rafmacalaba/datause-encoder-data huggingface dataset:
A normal relationship Poverty,
            growth, and inequality
Using a large cross-country income
            distribution dataset spanning close to 800 country-year
            observations from industrial and developing countries, the
            authors show that the size distribution of per capita income
            is well approximated empirically by a lognormal density. The
            0 hypothesis that per capita income follows a lognormal
            distribution cannot be rejected-although the same hypothesis
            is unambiguously rejected when applied to per capita
            consumption. The authors show that lognormality of per
            capita income has important implications for the relative
            roles of income growth and inequality changes in poverty
            reduction. When poverty reduction is the overriding policy
            objective, poorer and relatively equal countries may be
            willing to tolerate modest increases in income inequality in
            exchange for faster growth-more so than richer and highly
            unequal countries.
A normal relationship Poverty,
            growth, and inequality
WPS3814

# **A Normal Relationship?**

## **Poverty, Growth, and Inequality**

### **J. Humberto Lopez and Luis Servén* The World Bank**

### **Abstract**

Using a large cross-country income distribution dataset spanning close to 800 countryyear observations from industrial and developing countries, this paper shows that the size distribution of per capita income is very well approximated empirically by a lognormal density. Indeed, the null hypothesis that per capita income follows a lognormal distribution cannot be rejected -- although the same hypothesis is unambiguously rejected when applied to per capita consumption. The paper shows that lognormality of per capita income has important implications for the relative roles of income growth and inequality changes in poverty reduction. When poverty reduction is the overriding policy objective, poorer and relatively equal countries may be willing to tolerate modest increases in income inequality in exchange for faster growth -- more so than richer and highly unequal countries.

JEL classification codes: C12, C23, D31, I32.

World Bank Policy Research Working Paper 3814, January 2006 _The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the view of the World Bank, its Executive Directors, or the countries they represent. Policy Research Working Papers are available online at http://econ.worldbank.org._

* This paper was prepared for the World Bank’s Latin America Regional Studies program. We thank Lant Pritchett for comments and Patricia Macchi for excellent research assistance.
Getting real about inequality :
            evidence from Brazil, Colombia, Mexico, and Peru
Consumption baskets vary across
            households and inflation rates vary across goods. As a
            result, standard consumer price index (CPI) inflation may
            provide a misleading measure of the inflation actually faced
            by poor households, more so the more unequal the
            distribution of aggregate consumption across households.
            Likewise, changes in observed nominal consumption inequality
            may be very different from those in true inequality, that
            is, that measured using household-specific CPIs. The authors
            explore empirically these issues using household data
            covering nine episodes from four Latin American countries
            (Brazil, Colombia, Mexico, and Peru). They find that in
            these countries standard CPI inflation typically reflects
            the inflation rate faced by a rich consumer located in the
            80 to 90 percentile of the distribution of consumption
            expenditure. In most episodes the authors also find that
            inflation was anti-rich-that is, the inflation faced by the
            richest consumers was higher than the inflation faced by the
            poorest consumers. As a result of this bias, the observed
            increases in nominal inequality generally exceed the actual
            changes in real inequality. These results are robust to
            correcting for quality change bias in the CPI, to the use of
            alternative price indices, and to the use of alternative
            inequality measures.
Incomplete contracts and investment
            : a study of land tenancy in Pakistan
When contracts are incomplete,
            relationship-specific investments may be underprovided due
            to the threat of opportunistic expropriation or holdup. The
            authors find evidence of such underinvestment on tenanted
            land in rural Pakistan. Using data from households
            cultivating multiple plots under different tenure
            arrangements, they show that land-specific investment is
            lower on leased plots. This result is robust to the possible
            effects of asymmetric information in the leasing market.
            Greater tenure security also increases land-specific
            investment on leased plots. Moreover, variation in tenure
            security appears to be driven largely by heterogeneity
            across landlords, suggesting that reputation may be
            important in mitigating the holdup problem.
Bulgaria's integration into the
            Pan-European economy and industrial restructuring
This paper looks at Bulgaria's
            industrial restructuring through the lenses of its evolving
            specialization in international division of labor and
            integration into international markets with a special
            emphasis on EU markets. Its major findings can be summarized
            as follows: (1) Developments in Bulgaria's exports, its
            major drivers and factor content, during the "second
            transition" following the 1996 crisis have become
            reminiscent of developments in the early 1990s in European
            transition economies that have stayed the reform course. (2)
            The evolution of Bulgaria's total exports in terms of
            factor intensities before the "second
            transformational" recession was a testimony to aborted
            economic reforms. It not only defied expectations derived
            from the experience of CEEC-10 economies and its production
            factor endowments but also dramatically increased the cost
            of adjustment to market conditions for the economy as a
            whole. (3) Exports of unskilled labor-intensive products
            continue towering over other exports even during the current
            expansionary phase. The composition of top performers in EU
            markets indicates the shift toward natural resource and
            capital-intensive products. Bulgaria's export offer in
            EU markets has begun shifting toward more processed goods,
            mostly products of electro-engineering sectors. Bulgarian
            producers have made significant strides in information
            communication technology products and automotive parts.
            Trade in parts and engineering products has displayed strong
            growth. The returns usually associated with liberal reforms,
            that is, gains in competitiveness combined with a shift
            toward products in line with the country's endowments
            in production factors began to surface only recently. In
            contrast to the period preceding the second transformational
            recession in 1996-97, gains in competitiveness derive from
            corporate and industrial restructuring and not from subsidies.
Early childhood development in Latin
            America and the Caribbean
There is considerable evidence that
            young children in many developing countries suffer from
            profound deficits in nutrition, health, fine and gross motor
            skills, cognitive development, and socio-emotional
            development. Early childhood development (ECD) outcomes are
            important markers of the welfare of children. In addition,
            the deleterious effects of poor outcomes in early childhood
            can be long-lasting, affecting school attainment,
            employment, wages, criminality, and measures of social
            integration of adults. This paper considers the theoretical
            case to be made for investments in early childhood,
            selectively reviews the literature on the impact of ECD
            programs in the United States, discusses the evidence from
            Latin America and the Caribbean, and makes suggestions for
            future research. The focus is on the relation between
            outcomes in early childhood and measures of household
            socioeconomic status, child health, and parenting practices,
            as well as on the impact of specific policies and programs.
            The knowledge base on early childhood outcomes is still thin
            in Latin America and the Caribbean. There are therefore very
            high returns to comparative descriptive analysis in the
            region, as well as to careful evaluations of the impact of
            various programs.
Foreign direct investment,
            regulations, and growth
This paper explores the linkage between
            income growth rates and foreign direct investment (FDI)
            inflows. So far the evidence is rather mixed, as no robust
            relationship between FDI and income growth has been
            established. The authors argue that countries need a sound
            business environment in the form of good government
            regulations to be able to benefit from FDI. Using a
            comprehensive data set for regulations, they test this
            hypothesis and find evidence that excessive regulations
            restrict growth through FDI only in the most regulated
            economies. This result holds true for different
            specifications of the econometric model, including
            instrumental variable regressions.
Business environment and labor
            market outcomes in Europe and Central Asia countries
New firm entry has been fundamental for
            job creation in the transition economies. Hence, the urge to
            reform the framework in which firms operate. This paper aims
            to improve our understanding of the business environment of
            the Europe and Central Asia (ECA) countries, as well as to
            assess which of the institutions that shape it are most
            important for labor market performance. To achieve that aim,
            the author groups the institutions into those affecting firm
            entry and those affecting business survival and growth, and
            proceeds to construct indicators to summarize them. Next,
            she analyzes the impact of the business environment
            institutions on the employment generated by the private
            sector of the countries, proxied by the service employment
            rate. The regression analysis uses an unbalanced panel of 28
            ECA countries over 14 years-from 1988 to 2002. Recent
            literature on the labor market performance of the OECD
            countries argues that what matters for employment is the
            interaction between institutions and shocks. Accordingly,
            the explanatory variables used in the regression are the
            interactions between the transition shock suffered by the
            ECA countries and each of the business environment
            institutions previously defined. The author finds that
            access to finance is the most important institution across
            all ECA countries. The development of the financial sector
            can explain about 40 percent of private employment creation
            in the European transition economies according to the model.
            On the other hand, the poor access to finance in Bulgaria,
            Croatia, and above all, Romania, is the main factor behind
            their poor development of the private sector. Market
            regulation (credit and labor regulation), start-up costs,
            and the tax burden are all found to significantly affect
            employment as well.
Protection, openness, and factor
            adjustment : evidence from the manufacturing sector in Uruguay
The authors use a panel of manufacturing
            firms to analyze the adjustment process in capital blue
            collar and white collar employment in Uruguay during a
            period of trade liberalization when average tariff
            protection fell from 43 to 14 percent. They calculate the
            desired factor levels arising from a counterfactual profit
            maximization in the absence of adjustment costs, generating
            a measure of factor shortages or surpluses. The average
            estimated output gap for 1982-95 is 2 percent. The
            authors' policy analysis shows that trade openness
            affected the adjustment functions of all three factors of
            production. Highly protected sectors adjust less when
            creating jobs (reducing labor shortages) than sectors with
            low protection. This may be due to fears of policy reversal
            in highly protected sectors. Also, highly protected sectors
            adjust more easily (than low protection sectors) when
            destroying jobs (reducing labor surpluses), especially in
            the case of blue collar labor. This suggests that trade
            protection may in fact destroy rather than create jobs
            within industries, as firms in highly protected sectors are
            more reluctant to hire and more ready to fire than firms in
            sectors with low protection. The results for capital are
            qualitatively similar but quantitatively smaller, suggesting
            that trade protection plays less of a role in explaining
            adjustment costs for capital. Interestingly, export-oriented
            sectors have lower adjustment costs for blue collar labor
            but not for white collar employment or capital, suggesting
            that export-led growth may be particularly successful in
            reducing blue collar unemployment.
The data chase : what's out
            there on trade costs and nontariff barriers
Trade costs and nontariff barriers are
            at the forefront of discussions on competitiveness and
            expanding trade opportunities for developing countries. This
            paper provides a summary overview of data and indicators
            relevant to these issues and has been informed by work
            underway at the World Bank on trade facilitation over the
            past several years to catalogue data sets and indicators.
            Although there has been progress in expanding data sets and
            developing policy-relevant indicators on trade costs and
            barriers, much more is needed. In order to assess progress
            toward achieving the Millennium Development Goals,
            evaluating the impact of development projects, and whether
            meeting Aid for Trade goals will be met, for example, a
            dedicated and expansive new effort to collect and assess
            data is needed. This paper attempts to highlight gaps in
            data on trade costs and provides insight into the type of
            new data that might be developed in the future.
The relative importance of global
            agricultural subsidies and market access
The claim by global trade modelers that
            the potential contribution to global economic welfare of
            removing agricultural subsidies is less than one-tenth of
            that from removing agricultural tariffs puzzles many
            observers. To help explain that result, the authors first
            compare the OECD and model-based estimates of the extent of
            the producer distortions (leaving aside consumer
            distortions), and show that 75 percent of total support is
            provided by market access barriers when account is taken of
            all forms of support to farmers and to agricultural
            processors globally, and only 19 percent to domestic farm
            subsidies. Then the authors provide a back-of-the-envelope
            (BOTE) calculation of the welfare cost of those distortions.
            Assuming unitary supply and demand elasticities, that BOTE
            analysis suggests 86 percent of the welfare cost is due to
            tariffs and only 6 percent to domestic farm subsidies. When
            the higher costs associated with the greater variability of
            trade measures relative to domestic support are accounted
            for, the BOTE estimate of the latter's share falls to 4
            percent. This is close to the 5 percent generated by the
            most commonly used global model (GTAP) and reported in the
            paper's final section.
Do global trade distortions still
            harm developing country farmers
The authors estimate the impact of
            global merchandise trade distortions and services
            regulations on agricultural value added in various
            countries. Using the latest versions of the Global Trade
            Analysis Project (GTAP) database and the GTAP-AGR model of
            the global economy, their results suggest real net farm
            incomes would rise in developing countries with a move to
            free trade, thereby alleviating rural poverty. This occurs
            despite a terms of trade deterioration for developing
            countries that are net food importers or that enjoy
            preferential access to agricultural markets of high-income
            countries. The authors also show, for several large
            developing countries, the contribution of their own versus
            other countries' trade policies.
Resolution of failed banks by
            deposit insurers : cross-country evidence
There is a wide cross-country variation
            in the institutional structure of bank failure resolution,
            including the role of the deposit insurer. The authors use
            quantitative analysis for 57 countries and discuss specific
            country cases to illustrate this variation. Using data for
            over 1,700 banks across 57 countries, they show that banks
            in countries where the deposit insurer has the
            responsibility of intervening failed banks and the power to
            revoke membership in the deposit insurance scheme are more
            stable and less likely to become insolvent. Involvement of
            the deposit insurer in bank failure resolution thus dampens
            the negative effect that deposit insurance has on
            banks' risk taking.
Resolution of failed banks by
            deposit insurers : cross-country evidence
WPS3920

# **Resolution of Failed Banks by Deposit Insurers Cross-Country Evidence**

## **Thorsten Beck and Luc Laeven***

**Abstract:** There is a wide cross-country variation in the institutional structure of bank failure resolution, including the role of the deposit insurer. We use quantitative analysis for 57 countries and discussion of specific country cases to illustrate this variation.  Using data for over 1,700 banks across 57 countries, we show that banks in countries where the deposit insurer has the responsibility of intervening failed banks and the power to revoke membership in the deposit insurance scheme are more stable and less likely to become insolvent. Involvement of the deposit insurer in bank failure resolution thus dampens the negative effect that deposit insurance has on banks’ risk taking.

JEL Classifications: G21, G28, G30 Keywords: bank fragility; bank failure resolution; deposit insurance

### World Bank Policy Research Working Paper 3920, May 2006

_The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the view of the World Bank, its Executive Directors, or the countries they represent. Policy Research Working Papers are available online at http://econ.worldbank.org._

* Beck is at the World Bank and Laeven is at the World Bank and CEPR. Corresponding author: Thorsten Beck, World Bank, TBeck@worldbank.org, Phone: (202) 473-3215, Fax: (202) 522-1155. We would like to thank Asli Demirguc-Kunt and Ross Levine for very useful comments and Baybars Karacaovali for excellent research assistance.
Productivity matters for trade
            policy : theory and evidence
There is a growing literature that
            investigates the effect of trade liberalization on
            productivity. Nearly all such studies assume that trade
            policy is determined independently of productivity, hence it
            is exogenous. The author shows that this assumption is not
            valid in general, both theoretically and empirically, and
            that researchers may be underestimating the positive effect
            of liberalization on productivity when they do not account
            for the endogeneity bias. On the theory side, he
            demonstrates that under a standard political economy model
            of trade protection, productivity directly influences
            tariffs. Moreover, this productivity-tariff relationship
            partly determines the extent of liberalization across
            sectors even in the presence of a large exogenous unilateral
            liberalization shock that affects all sectors. The link
            between productivity and tariffs is maintained after the
            author includes in his political economy model a
            learning-by-doing motive of protection, which also serves as
            the source of liberalization. On the empirical side, he
            examines total factor productivity (TFP) estimates obtained
            at the firm level for Colombia between 1983 and 1998, and
            finds that more productive sectors receive more protection
            within this period. In estimating the effect of productivity
            on tariffs, he controls for the endogeneity of the two main
            right-hand-side variables-the inverse import penetration to
            import demand elasticity ratio and productivity-by using
            materials prices, the capital to output ratio, a measure of
            scale economies, and the TFP of the upstream industries as
            robust instruments. The author also accounts for the large
            trade liberalization between 1990 and 1992, and finds that
            the sectors with a higher productivity gain are liberalized
            less. Finally, he illustrates a system of equations
            estimation and shows that the positive impact of
            liberalization on productivity grows stronger when corrected
            for the endogeneity bias.