jordanian youth. This conclusion suggests that the necessary policy Window II focuses on the major elements of a busi- response is more difficult and complicated than if ness climate conducive to growth, with emphasis the problem were simply high minimum wages on the role of small- and medium-scale industries. or high search costs. This finding suggests two There were seven completed projects, 17 ongoing directions for future policy actions. The first projects, and one dropped project in FY2014 in the consists of interventions on the firm side to spur Investment Climate & Trade and Integration win- the development of a vibrant private sector that dow. The seven completed projects covered a wide provides more skilled jobs. The second suggested range of topics, such as jobs (TF013049: Generating response is for more efforts to try to lower the Job Matches between Firms and Young Women in resistance of educated youth to take jobs that they ENDING EXTREME POVERTY – PROMOTING SHARED PROSPERITY  • 17 Box 2. Global Financial Development Report The broader aim of the Global Financial Development Report (GFDR) series is to be a key driver in the global debate on financial sector development. The 2014 GFDR was the second in the GFDR series. The aim of the 2014 GFDR on Financial Inclusion is to provide a new contribution to the global policy debate on financial inclusion, building on findings from recent and ongoing research and lessons from operational work. The report highlights the importance of financial inclusion for sustainable development and poverty reduction. The report provides powerful evidence that financial inclusion is crucial for economic development and inclusive growth. New evidence confirms that access to finance for firms, particularly small and young firms, is associated with innovation, job creation, and growth. Considerable evidence also shows that the poor benefit enormously from basic payments, savings, and insurance services. Financial inclusion, if supported by robust policies, can go hand in hand with financial stability. Many countries have learned the hard way that efforts to “promote financial inclusion” by subsi- dizing credit can be counterproductive. Such policies can lead to over-indebtedness and financial instability. But new evidence also underscores that use of financial services is often constrained by regulatory impediments or malfunctioning markets that prevent people from accessing beneficial financial services. Addressing those impediments can help financial inclusion without undermining financial stability. The evidence points to a function for the government in dealing with these impediments by creating the associated legal and regulatory framework (for example, protecting creditor rights, regulating business conduct, and overseeing recourse mechanisms to protect consumers), support- ing the information environment (for instance, setting standards for disclosure and transparency and promoting credit information-sharing systems and collateral registries), and educating and protecting consumers. A crucial part of the policy package is competition policy. Healthy competition among providers rewards better performers and increases the power that consumers can exert in the marketplace. And competition allows for better harnessing the promise of new technologies (such as mobile payments, mobile banking, and improved borrower identification). To achieve these benefits, regulators need to allow competing financial service providers and consumers to take advantage of technological innovations. There is also new evidence that policies such as granting exemptions from onerous documenta- tion requirements, requiring banks to offer basic accounts, allowing correspondent banking, and using electronic payments into bank accounts for government payments are useful in expanding account penetration. In contrast, interventions such as directed credit, debt relief, and lending through state-owned banks tend to be politicized and less successful, particularly in weak institutional environments. 18  •  ANNUAL REPORT 2012 18 •  2014 consider less prestigious. For more details about productive when it adopts an undervalued real this project, please see Annex 2 KCP II Research exchange rate. This striking result suggests that Projects in Profile. it is good to maintain a low exchange rate. The project also showed theoretically and empirically Investigating how the exchange rate that one developing country’s interventions hurt affects growth and welfare other developing countries in a similar position. This finding suggests a race to the bottom, where coun- Many researchers have suggested that a policy of tries might undercut each other’s output growth, exchange rate undervaluation may serve to pro- leading to a currency war. However, the theoretical mote exports, which under appropriate conditions analysis also showed that such a currency war is would raise economic growth and welfare in the in fact Pareto efficient, since it is desirable for each countries involved. country to internalize its learning externalities. However, in the past few years, and especially in The project is expected to have a strong influ- the aftermath of the global crisis, capital flows to ence on countries’ exchange rate policies and the emerging markets have boomed. As more and more resulting effects of exchange rate policies on export countries have engaged in reserve accumulation competitiveness. and capital controls to keep their exchange rates from appreciating, the sustainability of exchange Exploring the role of capital rate undervaluation policies on the global stage has in systemic stability been put into question, since the competition for export markets by the countries involved would The 2008 global financial crisis has demonstrated require other countries to run ever larger current that the regulatory capital requirements in place account deficits. Brazil’s finance minister, for were inadequate to prevent a systemwide bank- example, has spoken of a “global currency war” ing crisis. As a result, there has been significant, to describe what he perceived as the attempts of a renewed interest in refinement of existing capital large number of countries to keep their exchange adequacy rules to increase capital cushions for rates low so as to promote exports. financial intermediaries. In the Currency Wars project, the research was an Given that existing theories produce conflicting empirical study to investigate how a country’s real predictions regarding the effect of capital on bank exchange rate undervaluation affects its output, risk, the Bank Capital and Systemic Stability: A exports, productivity, and capital accumulation. Cross-Country Analysis project has examined this issue empirically with a bank-level database The project has established empirical evidence of 1,200 publicly traded banks in more than 45 that the policy is benefiting the country in terms countries over 1998 to 2012. of output growth. The channel is mostly through productivity, not factor accumulation. In other The results find that higher quality forms of capital words, the intervening country becomes more reduce the systemic risk contribution of banks, ENDING EXTREME POVERTY – PROMOTING SHARED PROSPERITY  • 19 whereas lower quality forms can have a destabiliz- ing impact, particularly during crisis periods. The impact of capital on systemic risk is less pronounced for smaller banks, for banks located in countries with more generous safety nets, and in countries with institutions that allow for better public and private monitoring of financial institutions. The results show that regulatory capital is effective in reducing systemic risk and that regulatory risk weights are correlated with higher future asset vola- tility, but this relationship is significantly weaker for larger banks. The project finds that increases in regulatory risk-weights not correlated with future asset volatility increase systemic fragility. Overall, the results are consistent with the theoretical litera- ture that emphasizes capital as a potential buffer in absorbing liquidity, information, and economic shocks and reducing contagious defaults. Finally, there is some suggestive evidence that the increased public goods (TF010503: Global Demand System regulatory focus on macro-prudential regulation for Consumer Behavior), and data and tools for after the crisis has strengthened the capital-systemic development research (TF010730: Open Metadata stability association.. and Methods Application). What is the value of the Amazon Rainforest? Window Global Public Goods The purpose of the research of the Economic Valu- III ation of Losses Due to “Amazon Dieback” project was to provide estimates of global public good value that can be used to evaluate (i) the ben- Window III focuses on global issues, such as efits of Brazilian policy efforts to reduce Amazon climate change, that require collective action and deforestation significantly and (ii) the benefits of coordination across countries. In FY2014, four further investments in forest protection. projects were completed in this window and there were 15 ongoing projects. The completed projects In this research, four separate “Delphi surveys” covered climate change (TF010390: Economic were conducted, surveying experts’ views on the Valuation of Losses Due to “Amazon Dieback” value of preservation of the Amazon Rainforest. and TF010467: Community Forestry and Pro-Poor Experts were surveyed in Europe, the United States Carbon Sequestration in Nepal), other global and Canada, Asia, and Australia and New Zealand. 20  •  ANNUAL REPORT 2014 In total, about 220 experts were surveyed in two launch of the Open Data Initiative in April 2010, rounds. data have become global public goods, as more users have access to them. The need for quality According to the Delphi surveys, expert judg- statistics has become critical and comprehensive ments indicate that average valuation levels per metadata have become a necessary component of household per year to fund a plan to protect all of sound data systems. the current Amazon Rainforest up to 2050 range from a low of $4 to $36 in 12 Asian countries to The objective of the project was to provide users a high of about $100 in Canada, Germany, and easy access to standardized metadata at various Norway, with other high-income countries in levels (i.e., variable definitions, footnotes, source between. The European expert judgments indi- references, country series, and so forth). With the cate willingness to pay in Europe for preserving new metadata system, users have the ability to the current Amazon Rainforest of about €28 per access far more detailed source information as well household per year on average. The elasticity as the methods used to generate each data point. of experts’ willingness to pay assessments with The new user interface will enable researchers and respect to own-country per capita income is in others to query and analyze the metadata directly most cases 0.6 to 0.7; but it is near unity when or use these elements to refine their data searches. taken with respect to PPP-adjusted incomes and These new features will be available to all the above unity for the Asian and European countries databases (about 50+, including about 10,000+ as separate groups. indicators) disseminated via the Databank query tool. With proper description of data and methods, Exploring a tool to interpret data users will be able to interpret data correctly, which correctly: The Open Metadata and will improve the quality of research. Methods Application project In the past, less focus was placed on metadata systems, particularly when data sets were rela- Window Economic Development tively small and simply organized. Under these IV and Structural Change circumstances, data were usually used in a desktop environment by only a handful of people who were intimately familiar with each data element’s definition, collection source, uses, limitations, and The fourth window analyzes the policies and technical characteristics. But the data enterprise factors that are necessary to make it possible for has grown in complexity over the recent past, a developing country to upgrade its industrial resulting in the seemingly exponential growth of structure continuously and develop rapidly. Five information collected, stored, managed, used, and projects were completed and 14 projects are reported. For example, there are 163 data sets in ongoing in this window. The completed projects the World Bank’s open data catalog and 10,000+ discussed the evaluation of programs that promote indicators in databank repositories. Since the structural transformation (TF097766: Structural ENDING EXTREME POVERTY – PROMOTING SHARED PROSPERITY  • 21 Transformation, Enterprise Policies and Economic on the county-specific rollout and content of the Growth and TF098764: Structural Transformation New Rural Pension Plan scheme. and Rural Social Protection Policies: Evidence from China), country case studies of success and failure The results of the study show that the social pen- (TF097767: Country Case Studies on Structural sion component of the New Rural Pension Plan Change and Industrial Policies), and the conse- contributes to poverty reduction with relatively quences and impacts of structural transformation modest effects on the timing of retirement. The (TF010008: Industrial Structure, Productivity, results suggest that modest pensions may support Growth and Welfare and TF010181: Early Work the elderly without introducing strong disincentives Experiences and the Skills of Young Adults: Evi- to continue working. dence from Senegal). How does the government’s industrial What is the impact of China’s new rural policy transform the country? pension program on poverty reduction and the labor supply decisions of the elderly? The project Structural Transformation, Enterprise Policies and Economic Growth, studied the role of In most currently developed countries, rural pen- government intervention in productivity growth, sions were in place by the time old-age dependency the forces that cause (or not) countries to undergo ratios started to rise. China’s old-age dependency structural transformation, and the underlying ratio in rural areas is currently relatively low, but it determinants of productivity growth. is projected to rise sharply over the next 20 years. In the absence of social support to lower the risk In the aftermath of the world economic crisis, many of poverty, an aging population in rural areas economists have questioned the validity of the old continues to hold land and engage in small-scale economic orthodoxy. The rapid transformation of agricultural production. This situation slows pro- some economies from primarily agricultural to ductivity growth and may even lead to declining manufacturing exporters in the 1980s and 1990s productivity. stands in sharp contrast to the continued depen- dence on agriculture and primary product exports In 2010, China’s government introduced a new rural for other economies. pension scheme in 10 percent of the rural counties. The scheme combines a basic pension, in which The spectacular rise of China is often presented as the current elderly may receive benefits either by an example of successful growth in conjunction buying in for a very low lump sum payment (Y with targeted interventions by the government. At 1,500) or through a “family binding” approach and the same time, there have been many cases where a funded individual account. interventions were not successful: intervention in India is thought to have delayed transformation This research supported the development and imple- by years if not decades. What are the factors that mentation of the county policy and the village and determine a country’s economic structure and how community surveys that enumerated information do they change over time and across the stages of 22  •  ANNUAL REPORT 2014 development? What roles do markets and states play A surprising result of this research was the chal- in the transformation? Why have some countries lenge made to theoretical as well empirical evi- been able to move from a low-income agrarian dence on the longstanding idea that industrial economy to a middle-income industrial economy, policy hampers competition. Two of the research while others remain seemingly trapped in poverty papers turn this argument on its head by arguing or stuck at the middle-income stage? that when firms focus on the same industry, they compete more intensively and generate more inno- The project has expanded the understanding of vation and growth. Thus, industrial policy should how targeted interventions by the government can encourage competition by reducing the tendency be designed to increase firm productivity, as well of firms to seek less contested markets. One of as the understanding of the limitations of such the papers discusses how the merits of industrial interventions. The project also generated a lively policy have been reconsidered in the aftermath of discussion within and outside the World Bank the financial crisis. on the role government interventions can play in facilitating structural transformation. Table 1. Key Indicators in FY2014 Number of Number of conferences and Journal Working Data Research conferences and events at which research Articles Papers sets tools events organized results were presented Window I 10 13 14 3 9 49 Window II 19 35 18 3 33 102 Window III 3 16 192 8 14 23 Window IV 2 5 11 3 7 32 Total 34 69 235 17 63 206 Developing country partners substantively engaged Researchers 208 Institutions 167 Number of policies in Bank policy documents (e.g., Country Partnership Strategies and Country Economic Memorandums) explicitly inspired by the findings of the research 6 Number of Bank operations (e.g., Development Policy Lending, Poverty Reduction Support Credits, investment lending, and technical assistance) 6 Number of government policy documents explicitly inspired by the findings of the research 3 ENDING EXTREME POVERTY – PROMOTING SHARED PROSPERITY  • 23 Box 3. Putting Knowledge to Work Through the KCP Perspectives The most recent issue of KCP Perspectives: Putting Knowledge to Work was published in Septem- ber 2014. KCP Perspectives is a newsletter that highlights two completed KCP projects that have had a positive impact on development policies. For most research findings, it usually takes years after completing the research to reveal the impact on development policies. Dissemination is an important element of KCP-funded research; hence, task team leaders are required to elaborate on their projects’ dissemination activities in their annual progress reports. Outputs, best practices, and lessons learned from completed projects are disseminated extensively and published in various formats, such as journals, books, databases, and web-based publications. Past issues of KCP Perspectives can be found on the KCP website at http://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTRESEARCH/EXTPROGRAMS/ EXTKNOWLEDGEOFCHANGE/0,,contentMDK:23300985~pagePK:64168182~piPK:64168060 ~theSitePK:491543,00.html. KCP KCP S PERSPECTIVE Putting Kno wledge to Wo rk PERSPECTIVE S Putting Knowle dge to Work NGE KNOWLEDGE CHA for KNOWLEDGE CHA 3 • ISSUE 1 NGE for • VOL. OCTOBER 2013 SEPTEMBER 2014 • VOL. 4 • ISSUE 1 happen: nts that didn’t The LEAPS Pro the experime ject: Bringing Learning from ms in Africa Research in the Togeth Education Sec 1 er Evaluation and grant progra tor Matching policy tools used by developing At the turn of t common rprise com- the century, it one of the mos medium ente was widely belie t programs are o, small, and system and gen ved that faced Matching gran ely facilitate micr ects totaling over eral dysfunction, with a failed pub rnments to activ World Bank proj schools called children in Paki country gove inclu ded in more than 60 ente rpris es. They involve madrassas and (where they coul stan were turn ing in droves to lic school have been ll and medium In this Issue parents and prov religious petitiveness, and 000 micro, sma purchasing busi ness ided educatio d) to private scho funding over 100, 50 percent) the costs of a firm donors and polic n that was belo ols that exploite US$1.2 billion, l upgrading. 1 ymakers thou w par. Once fund d poor or technologica The LEAPS Proje rnm ent co-fi nancing (typically impr ovem ent ct: be improved ght, madrassa s coul ing became avai lable, In this Issue the gove ity Bringing Toge and educatio d be controlle serv ices or undergoing qual Evaluation and ther n would come to the masses. d, public scho ols could development Research in the the Learning from When we start 1 experiments that t Education Secto ed working in Pakistan, we disco resources spen r didn’t happen: Despite all the vered a very matc hing grant on these proje cts, there is cur- 2 Message from the diffe rent grou seldom found nd reali ty. We rigorous evi- Editor children atten programs in Africa rently very little ing religious d- her or not these schools, but dence as to whet 4 Global Financial did find a shar we Message from the to undertake 2 Editor grants spur firms ities that they Development secular and co-ed p incre ase in innovative activ , Report 2014: vate schools. ucational pri- d not have done By 2005, there The Worldwid e otherwise woul Financial Inclu 3 Governance or merely subs idize firms for sion were 47,00 0 accounting for priva te scho ols d take anyway. a third of all pri- Indicators: actions they woul mary enrollmen typically cater ts. In contrast, synthesizing These programs between 1 and fraction of the perceptions of only to a tiny all children were 1.5 percent of governance quali ty try, and the firms firms in a coun religious scho enrolled in across countries and or are selected ols and the frac- that self-select to tion had barel over time ams are likely y budged since for these progr Photo of both observ- credit: Fahad Suleri and Wasif differ in a host Mullick. servable ways able and unob do not receive 1 TF055582, TF094 from firms that to 625. This projec tially giving free Khwaja (Harv t is led by Jishnu This is likely ard University) the funding. ams involve essen team developed with numerous Das (DECRG), Tahir Andrabi ive bias in non- Since the progr ante these progr ams through the LEAP collaborators. (Pomona Colleg lead to a posit more entreprene urial idual firms, ex the project has S project and In Pakistan, the survey work e) and Asim Ijaz evaluations if money to indiv d evaluation. So, been given by now incorporated has been carrie experimental y shocks are the ones ts for randomize by grants from the Knowledge for Change Progr as Research Consu ltants (RCons). d out by a seem good targe the South Asia ive productivit if it tors, we unde rtook region of the am, through Core funding firms with posit a negative bias our colla bora based on findin gs from the projec World Bank, a PSIA and an two grants, betwe en 2006 and for program, and together with programs. http://go.worldba t, a list of outpu NSF grant. Story 2012 and seeking out the but less prod uctiv e seven of these nk.org/GA2IH993 ts of the projec contri buted by Jishnu evaluations of t can be found ected politically S0. in the completion Das is better conn report of the projec ve the funding. t: firms that recei 24  •  ANNUAL REPORT 2014 KCP III: Going Forward 4 KCP III: Going Forward 4 K CP has been in operation since 2002; it is currently in Phase II, which started in December 2008. Phase II will be operationally complete in February 2017. The final FY2014 Call for Proposals process was concluded in June 2014, and available funds have been fully allocated to projects. These new projects commenced in July 2014 with the last possible end disbursement date of June 30, 2017. In FY2013, KCP undertook an independent midterm evaluation. The report concluded that KCP is highly successful in meeting its primary objective of providing high-quality, cutting-edge research. At the same time, the report made some recommendations to improve KCP, including deepening the policy impact in developing countries and enhancing local research capacity building. The donors have endorsed these recommendations and changes were made in KCP processes to incorporate these recommendations. The Development Economics Vice Presidency has their effects on targeted populations. The WBG has aligned its research directions with the twin goals a broad coverage of country operations in develop- of ending extreme poverty and promoting shared ing countries and low-income countries, making prosperity and focused on the data needed to moni- the WBG well-positioned to provide policy advice tor the twin goals and fill the data gaps as needed. for these countries, respond to demands, and feed research into policy discussion. KCP III will be established to undertake research that is consistent with the World Bank Group’s twin goals Another key focus of KCP III is to contribute to policy and the strategy of the Development Economics Vice making in developing countries. In close collabora- Presidency, as well as the recommendations of the tion with Bank operations, the Bank’s research, mid-term evaluation. KCP III will play an important data collection, and analysis will focus on applied role in the new Bank. A central component of the role and policy-oriented questions, which will support of KCP III will be in the form of high-quality, cutting- government officials with policy making guidance edge, policy-relevant research and data on devel- and contribute to understanding development issues opment economics to support government efforts in developing countries. In addition to these con- toward poverty reduction and shared prosperity. This tributions, KCP III will enhance research and data includes data collection in the context of research, collection capacity in developing countries. KCP III for example, methodological research related to the will encourage Bank teams to work with researchers production or dissemination of development data. and data specialists from developing countries with KCP III will also include cross-country benchmarking the aim of improving research and data collection exercises designed to identify successful policies and capacity. 26  •  ANNUAL REPORT 2014 The following is an indicative list of thematic areas world’s extremely poor people and remain a on which KCP III will focus: special concern to the World Bank Group. • Service of Delivery and Aid Effectiveness • International Cooperation and Global Public research, focusing on how to deliver develop- Goods research and data collection, address- ment across multiple sectors. ing the political economy, policy design, and evaluation challenges that arise in international • Poverty and Shared Prosperity research and cooperation. data collection, emphasizing the importance of economic growth and inclusion, including strong • Innovation in Data Production, Analysis, and concerns for equity. This area continues the Dissemination, addressing the need to establish WBG’s leading role in measuring and monitoring strong baselines and a monitoring system for poverty and addresses the new areas of shared the poverty alleviation, shared prosperity, and prosperity and environmental sustainability. sustainability goals. • Growth and Job Creation research and data KCP II has funded major policy research reports collection and analysis, focusing on understand- and World Bank flagship reports such as the World ing the dynamics of economic growth and job Development Report, Global Financial Development creation. Report, and Global Monitoring Report. It is expected that KCP III will continue to finance these reports, • Fragility and Risk Management research, data including the Doing Business Report, because the collection, and analysis studying the particular reports are expected to address development issues challenges of fragile and conflict-affected areas, and contribute to the attainment of the WBG twin which are home to a significant share of the goals of ending extreme poverty and promoting shared prosperity. ENDING EXTREME POVERTY – PROMOTING SHARED PROSPERITY  • 27 28  •  ANNUAL REPORT 2014 The KCP Finances 5 The KCP Finances 5 Donor Contributions and Pledges Finland, KCP II’s first signing donor, has contrib- uted $6 million in support of the four windows. K CP II, since its inception in December 2008, Finland has pledged to renew its financial support has received more than $28 million in cash for another three years at €750,000 annually, which contributions from 12 donors, namely, the will go to KCP III. United Kingdom, Finland, Sweden, Australia, the Republic of Korea, Norway, Canada, Japan, Denmark, Sweden made an initial pledge of SKr 8.5 million to Switzerland, China, and Singapore (see Table 2, the Poverty Dynamics and Public Service Delivery page 32; Annex 3, Figure A.2, page 46). Outstanding Trust Fund, with a preference that it be used to sup- pledges add another $3.4 million, which brings total port World Development Report (WDR) 2011: Conflict, donor contributions to over $31 million. Security and Development. Sweden made subsequent contributions of SKr 6 million to the four windows The United Kingdom, as a founding donor together and $150,000 to the Poverty Dynamics and Public with Finland, has contributed $7.2 million across Service Delivery Trust Fund to be used to finance all four program windows. The United Kingdom’s WDR 2012: Gender Equality and Development. Department for International Development (DFID) and Sweden give discretion to the Bank in deciding Australia has contributed $2 million initially, with 40 the allocation of their contributions among the four percent to the Poverty Dynamics and Public Service windows based on demand. DFID has expressed Delivery Trust Fund, 40 percent to the Investment interest to continue its financial support in KCP III Climate & Trade and Integration Trust Fund, and 20 upon its establishment. In FY2014, DFID contributed percent to the Global Public Goods Trust Fund. In May £550,000 to the Poverty Dynamics and Public Service 2013, Australia re-pledged $A 1.5 million, with 60 Delivery Trust Fund to finance the Global Poverty and percent to the Poverty Dynamics and Public Service Inequality Monitoring in the 21st Century and World Delivery Trust Fund, 20 percent to the Investment Development Report 2015—Building an Evidence Base Climate & Trade and Integration Trust Fund, and for the World Development Report projects. 20 percent to the Global Public Goods Trust Fund. 30  •  ANNUAL REPORT 2014 The Republic of Korea contributed ₩2,220 mil- of Foreign Affairs, allocated equally among the lion to the Economic Development and Structural four windows, and NKr 12 million from the Nor- Change Trust Fund and $1.5 million to the Poverty wegian Agency for Development Cooperation to Dynamics and Public Service Delivery Trust Fund, the Global Public Goods Trust Funds to finance with preference for the support of WDR 2015: the Economic Valuation of Changes in Amazon Mind and Society—How a Better Understanding Forest Area project. of Human Behavior Can Improve Development Policy and research on job creation in low-income Japan contributed $1.5 million in February 2013 to countries. the Economic Development and Structural Change Trust Fund for the study Job Creation, Structural Canada’s initial pledge of Can$1.2 million was Change, and Economic Development in MENA allocated as follows: Can$400,000 to the Poverty with Lessons from East Asia. Dynamics and Public Service Delivery Trust Fund (of which Can$200,000 was for WDR 2011: Conflict, Denmark pledged DKr 5 million to the Economic Security and Development); Can$300,000 to the Development and Structural Change Trust Fund, Investment Climate & Trade and Integration Trust with a preference that it be used in support of Fund; Can$200,000 to the Global Public Goods research and data collection that focuses on or is Trust Fund; and Can$300,000 to the Economic of direct relevance to job creation and promoting Development and Structural Change Trust Fund. economic growth in Africa. The Department of Foreign Affairs, Trade and Development, formerly, the Canadian International Switzerland contributed Sw F 500,000, allocated Development Agency, has continued to support as follows: Sw F 60,000 to the Poverty Dynamics the WDR series with subsequent contributions of & Public Service Delivery Trust Fund, Sw F 60,000 Can$200,000 to the Poverty Dynamics and Public to the Investment Climate & Trade and Integration Service Delivery Trust Fund for WDR 2012: Gender, Trust Fund, Sw F 60,000 to the Global Public Goods Equality and Development, Can$200,000 to the Trust Fund, and Sw F 320,000 to the Economic Economic Development and Structural Change Development and Structural Change Trust Fund. Trust Fund for WDR 2013: Jobs, Can$200,000 to the Investment Climate & Trade and Integration China pledged $500,000 to the Economic Develop- Trust Fund for WDR 2014: Managing Risk for ment and Structural Change Trust Fund. Development, and Can$200,000 to the Poverty Dynamics and Public Service Delivery Trust Fund Singapore contributed $300,000 to the Economic for WDR 2015: Mind and Society—How a Better Development and Structural Change Trust Fund. Understanding of Human Behavior Can Improve Development Policy. Estonia has pledged financial support to KCP III. Norway is KCP II’s newest and last donor with Negotiations are ongoing with current and prospec- contributions of NKr 10 million from the Ministry tive partners to contribute to the KCP III. ENDING EXTREME POVERTY – PROMOTING SHARED PROSPERITY  • 31 Table 2. KCP II Parent Accounts Statement as of June 30, 2014 (US dollars) TF071173 TF071177 TF071178 TF071393 UNAUDITED Poverty Investment Global Economic Dynamics Climate & Public Development & Public Trade and Goods & Structural Service Integration Change COUNTRY Delivery TOTAL Contributions received United Kingdom 2,958,122 1,636,728 1,684,441 920,740 7,200,030 Finland 1,762,509 1,762,509 1,762,509 741,884 6,029,412 Sweden 1,472,393 28,099 696,118 21,074 2,217,684 Australia 1,354,580 984,860 584,860 2,924,300 Korea, Rep. of 500,000 1,968,064 2,468,064 Canada 773,403 486,942 193,517 492,536 1,946,399 Norway 402,855 402,855 903,156 402,855 2,111,722 Japan 1,000,000 1,000,000 Denmark 924,351 924,351 Switzerland 62,028 62,029 62,028 330,818 516,903 China 500,000 500,000 Singapore 300,000 300,000 Total contributions received 9,285,890 5,364,022 5,886,630 7,602,323 28,138,864 Administrative fee (1%) (92,859) (53,640) (58,866) (76,023) (281,389) Net contributions received 9,193,031 5,310,381 5,827,763 7,526,300 27,857,476 Outstanding pledges (signed) Australia 281,925 93,975 93,975 469,875 Japan 500,000 500,000 Korea, Rep. of 1,000,000 1,000,000 Norway 1,459,546 1,459,546 Total outstanding pledges (signed) 1,281,925 93,975 1,553,521 500,000 3,429,421 Administrative fee (1%) (12,819) (940) (15,535) (5,000) (34,294) Net outstanding pledges 1,269,106 93,035 1,537,986 495,000 3,395,127 Investment income 78,152 62,423 55,069 58,411 254,055 Less: Project allocations (9,872,901) (5,211,810) (7,094,827) (7,313,876) (29,493,413) Program management and (175,871) (174,375) (211,958) (233,790) (795,994) administration Technical reviewers’ fees (85,142) (60,342) (58,142) (82,567) (286,193) ESTIMATED FUNDS AVAILABLE 406,374 19,313 55,892 449,479 931,058 32  •  ANNUAL REPORT 2014 ENDING EXTREME POVERTY – PROMOTING SHARED PROSPERITY  • 33 1 ANNEX KCP II Ongoing Research: Project Highlights Window I: Poverty Dynamics and Public Service Delivery TF012967: How to Improve the World Bank’s Global Poverty Monitoring Task Team Leader: Shaohua Chen KCP II Funding: $150,000 Region/Country: World Timeline: 07/01/2012 – 06/30/2015 Project Objective and Description For many years, there has been an increasing demand for international poverty estimates, especially after the Millennium Development Goals were established. Many people criticized or commented on the World Bank’s poverty estimates without understanding how these numbers are calculated. This project has responded to these challenges by making the data and methodology transparent. To help clients (inside and outside the Bank) understand the World Bank’s official dollar-a-day poverty measures, PovcalNet lets users duplicate the Bank’s estimation, from which users can see how the overall aggregates break down for each country and test sensitivity to alternative poverty lines and PPPs. When client countries have doubts about certain parameters of the estimation, they can reestimate the measurements with their own specifications. The data are from more than 100 government statistics offices that collected the primary household and price survey, population, and national accounts data. When collaborating with countries to check the consistency and reliability of the data and results, the team also provides training to country staff as part of the country’s capacity building. Progress and Early Findings After the World Bank announced its new development goals on ending absolute poverty by 2030 and promoting shared prosperity, the use of PovcalNet increased significantly by users within and outside the World Bank. During the past fiscal year (July 2013 to June 2014), PovcalNet completed another round of regional and global poverty estimates, with poverty lines of $1.25 or $2 a day (and other poverty lines chosen by the users). PovcalNet has provided poverty estimates for the first Millennium Development Goal to halve the 1990 poverty rate by 2015. And PovcalNet has provided inputs for various World Bank flagship reports, such as the World Development Indictors and Global Monitoring Report, the IDA 17 report, as well as the Policy Research Report: Ending Poverty and Boosting Shared Prosperity: Development Goals and Measurement Challenges. PovcalNet is the source for global poverty measurement for many international aid agencies, such as DFID, the U.S. Agency for International Development (USAID), and others. As the chief economist of USAID pointed out: “We rely directly on the PovcalNet data in doing inclusive growth diagnostics, forming country strategies, and even framing the Agency’s overall efforts. We also rely on the wide-ranging research that has been conducted using these data both at the Bank and elsewhere.” 34  •  ANNUAL REPORT 2014 Window II: Investment Climate & Trade and Integration TF010230: Storage and Trade Policies for Improving Food Security Task Team Leader: William Martin KCP II Funding: $130,000 Region/Country: World Timeline: 07/15/2011 – 12/31/2014 Project Objective and Description World food prices tend to be volatile and price spikes can cause severely adverse poverty impacts in poor countries because of the large shares of food in the expenditures of the poorest people. Governments of developing countries are understandably concerned about such food price spikes and frequently use measures such as export restrictions and import barrier reductions to reduce the intensity of price surges in their domestic markets. Although these policy responses may reduce the magnitude of price surges in individual small economies, the combined effects of these interventions are self-defeating at the global level. The resulting collective action problem is similar to that arising when everyone in a stadium crowd stands up for a better view. The increase in the volatility of world prices creates a global public bad by magnifying the intensity of the terms-of-trade shocks associated with world price changes. The adverse development impacts of the food trade policies considered in this project are long run and structural, as well as arising during periods of high world food prices. This project aims to develop a modeling framework to analyze questions of international cooperation in the trade and storage of key staple grains. With this framework, the project is investigating cooperative and noncooperative interactions between countries and assessing the implications of the interactions for market prices and other key variables. Progress and Early Findings Work under this KCP project has clarified the policy issues considerably and resulted in several important papers. Versions of these papers were presented to operational staff at the Agriculture and Rural Development Forum and to regional seminar programs and have since met the quality standards for publication. This study has found some striking patterns. The research on the impact of higher food prices on poverty indicates that surges in food prices typically raise poverty in the short run. However, once sufficient time has elapsed, wages rise and producers increase their output levels, tending to reduce poverty. Consistent with this finding, policy makers in developing countries resist the initial increase in prices by price insulating measures such as export restrictions or reductions in import duties. After a few years, when the benefits for poverty reduction are available, policy makers tend to pass the increase in prices on to domestic markets. For each individual country, this approach to policy is logical and sensible. However, there is a collective action problem in that the initial policy of insulation is ineffective. The use of export restrictions and import duty reductions increases the world price so much that these interventions are, collectively, ineffective in holding down domestic prices. ENDING EXTREME POVERTY – PROMOTING SHARED PROSPERITY  • 35 Window III: Global Public Goods TF015268: Supporting Ethiopia’s Push for 9 Million Improved Cooking Stoves to Improve Health and Combat Climate Change (Capacity Building) Task Team Leader: Michael Toman KCP II Funding: $125,000 Region/Country: Ethiopia Timeline: 07/01/2013 – 06/15/2015 Project Objective and Description The goal of the project is to provide information from research that can support the Bank and low-income country government efforts on poverty alleviation and climate change mitigation in the context of the United Nations Collaborative Programme on Reducing Emissions from Deforestation and Degradation in Developing (REDD+) Countries. Specifically, the proposed project seeks to analyze the role that cleaner and more fuel-efficient cook stoves might play in a REDD+ program, including co-benefits from reduced local pollutant exposure. The project builds directly and extensively on work already underway in the field on community forest management, improved cook stoves, and REDD+ in Ethiopia (funded by the expiring Trust Fund for Environmentally and Socially Sustainable Development). Progress and Early Findings Cooperation with Ethiopian partners in design and execution of research, not just data collection, has been superlative. Preliminary findings indicate that individuals given access to an improved, more fuelwood- efficient cooking stove find the stove to be an acceptable alternative to more traditional cooking methods. This provides confidence about the potential for uptake of the new stove in the planned national distribution of them and that fuelwood savings from doing so would be significant. In addition, individuals given hypothetical alternatives to evaluate for community payments under REDD+ indicate a considerable willingness to cooperate in forest protection, if assurance is adequate that the burden is shared, and they indicate a preference for receiving compensation for opportunity costs of reduced forest access, versus use of funds for local public goods. Two papers have been presented at the Bank’s annual “land conference” in April 2014 and at the World Congress of Environmental and Resource Economists in June-July 2014. Some smaller-scale, more informal presentations (e.g., in Economic Department Seminars) also have taken place. The prospect for validating the potential for a national improved-stove program, if adequate preparations are made up front for ensuring uptake, should be useful for the program. The REDD+ work will be useful for the government in further developing its REDD strategy, including a recognition of the limited scale of benefits available from REDD+. 36  •  ANNUAL REPORT 2014 Window IV: Economic Development and Structural Change TF014272: Structural Transformation Analysis with MAMS Task Team Leader: Hans Lofgren KCP II Funding: $140,000 Region/Country: World Timeline: 07/02/2012 – 6/30/2015 Project Objective and Description The project is to develop and apply a replicable and innovative approach to analysis of country strategies for transformation of sector structure, thereby improving the empirical basis for costly, country-level policy decisions. The approach is based on MAMS (Maquette for Millennium Development Goal Simulations, a computable general equilibrium model for country-level strategy analysis). The innovative aspect is that the indicators from product-space analysis will be incorporated into MAMS, influencing the evolution of sector structure in conjunction with economic policies and world market conditions. The model will be used to simulate the consequences of alternative policies, with a focus on policies aimed at structural transformation, and world market conditions on a wide range of economic indicators, including growth in aggregate and sectorally disaggregated production, trade, and employment as well as poverty and human development indicators. Progress and Early Findings Thanks to considerable outreach activities (training in ISIM-MAMS and presentations of the framework that is being developed), the project has successfully done the necessary groundwork for relatively wide adoption of the framework by analysts in developing countries and elsewhere. In the process, the project has received valuable feedback that has led to significant improvements. So far, the project has, as planned, significantly expanded the group of analysts who are able to conduct policy-oriented analysis with ISIM-MAMS. The next step is selectively to guide and incentivize a subset of this group to apply the product-space augmented ISIM-MAMS version to policy analysis in a set of developing countries. A preliminary insight is that successful transformation of production and export structure should be viewed as a complex, cumulative, country-specific dynamic process with reinforcing elements in which appropriate policies successfully encourage export-oriented expansion in specific sector clusters, leading to sector productivity growth (with spillovers to related sectors) and quality improvements, resulting in improved export prices. The fact that not all countries are successful is because the dynamics may be weakened by multiple failures along the way, including encouragement of sectors for which a country is not ready (because of gaps in capabilities relative to competitors, thwarting productivity growth, quality improvements, and export price increases) and international conditions that are difficult to anticipate (like declining relative international prices for certain types of products). ENDING EXTREME POVERTY – PROMOTING SHARED PROSPERITY  • 37 2 ANNEX KCP II Research Projects in Profile World Development Report 2015: 1.  field experiments have shown that many psycho- Mind and Society—How a Better logical, social, and cultural factors have powerful Understanding of Human Behavior effects on behavior. Some of this research has Can Improve Development Policy received enormous resonance, including recent Nobel prizes, suggesting it has something to add. KCP II Funding: $679,624 Yet the influences of such factors remain anomalous Timeline: 06/17/2013 – 12/31/2014 in standard economics and tend to be used in ad Partners: Other World Bank departments hoc ways in policy making. For the past half-century, economics and develop- The purpose of World Development Report 2015 is ment policy have centered on a model of human to integrate recent findings on the psychological, behavior that makes a few simple but powerful social, and cultural underpinnings of behavior and assumptions about decision making: individuals make the findings available for more systematic have unlimited ability to process information, they use by the research and practitioner development calculate the values of the different options they communities. The WDR draws on findings from face, and they make decisions that are consistent many disciplines—including neuroscience, cognitive and purely self-regarding. That is, standard econom- science, psychology, behavioral economics, sociol- ics assumes that people are rational and selfish. ogy, and anthropology. The findings help explain Standard economics has served policy makers well development-related decisions that individuals in many contexts. But over the past few decades, make regarding savings, investment, fertility, health, research from across the sciences has demonstrated and parents’ engagement with young children, that standard economics cannot explain many among many others. The findings enhance the aspects of behavior. In fact, predictable social and understanding of how collective behaviors—such psychological drivers can explain people’s behavior. as widespread trust or widespread corruption— Innovative policies that use different assumptions develop and become entrenched in a society. about behavior have exhibited impressive results. World Development Report 2015 paints a portrait This approach expands the set of tools and strate- of a “new economic man”—who is a profoundly gies for promoting development and combatting psychological and social actor—and shows that a poverty. The new tools do not displace existing richer view of behavior can improve policy making. policy approaches, but complement and enhance them. Some of the new approaches have a trivial Economists and development practitioners have cost to implement because they depend on nuances long known that the standard economic variables— in design or implementation, such as changing the prices, quantities, incomes, and information—are timing of cash transfers, applying labels, simplifying not the only things that affect behavior. Lab and the steps for service take-up, offering reminders, 38  •  ANNUAL REPORT 2014 activating a latent social norm, or reducing the tools—concepts, categories, identities, causal narra- salience of a stigmatized identity. tives, and worldviews—to make sense of the world and to understand themselves. Decision making From the hundreds of empirical papers on deci- draws on subjective, culturally derived knowledge, sion making that are the basis of this WDR, three along with values that guide decisions that are principles of human decision making stand out in also influenced by the local social environment.2 providing the basis for new approaches to under- standing behavior and designing and implementing A premise of the new approaches is that while development policy. people shape society, so too does society shape people. Individuals are not simply calculating First, most judgments and most choices are made automatons who doggedly pursue a set of fixed automatically, not deliberatively. Automatic think- self-interests, but malleable and emotional actors ing causes us to simplify problems and see them whose decision making is influenced by contextual through narrow frames. We fill in missing informa- cues, local social networks and norms, and shared tion based on our assumptions about the world mental models. All of these play a role in deter- and evaluate situations based on associations that mining what individuals perceive to be desirable, automatically come to mind and belief systems possible, or even thinkable for their lives. The title that we take for granted. of the WDR, Mind and Society, captures the idea that paying attention to how humans think (the Second, individuals are social animals influenced universal processes of mind) and how history and by social preferences, social networks, and social context shape thinking (the influence of society) norms. We care a great deal about what others can improve policy design and implementation. The think about us and what those around us are doing. WDR is not a definitive statement of the implica- We act on the basis of shared norms and social tions of this new body of work on decision making identities. We are relentlessly comparative, have for development policy. Instead, the WDR aims to social preferences for fairness and reciprocity, and inspire and guide the researchers and practitioners possess a cooperative spirit that plays into good who can help discover the possibilities and limits and bad collective outcomes—both high-trust and of a new set of approaches. high-corruption societies require extensive amounts of cooperation. Yet many economic policies assume The idea that decision making is the product of an individuals are autonomous decision makers who interaction between mind and context is far from are purely self-regarding. novel. It is the core principle of human factors design, a multidisciplinary field engaged in the Third, individuals in a given society possess design of products that fit the human body and its shared mental models, which serve as mental cognitive abilities. Human factors design has had There is a body of writing by anthropologists and other social scientists pointing out that what people take to be hard evidence 2  and common sense about the world is often shaped by economic relationships, religious affiliations, and social group identities. ENDING EXTREME POVERTY – PROMOTING SHARED PROSPERITY  • 39 many successes. Airplane cockpits, for instance, examples hold an important lesson: when failure is became increasingly complex environments during deemed unacceptable, product designers begin to the 20th century as flight and engine instruments pay close attention to how humans actually think were developed to help pilots manage their aircraft. and decide. A strength of standard economics is The effect of the technological improvements was that it “black boxes” human cognition, intentionally the opposite of what designers intended: instead simplifying the “messy and mysterious workings of improving pilots’ awareness of environmental of actors.” Yet this approach also has a liability: features, the technical improvements overwhelmed it ignores the psychological, social, and cultural the pilots and exacerbated stress levels. Error rates influences on behavior. Can changing the timing of rose. Human factors design involved paying close fertilizer purchases to coincide with harvest earn- attention to how information is packaged and ings alter usage rates? Can providing a role model presented. These days, cockpits contain fewer change a person’s opinion of what is possible in instruments than before and the design of instru- life, what is “right” for a society, and what leaders ment displays is based on a deeper understanding are elected? Can introducing a new behavior in a of human cognitive processes. group setting rather than on an individual basis mean the difference between behavior change and Firms are similarly preoccupied with understanding the continuation of the status quo? The answers customer behavior in its natural contexts. When are a resounding “yes.” a company introduces a product, whether a new brand of breakfast cereal, toothpaste, or smart- Engineers, private firms, and marketers of all stripes phone, the product is entering a competitive market have long paid attention to the inherent limits of where small differences in user satisfaction mean human cognitive capacity, the use of mental short- the difference between product take-up and rejec- cuts and mental models for filtering and interpreting tion. The design phase is often a highly intensive information, and the role that social preferences and interactive one in which the company conducts and the situation play in our decision making. The significant qualitative and quantitative research development community needs to do the same. about its customers to understand seemingly trivial but nonetheless critical aspects of behavior: when To illustrate how this all matters for development, and where do customers typically eat breakfast? consider the problem of low personal savings and Are they at home, work, school, on a bus, in a high household debt—which is common across train, or in a car? What is the social meaning of the developing world (and in many rich countries the meal? Does it involve valued rituals? Is it a as well). Much economic policy operates on the communal or more private event? Does behavior assumption that increasing savings rates requires change need to be coordinated across many people an increase in interest rates. But savings behavior is or can it occur individually? not well described by standard economics. It is not that an increase in interest rates will not increase The examples may seem trivial in comparison to savings. But other things affect saving behavior the challenges that governments and international that are beyond the standard variables of prices, organizations face in developing countries. Yet the incomes, and regulations. Those other things have 40  •  ANNUAL REPORT 2014 been systematically described, are systematic in gamble and less likely to purchase goods through certain ways, and there are well-defined frameworks an expensive installment plan. The households felt for explaining them, including automatic thinking, emotionally engaged with the show’s characters, framing, fairness concerns, and the intrinsic desire which made the households more receptive to to adhere to norms and sanction norm violations, the financial messages than would be the case in and mental models. These influences cannot be standard financial literacy programs. The success reconciled with standard economics, in which of the intervention depends on thinking socially. people act as if they have well-defined preferences and always do the best they can in pursuit of their In Ethiopia, the disadvantaged commonly report own self-interest. This situation can be seen in feelings of low psychological agency, such as having studies based on field experiments in Kenya, South neither a dream nor an imagination or living only Africa, and Ethiopia. for today. In 2010, a randomly selected group of villagers was invited to watch an hour of inspira- In Kenya, many households report a lack of cash tional videos—four documentaries of individuals as an impediment to investing in preventive health. from the region telling their stories about how they Yet by providing people with a lockable metal had improved their socioeconomic position by set- box, a padlock, and a passbook with the name ting goals and working hard. Six months later, the of a preventive health product that a household villagers who had watched the inspirational videos would write on the first page, researchers increased had, on average, increased their savings. Surveys savings, which led to an increase in investment in of the Ethiopian villagers revealed that the videos preventive health products by 75 percent. The idea had increased their aspirations and hopes, espe- behind the program was that although money is cially for their children’s educational future. The fungible, people tend to allocate funds via mental impact of the intervention illustrates the ability of accounting processes that influence their spending. an intervention to change a mental model—one’s The intervention is an example of a more general belief in what is possible in the future. framing or labeling effect in which assigning some- thing to a category influences how it is perceived. The view that labeling, role models, and aspirations The success of the intervention depends on think- can affect savings is not inconsistent with the view ing automatically. that there are predictable effects of changes in inter- est rates or prices and other incentives. The new Most financial literacy programs in poor countries approaches do not replace standard economics. But have had no effect. In contrast, a recent effort in the new approaches change our understanding of South Africa to teach financial literacy through the development process and the way development engaging entertainment improved the financial policy should be designed and implemented. The choices that individuals made. Financial messages new approaches offer new opportunities to devel- were embedded in a soap opera about a financially opment practitioners and although we are in the reckless character. Households that had watched early stages of understanding these possibilities, the soap opera for two months were less likely to the future looks promising. ENDING EXTREME POVERTY – PROMOTING SHARED PROSPERITY  • 41 Generating Job Matches Between 2.  experienced difficulty finding competent graduates Firms and Young Women in Jordan in reasonable proximity to the firm. Task Team Leader: David McKenzie Why? KCP II Funding: $115,000 Timeline: 07/01/2012 – 06/30/2014 Youth unemployment across the Middle East and Partners: Business Development Center (BDC), North Africa has been described as a “jobs short- Jordan; University of Jordan; Dajani Consulting, age” and is currently a major policy issue. But this Jordan raises the question of why the labor market does not clear. Theory offers at least three potential Youth unemployment has become a serious issue explanations. The first is that high minimum wages in the Middle East and North Africa region. A KCP exceed the marginal product of workers. However, funded project tried to explore the reasons for youth this seems less relevant for university graduates unemployment in Jordan. The project helped fund whose wages are well above the minimum wage. data collection and analysis of a job-matching The second potential explanation is offered by pilot experiment. The intervention involved set- search and matching theory, which explains per- ting up a pre-employment center that evaluated sistent unemployment as the result of high search job candidates through a mixture of real-world costs that prevent firms with vacancies from linking skill assessments and psychometric screening, and with qualified job candidates. Search frictions may then testing whether this lowered matching costs be particularly high for youth, especially in Jordan and as a result led to higher employment for the where education may not be a good signaling youth involved. mechanism for future work productivity. Finally, a third explanation is based on class consciousness Youth unemployment in Jordan and a trade-off between work and leisure; because of reservation prestige, graduates refuse to work In Jordan, recent university graduates face difficul- in jobs that they consider beneath them even at ties entering the labor market and firms seeking wages well above minimum wage. The notion to fill entry-level positions complain that educated of reservation prestige may interact with gender youth lack the appropriate interpersonal and norms, which restrict the set of jobs considered technical skills required for the positions. In 2010, suitable for women. unemployment rates for men and women between the ages of 22 to 26 with a post-secondary degree Experiments to explain youth were 19 percent and 47 percent, respectively. In unemployment 2011, the project team surveyed 2,000 firms in Amman, the capital city, that were looking to hire Search frictions and reservation prestige have new employees. Sixty percent of the firms said they intuitive appeal for helping to explain the high experienced difficulty distinguishing between good unemployment rates and durations among edu- and bad job candidates and 64 percent said they cated youth in the Middle East, but there has been 42  •  ANNUAL REPORT 2014 only anecdotal evidence to support these expla- lowering search costs through screening and match- nations. This project carried out two randomized ing did not result in any meaningful reduction in experiments in Jordan explicitly to examine these unemployment. explanations for youth unemployment. When the project examined the reasons why youth The first experiment involved developing and test- turned down potential job openings, the main ing a labor market matching service in Amman. reason given was not that the salary was too low, A sample of more than 1,354 unemployed recent but that the young job candidates considered the university and community college graduates was job unsuitable or not on the right career path. given a comprehensive set of tests to measure their The youth appeared unwilling to take on certain quantitative, verbal, and spatial reasoning; English types of jobs. and Excel proficiency; soft skills; and personality type. Of this sample, 1,011 were then randomly The second experiment tested this result directly. assigned to a treatment group, which the project It found that graduates only applied to 3 percent team attempted to match to available positions at of the job announcements they received, being hundreds of firms. more likely to apply for high prestige jobs than low prestige jobs. In the end, the second experi- The second experiment explored reservation prestige ment resulted in no recorded job offers, with the more directly. The project team worked with 33 majority of youth saying they turned down the firms that had 178 job vacancies, for a mixture of position because they did not consider it suitable. higher and lower prestige jobs. The team randomly Interviews with firms suggested that firms did not sent announcements of these vacancies to recent see taking a low prestige job as a negative signal graduates, sending a total of 9,820 announcements, for future work, suggesting that the unwillingness and recorded whether the graduates applied to to consider low prestige positions reflected the the jobs. social costs associated with doing so. What has been learned so far? Implications for Policy Making The goals of the psychometric screening and match- Taken together, the results of these two experi- ing process were to lower search costs and improve ments suggest that reservation prestige is an match quality for job candidates and firms. More important factor underlying the unemployment than 1,000 matches were made. However, the young of educated Jordanian youth. This contrasts with job candidates rejected the opportunity to have an labor markets like that in the United States, where interview in 28 percent of the cases. And when it is much more common for recent graduates to a job offer was received, the candidates rejected take on a whole range of less prestigious jobs, the offer or quickly quit the job 83 percent of the such as being a waiter, working in sales, working time. As a result, only nine individuals ended up in a coffee house, and so forth, while searching for in jobs that lasted longer than a month. Thus, a job that meets their qualifications. In addition ENDING EXTREME POVERTY – PROMOTING SHARED PROSPERITY  • 43 to providing the first experimental evidence on the problem were simply high minimum wages or the (in)effectiveness of matching programs in high search costs. The findings may suggest two the developing world, the process of conducting promising directions for future policy actions. The these experiments and collecting rich data on the first consists of interventions on the firm side to labor market transitions of educated youth offers spur the development of a vibrant private sector a rare insight into the causes of prolonged youth that provides more skilled jobs. The second and unemployment in the Arab world. complementary area is efforts to try to lower the resistance of educated youth to take jobs that they This conclusion suggests that the necessary policy consider less prestigious. response is more difficult and complicated than if 44  •  ANNUAL REPORT 2014 3 ANNEX KCP II Projects Portfolio The annual KCP call for proposals is open to Table A.1 provides a summary of KCP II proposals the Bank’s Development Economics (DEC) staff received from inception to June 30, 2014. There and other Bank staff in collaboration with DEC. continues to be strong demand for research fund- The yearly process commences in the spring and ing that is over and above the available funding, culminates in a decision meeting by the Internal resulting in award rejections and reductions of Management Committee chaired by the DEC Senior almost $4 million. KCP proposals are comprehen- Vice President and Chief Economist or his designee. sive (especially on methodology and data) to allow proper assessment by the external technical review In FY2014, 47 proposals were received, totaling panel and the Internal Management Committee. more than $11 million, with 32 grants approved for $7 million. Awarded grant amounts ranged from $50,000 to $1,980,000. Table A.1. KCP II Applications (US dollars) FY2009 FY2010 FY2011 STATISTIC COUNT AMOUNT COUNT AMOUNT COUNT AMOUNT Approved in full 28 2,808,000 17 2,887,667 29 4,638,906 Approved with reduced award 2 200,000 13 2,185,000 9 1,425,000 Reduction in award 100,000 1,065,000   549,403 Declined 4 260,000 21 2,220,000 28 3,172,602 Withdrawn 1 50,000 Total applications 35 3,418,000 51 8,357,667 66 9,785,911 Table A.1. continued FY2012 FY2013 FY2014 STATISTIC COUNT AMOUNT COUNT AMOUNT COUNT AMOUNT Approved in full 4 592,261 4 1,906,667 12 4,009,624 Approved with reduced award 17 3,060,000 24 3,325,000 20 3,266,000 Reduction in award 2,026,616 2,035,000 1,388,483 Declined 21 3,169,100 21 3,194,300 15 2,465,000 Withdrawn Total applications 42 8,847,977 49 10,460,967 47 11,129,107 ENDING EXTREME POVERTY – PROMOTING SHARED PROSPERITY  • 45 Figure A.1. KCP II Donor Contributions Received by Window From Inception to June 30, 2014 (USD, thousands) 7,602 9,286 27% 33% 5,887 5,364 21% 19% Total: $28,139 Poverty Dynamics & Public Service Delivery Investment Climate & Trade and Integration Global Public Goods Economic Development & Structural Change Figure A.2. KCP II Contributions Received by Donor From Inception to June 30, 2014 (USD, thousands) 8,000 7,000 921 6,000 742 1,684 5,000 (USD, thousands) 1,763 4,000 1,637 3,000 1,763 585 21 2,000 403 696 985 493 2,958 28 1,968 Total: USD 28,139 194 903 1,000 1,763 487 1,472 1,355 403 1,000 773 924 331 500 403 62 500 300 0 62 62 of m n lia e en ay a k da d ng d nd pa or ar in an do Ki nite p. ra w ed na Ch m ap Ja la or Re st nl en Sw Ca er U Au ng Fi N a, itz D Si re Sw Ko Poverty Dynamics & Public Service Delivery Investment Climate & Trade and Integration Global Public Goods Economic Development & Structural Change 46  •  ANNUAL REPORT 2014 Figure A.3. KCP II Allocations and Figure A.4. KCP II Disbursements by Disbursements Window From Inception to June 30, 2014 From Inception to June 30, 2014 (USD, thousands) (USD, thousands) $9,000 $7,838 $8,000 $6,589 $6,268 $6,114 $7,000 $6,000 $3,979 (USD, thousands) $4,652 22% $6,268 35% $4,017 $5,000 $3,979 $3,812 $3,812 $4,000 21% $4,017 22% $3,000 $2,000 $1,000 Total: $18,076 $0 Poverty Investment Global Economic Dynamics Climate & Public Development Poverty Dynamics & Public Service Delivery and Public Trade and Goods & Investment Climate & Trade and Integration Service Integration Structural Delivery Change Global Public Goods Allocations Disbursements Economic Development & Structural Change Note: Excludes new projects approved in June 2014 because activities Note: Excludes new projects approved in June 2014 because activities have not started. have not started. Figure A.5. KCP II Allocations by Window Figure A.6. KCP II Allocations by Region From Inception to June 30, 2014 From Inception to June 30, 2014 (USD, thousands) (USD, thousands) $4,767 $4,011 $7,314 $9,873 16% 14% 25% $3,385 33% 11% $7,095 $17,330 $5,212 24% 59% 18% Total: $29,493 Total: $29,493 Poverty Dynamics & Public Service Delivery Africa Asia Global Others Investment Climate & Trade and Integration Global Public Goods Economic Development & Structural Change ENDING EXTREME POVERTY – PROMOTING SHARED PROSPERITY  • 47 Table A.2. KCP II Allocations and Disbursements as of June 30, 2014 (US dollars) Fund Team Leader Project Name Allocations Disbursements Available POVERTY DYNAMICS AND PUBLIC SERVICE DELIVERY (TF071173)  1 TF094157 Legovini Impact Evaluation of Youth-Friendly 99,659 99,659 0 Services on Voluntary Counseling and Testing among Youth Aged 15–24 Years in Kenya 2 TF094625 Das Learning and Educational 173,220 173,220 0 Achievements in Pakistan (LEAPS): Continuation 3 TF094626 Goldstein The Effects of Home Based HIV 83,010 83,010 0 Counselling & Testing: IE of a Program in Kenya 4 TF094627 de Walque HIV/AIDS Treatment and Prevention 99,999 99,999 0 5 TF094628 Beegle Kagera Health and Development 162,386 162,386 0 Survey 2010: Long-Run Patterns of Growth and Poverty in Africa 6 TF094629 Lanjouw Economic Growth and Crisis in 119,956 119,956 0 Africa: Improving Methods for Measuring Poverty 7 TF094650 Goldstein The Impact of Providing Land Titles 69,991 69,991 0 in Ghana 8 TF094652 Goldstein Impact of Urban Land Titling: 0 0 0 Evidence from Land Lottery in Burkina Faso 9 TF095034 Chen Poverty Mapping in China 24,078 24,078 0 10 TF096467 Milante WDR 2011 – Conflict and 1,276,492 1,276,492 0 Development 11 TF097370 Revenga, World Development Report 2012 – 817,388 817,388 0 Shetty Gender Equity and Development 12 TF097381 Giles Policy, Governance and the Private 224,507 224,5071 0 Sector in the Provision of Public Services: Evidence from Indonesia’s Health Sector 13 TF098362 Chen Correcting the Sampling Bias of 54,968 54,968 0 China’s Urban Household Survey 14 TF098792 Ozler TASAF R3 Survey Support 130,000 130,000 0 15 TF098797 Beegle LSMS: Improving the Quality 147,977 147,977 0 and Comparability of Income Data Through Research and Dissemination 16 TF098893 Beegle Measuring Development Indicators 94,999 94,999 0 for Pastoralist Populations 17 TF098991 Galasso Learning from Interventions to 80,000 80,000 0 Improve Parenting Skills in Chile (Continued on next page) 48  •  ANNUAL REPORT 2014 Table A.2. KCP II Allocations and Disbursements as of June 30, 2014 (US dollars) Fund Team Leader Project Name Allocations Disbursements Available 18 TF099007 Legovini Measuring Inequality and Inequality 27,848 27,848 0 of Opportunity Using DIME Microdata 19 TF099270 Martin Implications for Poverty of 99,128 99,128 0 Productivity Growth in Agriculture & Non-Agriculture 20 TF010642 Galasso A 10-Year Follow-up of a 82,086 82,086 0 Community-Level Nutrition Program in Madagascar 21 TF010644 Kondylis Implementing a Multi-Disciplinary 99,748 99,748 0 Tool for Social Capital Measurement 22 TF010746 Das Quality of Care in Health Markets: 335,000 253,941 81,059 Supply- and Demand-Side Perspectives 23 TF010841 Deininger Gendered Impacts of Low-Cost 149,939 149,939 0 Land Titling in a Post-Conflict Environment: The Case of Rwanda 24 TF010842 Deininger Economic and Gender Impacts of 100,000 56,222 43,778 Peri-Urban Land Titling: The Case of Dar es Salaam 25 TF010972 Kondylis Governing Water for Agriculture: 150,000 111,931 38,069 What Institutions for Which Contexts? 26 TF012967 Chen How to Improve the World Bank’s 150,000 117,379 32,621 Global Poverty Monitoring 27 TF012968 Lanjouw Changeable Inequalities: Facts, 230,000 228,936 1,064 Perceptions and Policies 28 TF012991 Giles Early Childhood Nutrition, 160,000 20,766 139,234 Availability of Health Service Providers and Life Outcomes as Young Adults: Evidence from Indonesia 29 TF013050 van de Walle Welfare Impacts of Marital Status 90,000 17,093 72,907 Shocks in Senegal and the Implications for Social Protection Policy 30 TF013078 Kondylis Can a Formal Address Do the Job? 100,000 0 100,000 Favela Pacification in Rio de Janeiro 31 TF013079 Beegle/ The Role of Public Works Programs 210,898 210,898 0 Galasso in Enhancing Food Security: The Malawi Social Action Fund 32 TF014986 Hoff WDR 2015 – The Behavioral and 679,624 439,535 240,089 Social Foundations of Economic Development (Continued on next page) ENDING EXTREME POVERTY – PROMOTING SHARED PROSPERITY  • 49 Table A.2. KCP II Allocations and Disbursements as of June 30, 2014 (US dollars) Fund Team Leader Project Name Allocations Disbursements Available 33 TF015397 Khemani Uganda: Building Institutions for 200,000 0 200,000 Government Accountability 34 TF015400 de Walque An Evaluation of Long-Term Impacts 125,000 0 125,000 of an Integrated Early Childhood Intervention for Low-Income Families in Rio de Janeiro, Brazil 35 TF015097 Rao Using Behavioral Economics 100,000 8,800 91,200 to Measure and Improve CDD Operations 36 TF015194 di Maro Behavioral Economics for Better 125,000 100,193 24,807 Public Service Management 37 TF016848 Keefer How Do We Motivate Public Sector 150,000 0 150,000 Workers in Developing Countries? 38 TF015451 Lanjouw Global Poverty and Inequality 440,000 293,2852 146,715 Monitoring in the 21st Century 39 TF015742 Gauri, Hoff WDR 2015 – Building an Evidence 375,000 291,842 83,158 Base for the World Development Report Total - Poverty Dynamics and Public Service Delivery 7,837,901 6,268,200 1,569,701 INVESTMENT CLIMATE & TRADE AND INTEGRATION (TF071177)  40 TF094158 Legovini Strengthening Agricultural 91,519 91,519 0 Production Systems and Facilitating Access to Markets: Impact Evaluation of Nigeria’s Commercial Agriculture Development 41 TF094551 McKenzie How Much Do Management 49,999 49,999 0 Practices Matter? A Randomized Experiment in India 42 TF094563 McKenzie Employment Creation in Large and 44,368 44,368 0 Small Firms 43 TF094565 Schmukler Globalization, Risk, and Crises 69,795 69,795 0 44 TF094566 Hall-Driemeier Comparable Disaggregated Census 69,828 69,828 0 Data Across Developing Countries 45 TF094567 Ozler An Experimental Study of ‘Poverty 128,000 128,000 0 Traps’ Among Micro-Entrepreneur Groups 46 TF094568 Giles Labor Markets and Impacts of the 225,000 225,000 0 Financial Crisis: Evidence from China and India 47 TF094570 Dupriez Modeling and Analysis of 148,830 148,830 0 Consumption Patterns Continued on next page 50  •  ANNUAL REPORT 2014 Table A.2. KCP II Allocations and Disbursements as of June 30, 2014 (US dollars) Fund Team Leader Project Name Allocations Disbursements Available 48 TF094573 Demirguc- Regulation and Bank Stability 250,000 208,695 41,305 Kunt 49 TF094600 Jacoby Transport Costs and Development: 40,000 40,000 0 Evidence from China’s Infrastructure Boom 50 TF094784 Peria The Financial Crisis and Foreign 39,930 39,930 0 Bank Participation in Developing Countries 51 TF094947 Fernandes Services, FDI and Endogenous 89,826 89,826 0 Productivity Effects in the European Neighborhood Policy—A Quantitative Assessment for Georgia 52 TF095040 Ozden Migration of Turkey’s Top Students— 0 0 0 Brain Drain and Brain Gain 53 TF095146 Hevia FDI and Macroeconomic Stability 39,910 39,910 0 54 TF095266 Dailami Analyzing the Impact of Financial 98,530 98,530 0 Crisis on International Bank Lending to Developing Countries 55 TF095859 Kraay The Growth Effects of Fiscal Policy in 44,940 44,940 0 Developing Countries 56 TF095860 Kraay Reticent Respondents and Cross- 75,000 74,860 140 Country Survey Data on Corruption 57 TF097625 Peria Bank Competition and Access to 56,215 56,215 0 Finance 58 TF097641 McKenzie Can Microfinance Foster 73,119 73,119 0 Entrepreneurship in Poor Communities? 59 TF097808 Loayza/ Innovation and Growth 70,000 41,832 28,168 Maloney 60 TF097838 Legovini Reducing Informality Among Firms 79,464 79,464 0 in Minas Gerais, Brazil 61 TF097841 Klapper Private Sector Dynamics in Côte 30,489 30,489 0 d’Ivoire 62 TF097855 Keefer/Kraay Worldwide Governance Indicators 95,950 95,950 0 63 TF097976 Demirguc- Will There Be a Phoenix Miracle? 49,912 49,912 0 Kunt Firm-Level Evidence from Financial Crises 64 TF098583 Schmukler On the Use of Domestic and 100,000 89,449 10,552 International Debt Markets 65 TF098652 Kee On FDI Spillovers 34,974 34,974 0 66 TF099120 Hevia Fiscal Multipliers and the State of 30,000 30,000 0 the Economy 67 TF099249 Anginer Bank Bailouts & Moral Hazard 47,300 47,300 0 (Continued on next page) ENDING EXTREME POVERTY – PROMOTING SHARED PROSPERITY  • 51 Table A.2. KCP II Allocations and Disbursements as of June 30, 2014 (US dollars) Fund Team Leader Project Name Allocations Disbursements Available 68 TF010230 Martin Storage and Trade Policies for 130,000 112,479 17,521 Improving Food Security 69 TF010373 Bown Least Developed Countries and the 75,472 75,472 0 Externality Impact of WTO Dispute Settlement 70 TF010545 Kraay Macroeconomic Impacts of Aid and 50,000 50,000 0 Public Spending 71 TF010688 Schmukler Understanding Capital Flows to 90,000 64,915 25,085 Developing Countries 72 TF010695 Ozden Database of Emigration Laws and 40,000 39,893 107 Policies in Developing Countries 73 TF010705 Klapper Global Financial Inclusion Indicators 40,000 40,000 0 74 TF010706 Shilpi Food Prices, Middlemen, and 125,000 123,142 1,858 Marketing Institutions: Evidence from Bangladesh 75 TF010782 Kondylis How Does the Speed of Justice 100,000 89,260 10,740 Affect Firms? Experimental Evidence from Senegal 76 TF011089 Nguyen Currency Wars 32,000 31,875 125 77 TF012954 Loayza WDR 2014 – Managing Risk for 596,667 542,788 53,878 Development 78 TF012955 Deininger Land Tenure Regularization in 110,000 60,000 50,000 Nigeria: Potential Benefits and Implementation Modalities 79 TF012976 Kraay Macro and Micro Lessons from 50,000 28,920 21,080 Project Data 80 TF013049 McKenzie Generating Job Matches between 115,000 115,000 0 Firms and Young Women in Jordan 81 TF014284 Anginer Bank Capital and Systemic Stability: 39,783 39,783 0 A Cross-Country Analysis 82 TF014313 Vashakdmadze Enhanced Global Macro/Financial 135,000 72,460 62,540 Model for Developing Countries 83 TF015398 Klapper Salary Susu Plus: The Impact of 50,000 3,000 47,000 Formal Savings on Spending and Borrowing 84 TF015098 Keefer/Kraay Worldwide Governance Indicators 50,000 2,886 47,114 2014–15 85 TF015108 Schmukler Firm Financing from Capital Markets 75,000 0 75,000 86 TF015136 McKenzie Improving the Management and 150,000 132,285 17,715 Profits of Small Businesses and Their Measurement (Continued on next page) 52  •  ANNUAL REPORT 2014 Table A.2. KCP II Allocations and Disbursements as of June 30, 2014 (US dollars) Fund Team Leader Project Name Allocations Disbursements Available 87 TF015145 Gine Behaviorally Informed Mystery 100,000 99,903 97 Shopping Tools for Consumer Protection Policymakers 88 TF015344 Peria/Cihak Global Financial Development 199,990 199,990 0 Report 89 TF015212 Go The Gains from International 125,000 0 125,000 Migration Revisited Total - Investment Climate & Trade and Integration 4,651,810 4,016,786 635,024 GLOBAL PUBLIC GOODS (TF071178) 90 TF094962 Toman Improving Governance of African 120,000 120,000 0 River Basins—Determinants of Successes and Failures in Past Reforms 91 TF094963 Toman Economic Impacts of Low Carbon 178,800 178,800 0 Growth Scenarios in Selected Developing Countries 92 TF094964 Kessides Improving Efficiency and Climate 49,508 49,508 0 Change Mitigation—Electricity Market Competition and Low- Carbon Generation Technologies 93 TF094965 Timilsina Economics of Biofuels and Potential 120,546 120,546 0 Impacts on Biodiversity 94 TF097048 de Walque Research on HIV/AIDS Prevention 51,734 51,734 0 and Treatment 95 TF097696 Toman Green Growth Opportunities in 400,000 281,750 118,250 Developing Countries 96 TF097836 Dupriez/ Survey Data Repository and 218,464 218,464 0 Mistiaen Management Toolkit 97 TF098661 Timilsina Quantifying the Transaction Costs of 74,030 74,030 0 Selected Energy Efficiency Measures to Reduce GHG Emissions 98 TF099394 Van Rensburg Enhanced Global Macro/Financial 81,939 81,939 0 Model for Developing Countries 99 TF099603 Lederman International Survey on Intellectual 17,724 17,724 0 Property Enforcement Agencies 100 TF099762 Toman The Electricity/Groundwater Nexus 0 0 0 for Indian Farmers: Implications of Electricity Subsidy Reform for Efficiency and Distribution 101 TF010218 Dasgupta Mobilizing Spatial Economics 300,000 288,608 11,392 and Information for Tiger Habitat Conservation (Continued on next page) ENDING EXTREME POVERTY – PROMOTING SHARED PROSPERITY  • 53 Table A.2. KCP II Allocations and Disbursements as of June 30, 2014 (US dollars) Fund Team Leader Project Name Allocations Disbursements Available 102 TF010291 Swanson Data Resource Center for Structural 159,837 159,837 0 Economic Analysis 103 TF010390 Toman Economic Valuation of Losses Due 280,000 275,724 4,276 to “Amazon Dieback” 104 TF010467 Toman Community Forestry and Pro-Poor 393,406 367,062 26,344 Carbon Sequestration in Nepal 105 TF010503 Bussolo/Go Global Demand System for 99,890 99,890 0 Consumer Behavior 106 TF010600 Toman International Cooperation and 47,949 47,949 0 Conflict Over Water 107 TF010730 Farivari Open Metadata and Methods 365,000 364,140 860 Application 108 TF012673 Veerappan Visualization and Analysis 200,000 197,558 2,442 Application 109 TF012675 Dasgupta The Economics of Adaptation 140,000 139,682 318 to Salinity Intrusion: The Case of Coastal Bangladesh 110 TF012996 Timilsina Linking Bottom-Up and Top-Down 70,000 43,129 26,871 Models for Assessing Economy-wide Impacts of Discrete Climate Change Mitigation Measures 111 TF013210 Zhao Online Data Analysis Toolkit (ODAT) 140,000 58,684 81,316 112 TF014304 Lokshin Development of Innovative Tools 300,000 41,261 258,739 and Technologies for the Global Research Community 113 TF015043 Dupriez A Microdata Dissemination 100,000 77,356 22,644 Challenge: Balancing Data Protection and Data Utility 114 TF015149 Hamadeh Improving PPP Time Series 100,000 45,822 54,178 115 TF015186 Toman Hands-On Capacity Building in 175,000 153,350 21,650 Environmental Economics: A Proposed Collaboration with the Environment for Development Initiative 116 TF015268 Toman Supporting Ethiopia’s Push for 9 125,000 125,000 0 Million Improved Cooking Stoves to Improve Health and Combat Climate Change 117 TF017347 Chen Improving and Expanding PovcalNet 100,000 18,575 81,425 118 TF016340 Veerappan Data Version Management and 100,000 10,200 89,800 Linked Data (Continued on next page) 54  •  ANNUAL REPORT 2014 Table A.2. KCP II Allocations and Disbursements as of June 30, 2014 (US dollars) Fund Team Leader Project Name Allocations Disbursements Available 119 TF015238 Toman/Strand Economy-wide Valuation of Local/ 100,000 59,746 40,254 Regional Ecosystem Services from Amazon Forest Area 120 TF017449 Toman Economic Valuation of Changes in 1,980,000 43,950 1,936,050 Amazon Forest Area Total - Global Public Goods  6,588,827 3,812,018 2,776,809 ECONOMIC DEVELOPMENT AND STRUCTURAL CHANGE (TF071393)  121 TF097645 Goldstein Stimulating Industrial Upgrading in 192,992 192,992 0 Sub-Saharan Africa 122 TF097765 Sepulveda Research Agenda in New Structural 144,553 144,553 0 Economics 123 TF097766 Sepulveda Structural Transformation, Enterprise 118,156 118,156 0 Policies, and Economic Growth 124 TF097767 Sepulveda Country Case Studies on Structural 297,842 297,842 0 Change and Industrial Policies 125 TF098053 Loayza Industrial Policy in an Uncertain 75,000 72,374 2,626 Environment 126 TF098106 Fernandes/ Export Transaction Database 148,794 148,794 0 Freund 127 TF098764 Giles Structural Transformation and Rural 250,000 250,000 0 Social Protection Policies: Evidence from China 128 TF099128 Fernandes Upgrading the Networking and 172,533 172,533 0 Technological Capacity of Suppliers in South Africa 129 TF099198 Deichmann Moving to Density: A Research 500,000 433,520 66,480 Program on the Rural-Urban Transformation in Developing Countries 130 TF099203 Deichmann Testing the Robustness of the 29,996 29,996 0 Energy Intensity Kuznets Curve 131 TF099604 Lederman Commodity Prices, Household 42,146 42,146 0 Adjustments, and Structural Transformation 132 TF010008 Hallward- Industrial Structure, Productivity, 148,527 148,527 0 Driemeier Growth and Welfare 133 TF010181 Giles Early Work Experiences and the 141,000 140,985 15 Skills of Young Adults: Evidence from Senegal 134 TF010228 Rama/Beegle WDR 2013 – Jobs 701,927 701,927 0 (Continued on next page) ENDING EXTREME POVERTY – PROMOTING SHARED PROSPERITY  • 55 Table A.2. KCP II Allocations and Disbursements as of June 30, 2014 (US dollars) Fund Team Leader Project Name Allocations Disbursements Available 135 TF010795 Hon Structural Transformation, 65,410 65,410 0 Macroeconomic Behaviors and Industrial Policies 136 TF012590 Fernandes Exporter Dynamics Database 160,000 138,083 21,917 137 TF013183 Go Structural Change in a Dynamic 200,000 80,501 119,499 World 138 TF013506 Deichmann Understanding the Broader 300,000 109,448 190,552 Impacts of Transport Infrastructure Investments 139 TF014272 Lofgren Structural Transformation Analysis 140,000 55,897 84,103 with MAMS 140 TF014655 Hallward- MENA Job Creation, Structural 1,485,000 226,466 1,258,534 Driemeier Change and Economic Development 141 TF015211 Go Simple Global Analysis with R23 100,000 96,184 3,816 Model and Database for 200+ Countries 142 TF015022 Schmukler Institutional Investors 50,000 0 50,000 143 TF015048 Deininger Promoting Rural-Urban Integration 100,000 22,582 77,418 in China 144 TF015161 Giles Community, Family and Household 200,000 63,376 136,624 Support for the Elderly in the Wake of Rapid Urbanization: Evidence from Rural China 145 TF015202 Maliszewska Aging: The Changing Nature 150,000 125,000 25,000 of Intergenerational Flows in Developing Countries 146 TF015375 Maliszewska The Coming Wave of Educated 150,000 63,935 86,065 Workers: Size and Impact on Global Inequality and Poverty 147 TF015374 Martinez Peria/ Corporate Governance and Systemic 50,000 38,048 11,953 Anginer Risk Total - Economic Development and Structural Change  6,113,876 3,979,275 2,134,601 KCP II TOTAL ALLOCATIONS & DISBURSEMENTS, JUNE 30, 2014 25,192,413 18,076,278 7,116,135 Note: Excludes new projects approved in June 2014 because activities have not started. 56  •  ANNUAL REPORT 2014 Table A.3. Completed KCP II Projects in FY2014 (US dollars) Project Name Fund Team Leader Disbursements POVERTY DYNAMICS AND PUBLIC SERVICE DELIVERY Implications for Poverty of Productivity Growth in Agriculture & 1 TF099270 Martin 99,128 Non-Agriculture Gendered Impacts of Low-Cost Land Titling in a Post-Conflict 2 TF010841 Deininger 149,939 Environment: The Case of Rwanda 3 Changeable Inequalities: Facts, Perceptions and Policies TF012968 Lanjouw 223,873 The Role of Public Works Programs in Enhancing Food Security: The Beegle/ 4 TF013079 210,898 Malawi Social Action Fund Galasso   Total - Poverty Dynamics And Public Service Delivery 683,838 INVESTMENT CLIMATE & TRADE AND INTEGRATION 5 Reticent Respondents and Cross-Country Survey Data on Corruption TF095860 Kraay 74,860 6 On FDI Spillovers TF098652 Kee 34,974 7 International Survey on Intellectual Property Enforcement Agencies TF099603 Lederman 17,724 8 Database of Emigration Laws and Policies in Developing Countries TF010695 Ozden 39,893 9 Currency Wars TF011089 Nguyen 31,875 10 Generating Job Matches between Firms and Young Women in Jordan TF013049 McKenzie 115,000 11 Bank Capital and Systemic Stability: A Cross-country Analysis TF014284 Anginer 39,783 12 Global Financial Development Report TF015344 Peria/Cihak 199,990   Total - Investment Climate & Trade dnd Integration     554,100 GLOBAL PUBLIC GOODS 13 Economic Valuation of Losses Due to “Amazon Dieback” TF010390 Toman 230,724 14 Community Forestry and Pro-Poor Carbon Sequestration in Nepal TF010467 Toman 259,841 15 Global Demand System for Consumer Behavior TF010503 Bussolo/Go 99,890 16 Open Metadata and Methods Application TF010730 Veerappan 358,485   Total - Global Public Goods     948,940 ECONOMIC DEVELOPMENT AND STRUCTURAL CHANGE 17 Structural Transformation, Enterprise Policies, and Economic Growth TF097766 Sepulveda 118,156 18 Country Case Studies on Structural Change and Industrial Policies TF097767 Sepulveda 297,842 Structural Transformation and Rural Social Protection Policies: Evidence 19 TF098764 Giles 250,000 from China Hallward- 20 Industrial Structure, Productivity, Growth and Welfare TF010008 148,527 Driemeier Early Work Experiences and the Skills of Young Adults: Evidence from 21 TF010181 Giles 140,985 Senegal   Total - Economic Development and Structural Change     955,510   TOTAL     3,142,389 ENDING EXTREME POVERTY – PROMOTING SHARED PROSPERITY  • 57 Table A.4. Ongoing KCP II Projects in FY2014 Allocation   Project Name Fund (US dollars) Team Leader POVERTY DYNAMICS AND PUBLIC SERVICE DELIVERY  1 Governing Water for Agriculture: What Institutions for TF010972 150,000 Florence Which Contexts? Kondylis 2 Economic and Gender Impacts of Peri-Urban Land TF010842 100,000 Klaus Deininger Titling: The Case of Dar es Salaam 3 Quality of Care in Health Markets: Supply- and TF010746 335,000 Jishnu Das Demand-Side Perspectives 4 How to Improve the World Bank’s Global Poverty TF012967 150,000 Shaohua Chen Monitoring 5 Can a formal address do the job? Favela pacification in TF013078 100,000 Florence Rio de Janeiro Kondylis 6 Early Childhood Nutrition, Availability of Health TF012991 160,000 John Giles Service Providers and Life Outcomes as Young Adults: Evidence from Indonesia 7 Welfare Impacts of Marital Status Shocks in Senegal TF013050 90,000 Dominique van and the Implications for Social Protection Policy de Walle 8 World Development Report 2015: The Behavioral and TF014986 679,624 Karla Hoff Social Foundations of Economic Development 9 Uganda: Building Institutions for Government TF015397 200,000 Stuti Khemani Accountability 10 An Evaluation of Long-Term Impacts of an Integrated TF015400 125,000 Damien de Early Childhood Intervention for Low-Income Families Walque in Rio de Janeiro, Brazil 11 Behavioral Economics for Better Public Service TF015194 125,000 Vincenzo Di Management Maro 12 How do we motivate public sector workers in TF016848 150,000 Philip Keefer developing countries? 13 Using Behavioral Economics to Measure and Improve TF015097 100,000 Vijayendra Rao CDD Operations 14 WDR 2015: Building an Evidence Base for the World TF015742 375,000 Varun Gauri/ Development Report Karla Hoff 15 Global Poverty and Inequality Monitoring in the 21st TF015451 440,000 Peter Lanjouw Century INVESTMENT CLIMATE & TRADE AND INTEGRATION 16 Food Prices, Middlemen, and Marketing Institutions: TF010706 125,000 Forhad Shilpi Evidence from Bangladesh 17 Storage and Trade Policies for Improving Food Security TF010230 130,000 Will Martin (Continued on next page) 58  •  ANNUAL REPORT 2014 Table A.4. Ongoing KCP II Projects in FY2014 Allocation   Project Name Fund (US dollars) Team Leader 18 Understanding Capital Flows to Developing Countries TF010688 90,000 Sergio Schmukler 19 How Does the Speed of Justice Affect Firms? TF010782 100,000 Florence Experimental Evidence from Senegal Kondylis 20 Regulation and Bank Stability TF094573 250,000 Asli Demirguc-Kunt 21 Innovation and Growth TF097808 70,000 Norman Loayza/ William Maloney 22 On the Use of Domestic and International Debt TF098583 100,000 Sergio Markets Schmukler 23 Land tenure regularization in Nigeria: Potential benefits TF012955 110,000 Klaus Deininger and implementation modalities 24 Macro and Micro Lessons from Project Data TF012976 50,000 Aart Kraay 25 WDR 2014 – Risk, Uncertainty, and Crisis TF012954 400,000 Norman Loayza 26 Enhanced global macro/financial model for developing TF014313 135,000 Ekaterine countries Vashakmadze 27 Salary Susu Plus: The Impact of Formal Savings on TF015398 50,000 Leora Klapper Spending and Borrowing 28 Improving the Management and Profits of Small TF015136 150,000 David McKenzie Businesses and Their Measurement 29 Worldwide Governance Indicators 2014-15 TF015098 50,000 Philip Keefer/ Aart Kraay 30 Behaviorally Informed Mystery Shopping Tools for TF015145 100,000 Xavier Gine Consumer Protection Policymakers 31 Firm Financing from Capital Markets TF015108 75,000 Sergio L. Schmukler 32 The Gains from International Migration Revisited TF015212 125,000 S. Amer Ahmed GLOBAL PUBLIC GOODS 33 Mobilizing Spatial Economics and Information for Tiger TF010218 300,000 Susmita Habitat Conservation Dasgupta 34 Green Growth Opportunities in Developing Countries TF097696 400,000 Michael Toman 35 The Economics of Adaptation to Salinity Intrusion: The TF012675 140,000 Susmita Case of Coastal Bangladesh Dasgupta 36 Linking bottom-up and top-down models for assessing TF012996 70,000 Govinda economy-wide impacts of discrete climate change Timilsina mitigation measures (Continued on next page) ENDING EXTREME POVERTY – PROMOTING SHARED PROSPERITY  • 59 Table A.4. Ongoing KCP II Projects in FY2014 Allocation   Project Name Fund (US dollars) Team Leader 37 Development of innovative tools and technologies for TF014304 300,000 Michael Lokshin the global research community 38 Online Data Analysis Toolkit (ODAT) TF013210 140,000 Qinghua Zhao 39 Visualization and Analysis Application TF012673 200,000 Malarvizhi Veerappan 40 A Microdata Dissemination Challenge: Balancing Data TF015043 100,000 Olivier Dupriez/ Protection and Data Utility Matthew John Welch 41 Improving PPP Time Series TF015149 100,000 Nada Hamadeh 42 Supporting Ethiopia’s Push for 9 Million Improved TF015268 125,000 Michael Toman Cooking Stoves to Improve Health and Combat Climate Change 43 Hands-On Capacity Building in Environmental TF015186 175,000 Michael Toman Economics: A Proposed Collaboration with the Environment for Development Initiative 44 Improving and Expanding PovcalNet TF017347 100,000 Shaohua Chen 45 Data Version Management and Linked Data TF016340 50,000 Malarvizhi Veerappan 46 Economy-wide Valuation of Local/Regional Ecosystem TF015238 100,000 Michael Toman/ Services from Amazon Forest Area Jon Strand 47 Economic Valuation of Losses Due to “Amazon TF017449 1,980,000 Michael Toman/ Dieback” Jon Strand ECONOMIC DEVELOPMENT AND STRUCTURAL CHANGE 48 Moving to Density: A Research Program on the Rural- TF099198 500,000 Uwe Deichmann Urban Transformation in Developing Countries 49 Industrial Policy in an Uncertain Environment TF098053 75,000 Norman Loayza 50 Exporter Dynamics Database TF012590 160,000 Ana Margarida Fernandes 51 Structural Transformation Analysis with MAMS TF014272 140,000 Hans Lofgren 52 Structural Change in a Dynamic World TF013183 200,000 Delfin Go 53 Understanding the broader impacts of transport TF013506 300,000 Uwe Deichmann infrastructure investments 54 Job Creation, Structural Change, and Economic TF014655 1,485,000 Mary Hallward- Development in MENA with Lessons from East Asia Driemeier 55 Simple Global Analysis with R23 Model and Database TF015211 100,000 Delfin Go for 200+ Countries (Continued on next page) 60  •  ANNUAL REPORT 2014 Table A.4. Ongoing KCP II Projects in FY2014 Allocation   Project Name Fund (US dollars) Team Leader 56 Promoting rural-urban integration in China TF015048 100,000 Klaus Deininger 57 Community, Family and Household Support for the TF015161 200,000 John Giles Elderly in the Wake of Rapid Urbanization: Evidence from Rural China 58 Aging: the changing nature of intergenerational flows TF015202 150,000 Maryla in developing countries Maliszewska 59 The coming wave of educated workers: size and impact TF015375 150,000 Maryla on global inequality and poverty Maliszewska 60 Corporate Governance and Systemic Risk TF015374 50,000 Maria Soledad Martinez Peria/ Deniz Anginer 61 Institutional Investors TF015022 50,000 Sergio Schmukler ENDING EXTREME POVERTY – PROMOTING SHARED PROSPERITY  • 61 Table A.5. New KCP II Projects in FY2014 Approved Amount Project Name (US dollars) Team Leader POVERTY DYNAMICS AND PUBLIC SERVICE DELIVERY  1 Improving Data on Population Health and Skills Using Tablet- 150,000 Adam Wagstaff/Deon Filmer/ Compatible Household Survey Diagnostic Instruments Michael Lokshin 2 Demand Curve for Clean Water and Its Determinants in a 200,000 Quy-Toan Do/Hanan Jacoby Low-Income Context 3 Harmonized Microdata for Enhanced Global Poverty 100,000 Kathleen Beegle Monitoring: The International Income Distribution Database (I2D2) 4 Decentralizing Irrigation Management: Evidence from the 150,000 Hanan Jacoby/ Indus Basin of Pakistan Ghazala Mansuri 5 Quality of Care, Its Determinants and How It Can Be 150,000 Jishnu Das Improved 6 Weekend Special: A Sports-Based Intervention to Encourage 200,000 Berk Ozler/Jed Friedman Uptake of Voluntary Medical Male Circumcision in Zimbabwe 7 Assessing the Impact of 2011 ICP PPPs on Global Poverty 135,000 Shaohua Chen Estimates 8 Equality of Opportunity in Global Prosperity 200,000 Federica Saliola 9 National Account vs Survey Based Welfare 150,000 Umar Serajuddin 10 Gender, Insurance and Agricultural Productivity 100,000 Markus Goldstein 11 Census Independent Sampling Strategy Using Satellite 50,000 Espen Prydz/Calogero Imagery: Validating and Improving a Proposed Methodology Carletto in Myanmar 12 Improving Poverty and Shared Prosperity Measurement: An 100,000 Renos Vakis/Calogero Experiment to Measure Purchases of Food Away from Home Carletto 13 GMR 2015-2017 – Monitoring and Reporting the Twin Goals 250,000 Jamus Lim/Jos Verbeek 14 What Happens in Rural Areas When Food Prices Spike? 100,000 Donald Larson INVESTMENT CLIMATE & TRADE AND INTEGRATION 15 Demographic Change and International Integration 200,000 Caglar Ozden/Aaditya Mattoo 16 Benchmarking Public Procurement 150,000 Federica Saliola 17 Credit Bureau in Mexico 50,000 Claudia Ruiz Ortega 18 Capital Flows: Geography, Drivers and Implications 110,000 Sergio Schmukler 19 Corporate Governance and Debt Maturity 50,000 Soledad Martinez Peria/ Deniz Anginer (Continued on next page) 62  •  ANNUAL REPORT 2014 Table A.5. New KCP II Projects in FY2014 Approved Amount Project Name (US dollars) Team Leader GLOBAL PUBLIC GOODS 20 Sustainable Poverty Reduction and Shared Prosperity under a 150,000 S. Amer Ahmed/Delfin Go Changing Climate 21 Functionality to Conduct Complex Household and 56,000 Zurab Sajaia Agricultural Surveys with CAPI 22 UNICEF-WHO-The World Bank Joint Child Malnutrition 150,000 Juan Feng/Umar Serajuddin Dataset Expansion 23 Ecologically Cost-Effective Road Investment in Tropical 150,000 Susmita Dasgupta Forests ECONOMIC DEVELOPMENT AND STRUCTURAL CHANGE 24 The Impact of Wage Frequency on Employee Performance: A 100,000 Martin Kanz/Leora Klapper Field Experiment with Factory Workers Receiving Electronic Wage Payments in Bangladesh 25 Upgrading Management Technology in Colombia: A 100,000 William Maloney/David Randomized Experiment McKenzie 26 GFDR 2015 – Long-Term Finance 250,000 Soledad Martinez Peria/ Thierry Tressel 27 WDR 2016 – The Internet and Development 450,000 Deepak Mishra/Uwe Deichmann 28 Training to MFIs in Guatemala 100,000 Claudia Ruiz Ortega 29 Global Economic Prospects Flagship 200,000 Ekaterine Vashakmadze ENDING EXTREME POVERTY – PROMOTING SHARED PROSPERITY  • 63 KNOWLEDGE CHANGE for Annual Report 2013 KNOWLEDGE FOR CHANGE PROGRAM II DONORS Australia Norway Department of Foreign Affairs and Trade Norwegian Agency for Development Cooperation http://www.dfat.gov.au/ (NORAD) http://www.norad.no/en/front-page Canada Department of Foreign Affairs, Trade and Ministry of Foreign Affairs Development http://www.regjeringen.no/en/dep/ud.html?id=833 http://www.international.gc.ca/international/index. aspx Singapore Ministry of Finance China http://www.mof.gov.sg/ Ministry of Finance http://www.mof.gov.cn/ Sweden Swedish International Development Cooperation Denmark Agency (Sida) Ministry of Foreign Affairs of Denmark www.sida.se/English/ http://um.dk/en Ministry of Foreign Affairs Finland http://www.regjeringen.no/en/dep/ud.html?id=833 Department of Global Affairs, Ministry for Foreign Affairs Switzerland www.formin.fi/english Swiss Agency for Development and Cooperation, Federal Department of Foreign Affairs Japan http://www.sdc.admin.ch/ Ministry of Finance http://www.mof.go.jp/english United Kingdom Department for International Development (DfID) Korea http://www.dfid.gov.uk/ Ministry of Strategy and Finance http://english.mosf.go.kr/