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**_Policy,_** _Planning, and Research Working_ **_Paper_** _Series_

Households and the government typically do little to absorb foreign financing shocks by adjusting their net lending.

The vulnerability of the business sector to the availability of foreign funds points up the need for the financial sector in developing countries tofind more ways to attract domestic savings to finance worthwhile investment projects. This will require that savers are ensured a fair share of the returns on investment projects - which means realistic interest rates for savers and the development of financial instruments that allow savers to share in high-risk high-yield projects.

This paper, a background paper for the 1989 World Development Report, is a product of the Financial Policy and Systems Division, Country Economics Department. Please contact WilaiPitayatonakarn, room N9-005, extension 60353.

165. Shifting **Patterns** of Comparative Advantage: Manufactured **Ex-** ports of Developing Countries

# Alexander J. Yeats

_Labor-intensive goods are the strongest export items for deuel,ping countries - and the United States is the developing countries' biggest export market._ In 1965 the National Bureau of Economic Research predicted that developing countries would specialize in the manufacture and export of labor-intensive goods -and prepared a list of those goods.

A study of actual exports for 19651986 revealed that with few exceptions, export performance of those labor-intensive goods was superior in developing countries - which increased their market shares for those items despite generally declining shares of world trade. The United States absorbed nearly 55 percent of labor-intensive products in 1986 ($70.2 billion, compared with only $34.4 billion in the EC). And more than 40 percent of total U.S. imports of laborintensive goods came from developing countries (compared with only 12 percent in the EC).

Many of the products the National Bureau identified as labor-intensive remain so, and therefore remain suitable for production and export by developing countries.

Clothing, footwear, leather products, wood manufactures, and some primary metal manufactures became relatively more labor-intensive - so producers in industrial countries can expect increased competition from the developing countries in these products in the 1990s.

This paper is a product of the International Trade Division, International Economics Department. Please contact Jean Epps, room S8-037, extension 33710.

# 166. **Achieving** and **Sustaining** Universal **Primary Education:** International **Experlence Relevant** to India

# Nat J. Colletta and Margaret Sutton

_Funding, local accountability, good teacher training, and upgrading poorer schools are all important. But promoting female enrollment may also require more - organized day care to free young girls from child care duties._ To achieve its goal of full enrollment of children aged 6 to 11 by 1990, and children aged 6 to 14 by 1995, India must increase its enrollment from less than 80 percent to more than 100 percent in 10 years. Sustaining universal primary educationalsomeansreducingthehighdropout rate (over 50 percent by grade 5) to near zero for eight grades.

To reach its targets, India must:

* Back up policy with funding - in particular directing central government funds to areas and states with insufficient resources to improve facilities, quality of instruction, and local language resources.

* Encourage local accountability of teachers and administrators to communities. Encouraging good local school management (coordinated with state and central management) as well as community participation promises the best administrative oversight of schools.

* Improve quality in the poorer schools and states to increase participation and retention rates in the primary schools. Thisrequireswell-trainedteachers - motivated both by better pay and in-service training (which the introduction of educational technology will facilitate).

* Make curricula and exams relevant to local students (emphasizing basic knowledge and reasoning skills over academic knowledge).

* Make a special effort to provide organized day care to release young girls from their child-care responsibilities.

This paper is a product ofthe Population, Human Resources, Urban and Water Operations Division, Asia Country Department IV. Please contact Mary Philiph, room D10-015, extension 75366.

# 167. Do Price Increases for **Staple Foods Help or Hurt the Rural** Poor?

# Martin Ravallion

_In the short run the rural rich in Bangladesh are likely to gain, and the rural poor to lose, from an increase in the relative price of food staples in a food producing economy. But in the long run the welfare of a typical poor household will be neutral to such price increases (after allowing for wage adjustments), and the poorest households will benefit somewhat._ The effect on the poor of changes in the price of staple foods is a central issue in debates on development policy.

One argument is that while low food prices clearly benefit urban groups, the rural population that depends primarily on food agriculture is likely to be worse off. Highfoodpricesmaybenefittherural poor by raising rural wages, even when the poor are net demanders of food.

The counterargument is that the rural poor are net demanders of food. In rural South Asia, for example, they do not produce enough food for their own consumption, typically supplementing their own farm incomes with earnings from agricultural labor. Under conditions of partial equilibrium, they cannot benefit from high prices.

There is little agreement about how responsive agricultural wages are to food prices, so the author has examined the effects of changes in food prices under induced wage responses for rural Bangladesh based on an econometric model ofagricultural wage determination.

The results: Partial equilibrium analysis suggests that the rural rich are likely to gain, and the rural poor to lose, from an increase in the relative price of food staples.

Steady-state equilibrium analysis suggests a different result: that the rural rich will probably gain from such a price increase, but in the long run the welfare of a typical poor household is more likely to be neutral to changes in the price of rice.

The long-term effect on welfare will vary among the poor, however. In the