rafmacalaba/datause-encoder-data huggingface dataset:
Toward a microeconomics of growth
3257

# Toward a Microeconomics of Growth<sup>1</sup>

Robin Burgess LSE and CEPR Anthony J. Venables LSE and CEPR JEL classification nos: O10, O12, O14. Keywords: Growth, development, structural change, clustering.

## **Addresses**

R. Burgess A.J. Venables Dept of Economics Dept of Economics London School of Economics London School of Economics Houghton Street Houghton Street London WC2A 2AE, UK London WC2A 2AE, UK <u>r.burgess@lse.ac.uk a.j.venables@lse.ac.uk http://econ.lse.ac.uk/staff/rburgess/ http://econ.lse.ac.uk/staff/ajv/</u> World Bank Policy Research Working Paper 3257, April 2004 _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._ 1 Paper written for the Annual Bank Conference on Development Economics, Bangalore, India, 2003. We are grateful to Bronwen Burgess, Gur Offer, Diego Puga, Steve Redding, Marit Rehavi and Sidney Winter for comments on an earlier draft.
Who benefited from trade
            liberalization in Mexico Measuring the effects on household welfare
This study performs an ex-post analysis
            of the effects of the trade liberalization in Mexico between
            1989 and 2000, taking into account regional differences in
            the Mexican economy. The effects of trade liberalization are
            first translated into changes in regional prices and wages.
            Those estimates are plugged into a farm-household model to
            estimate the effect on households' welfare. The
            findings suggest that trade liberalization has affected
            domestic prices and labor income differently both across
            income groups and geographically across the country, hence
            producing diverse outcomes on different households.
            Regarding prices, the results indicate that trade
            liberalization has lowered relative prices of most
            non-animal agricultural products and, while reducing the
            cost of consumption, has reduced households'
            agricultural income, widening the income gap between urban
            and rural areas. The findings also show that trade
            liberalization has had diverse effects on wage rates.
            Skilled workers, for which trade liberalization has produced
            an increase in wages, have benefited relative to unskilled
            workers. Wages of unskilled workers have in many regions
            decreased as a result of trade liberalization. Similar
            differences are found in the geographic distribution of the
            benefits of trade liberalization, with the states closest to
            the U. S. border gaining threefold more relative to the
            least developed states in the south. Therefore trade
            liberalization, although beneficial, has contributed to an
            increase in inequality between the south and the north of
            the country, urban and rural areas, and skilled and
            unskilled labor. From a poverty perspective, the trade
            liberalization that occurred between 1989 and 2000 has had
            the direct effect of reducing poverty by about 3 percent,
            therefore lifting approximately 3 million individuals out of poverty.
The initial and potential impact of
            preferential access to the U.S. market under the African
            Growth and Opportunity Act
The ability to export clothing products
            under preferences with liberal rules of origin is the key
            factor currently determining whether the African Growth and
            Opportunity Act (AGOA) has a significant impact on non-oil
            exporting African countries. At present only a small number
            of countries receive substantial benefits and least
            developed countries that do not receive preferences for
            clothing have yet to see an impact of AGOA on their overall
            exports. However, the benefits from exporting clothing under
            AGOA appear fragile in the face of the removal of quotas in
            the United States on major suppliers, such as China, at the
            end of 2004, and the planned removal of the liberal rules of
            origin that allow for the global sourcing of fabrics from
            least-cost locations. To entrench and enhance the benefits
            of AGOA, it is important that the scheme be extended over a
            much longer period, if not made permanent, and the special
            liberal rules of origin for clothing products be extended
            considerably beyond 2004. The effective inclusion of textile
            products and a number of high-duty agricultural products
            would also help to broaden the range of opportunities for
            African exporters in the U.S. market. Nevertheless it is
            important that the opportunities created by AGOA are
            integrated into a broader framework for promoting trade and
            that it be recognized that if the opportunities offered by
            more open trade are to be exploited, there must be concerted
            efforts to improve the environment for investment countries
            covered by AGOA.
How has environment mattered an
            analysis of World Bank resource allocation
How has environment mattered for the
            World Bank? The aggregate figures suggest that it has
            mattered a great deal, since the Bank's total
            environmental lending has exceeded $US 9 billion over the
            past six years. In this paper the authors use newly
            available data to address a more precise version of the
            question: Across countries and themes, how well has the
            Bank's environmental lending and analytical and
            advisory activities (AAA) matched the incidence of
            environmental problems? For their assessment, the authors
            extend their previous work on local pollution and fragile
            lands (Buys and others 2003) to consideration of global
            emissions, biodiversity, water resources, and institutional
            development. They construct cross-country problem indicators
            for each environmental theme and combine them with country
            risk measures to estimate optimal thematic lending and AAA
            for each country. The authors then compare their estimates
            with actual lending and AAA to assess the match between
            environmental problems and the Bank's response.  The
            authors begin by constructing an overall indicator of
            environmental problems from their thematic indicators. Using
            regression analysis, they find a strong relationship between
            countries' general indicator values and the scale of
            their  environmental borrowing, but a relatively weak
            relationship for AAA. At the thematic level, the authors
            find that problem indicators have relatively weak
            relationships with both lending and AAA. Adding country risk
            to the analysis, they test an optimal allocation model and
            find that it is consistent with the Bank's actual
            lending and AAA since 1998. The authors conclude that their
            model's assignment of lending and AAA to countries
            reflects the Bank's actual experience with partner
            countries. The model's explanatory power is relatively
            low, however, and when they compare model assignments to
            actual allocations, the authors find many large
            discrepancies for countries and environmental themes. Some
            gaps may reflect activity by other donor institutions, but
            many others may represent problems with efficient
            implementation of the Bank's Environment Strategy. To
            promote further discussion of this issue, the authors use
            their optimal allocation model to develop measures of
            lending opportunity by environmental theme for the
            Bank's partner countries.
Raising revenue with transaction
            taxes in Latin america - or is it better to tax with the
            devil you know
In recent years, various Latin American
            governments have resorted to taxes on bank debits and
            financial transactions as alternative ways of raising
            revenue. Considerable interest has developed in
            understanding the consequences of such reforms. The author
            constructs a dynamic general equilibrium model to assess the
            size of distortions and other quantitative implications
            associated with a transaction tax. The distinctive feature
            of the model is the non-neutrality property of the tax in
            the sense that it distorts the structure of relative prices
            of intermediate transactions, giving rise to tax
            "pyramidation." The effective tax rate ultimately
            borne by the economy is shown to depend on the complexity of
            the transaction structure. Calibrated for Latin America, the
            model finds that, contrary to existing evidence and
            conventional wisdom, a transaction tax is not a particularly
            burdensome levy in terms of economic growth and efficiency
            costs. The model also shows that if a government can
            credibly commit itself to an announced two-step reform in
            which it first uses a transaction tax temporarily and then
            replaces it with any other conventional tax, this policy
            will improve economic welfare relative to a tax reform where
            a consumption tax (or a labor income tax or a capital
            earnings tax) is exclusively used from the start to raise
            the required additional revenue.
The Economics of Regional
            Poverty-Environment Programs: An Application for Lao
            People's Democratic Republic
Program administrators are often faced
            with the difficult problem of allocating scarce resources
            among regions in a country when interventions are aimed at
            addressing multiple objectives. One main concern is the
            tradeoff between poverty reduction and improvement of
            environmental quality. To provide a framework for analysis,
            the authors develop a model of optimal budget allocation
            that allows for variations in three factors:
            administrators' valuation of objectives; their
            willingness to accept tradeoffs among objectives and
            regional allotments; and regional administrative costs. The
            results from an application of this model using information
            for Lao People's Democratic Republic show that simple
            poverty indicators alone do not provide consistent
            guidelines for policy. However, when different poverty
            indicators are embedded in an optimizing model that
            incorporates preferences and costs, the resulting provincial
            allocations are very similar. This suggests that adoption of
            a formal analytical approach to resource allocation can help
            promote the harmonization of regional policy guidelines.
The impact of Chilean fruit sector
            development on female employment and household income
Modern fruit sector development in Chile
            led to agricultural employment for women, though usually
            only as temporary workers and often at a piece rate.
            Nonetheless, fruit sector employment offered women access to
            income and personal fulfillment previously lacking. The
            authors link the fruit sector to improving female and family
            economic welfare in rural Chile and changing gender
            relations. Using a unique longitudinal data set, they
            examine women's decisions regarding labor force
            participation and employment, their earnings and
            contributions to household income, and their attitudes
            toward employment to understand how new opportunities are
            changing women, their households, and the rural sector.
Rapid onset natural disasters : The
            role of financing in effective risk management
The authors provide a conceptual
            framework for designing a comprehensive risk management
            strategy for rapid onset natural disasters at the country
            level, with a particular emphasis on the role of catastrophe
            loss funding. The authors discuss the key policy and
            technical issues involved in building financially
            sustainable catastrophe risk transfer and funding programs
            in disaster prone countries and their links to risk
            mitigation. They also deal with the cognitive and political
            economy issues that are likely to arise and ways to
            accommodate them.
Rapid onset natural disasters : The
            role of financing in effective risk management
3278

# **RAPID ONSET NATURAL DISASTERS: THE ROLE OF FINANCING IN EFFECTIVE RISK MANAGEMENT**

Insurance and Contractual Savings Practice Financial Sector Operations and Policy Department Eugene Gurenko Rodney Lester

# **Abstract:**

This paper provides a conceptual framework for designing a comprehensive risk management strategy for rapid onset natural disasters at the country level, with a particular emphasis on the role of catastrophe loss funding. The paper discusses the key policy and technical issues involved in building financially sustainable catastrophe risk transfer and funding programs in disaster prone countries, and their links to risk mitigation. The paper also deals with the cognitive and political economy issues that are likely to arise and ways to accommodate them.

# **Acknowledgements:**

The authors would like to acknowledge a valuable editorial contribution by Richard Zechter.

World Bank Policy Research Working Paper 3278, April 2004 _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._
Globalization and the gender wage gap
There are several theoretical reasons
            why globalization will have a narrowing as well as widening
            effect on the gender wage gap, but little is known about the
            actual impact, except for a number of country studies.  The
            author provides a cross-country study of the impact of
            globalization on the occupational gender wage gap, based on
            the rarely used but most far-ranging survey of wages around
            the world, the International Labour Organization's
            October Inquiry. This annual survey was started in 1924 and
            contains a wealth of information on wages and the gender
            wage gap. For the period 1983-99, there is information on
            the gender wage gap in 161 narrowly defined occupations in
            more than 80 countries around the world. The author finds
            the following: (i) The occupational gender wage gap appears
            to be narrowing with increases in GDP per capita; (ii) There
            is a significantly narrowing impact of trade and foreign
            direct investment (FDI) net inflows on the occupational
            gender wage gap for low-skill occupations, both in poorer
            and richer countries, and for high-skill occupations in
            richer countries; (iii) There is no evidence of a narrowing
            impact of trade, but there is evidence of a widening impact
            of FDI net inflows on the high-skill occupational gender
            wage gap in poorer countries; (iv) Wage-setting institutions
            have a strong impact on the occupational gender wage gap in
            richer countries.
Avoiding customer and taxpayer
            bailouts in private infrastructure projects : Policy toward
            leverage, risk allocation, and bankruptcy
Many private infrastructure projects mix
            regulation that subjects the private company to considerable
            risk, a government or regulator that is reluctant to see the
            company go bankrupt, and high leverage on the part of the
            company. If all goes well, equityholders make a profit,
            debtholders are repaid, customers pay no more than they
            expected, and the government is not called on to bail the
            company out. If all goes badly enough, however, the prospect
            of bankruptcy will loom. Unwilling to see the company go
            bankrupt, however, the regulator will have to permit an
            unscheduled price increase, or the government will have to
            inject taxpayers' money into the firm. In other words,
            the combination means customers and taxpayers bear more risk
            than would appear from the regulations governing the private
            infrastructure project.  The authors examine how these
            problems have played out in five cases. Then they describe
            how governments and regulators can quantify the extent of
            the problems and, using option-pricing techniques, value the
            customer and taxpayer guarantees involved. Finally, the
            authors analyze three options for mitigating the problem:
            making bankruptcy a more credible threat, limiting the
            private operator's leverage, and reducing the private
            operator's exposure to risk.  The authors conclude that
            appropriate policy depends on the tax system, the
            feasibility of enforcing bankruptcy, and the benefits of
            risk transfer from taxpayer to the private sector.
Conditional cash transfers and the
            equity-efficiency debate
During the past decade, the use of
            conditional cash transfers to increase investment in human
            capital has generated considerable excitement in both
            research and policy forums. Such schemes are being
            increasingly adopted in a number of contexts and countries
            to improve outcomes in health, education, and child labor as
            they aim to balance the goals of current and future poverty
            reduction. In this paper, the authors define any scheme
            requiring a specified course of action in order to receive a
            benefit as a conditional cash transfer. This definition
            includes cash transfers based on human capital investments,
            but is sufficiently broad to encompass other schemes such as
            work-fare programs or consumption transfers.  The authors
            examine the rationales behind, the problems with, and the
            tradeoffs inherent to conditional cash transfer programs.
            They discuss two main concerns: low participation and
            fungibility. Low participation refers to the problem of
            program uptake. If individuals do not participate in the
            program, whether it was designed to increase human capital
            investment or to target resources, the program will not be
            successful. The problem of fungibility, however, depends on
            the rationale for the particular conditional cash transfer
            program. When used to increase efficiency, even when program
            uptake is high, program effects may be less than envisioned
            due to behavioral responses of households that lead to
            changes in the consumption of close substitutes. While
            researchers have typically addressed these issues
            separately, the authors emphasize the need for policymakers
            to incorporate a number of different factors in a
            comprehensive framework to design optimal conditional cash
            transfer schemes.
Does greater accountability improve
            the quality of delivery of public services Evidence from Uganda
While the importance of corruption as a
            possible impediment to foreign investment in an
            international context is now well realized, it is not clear
            to what extent corruption affects, either directly through
            bribe-taking or indirectly through inadequate quality of
            public services, the level of economic activity by domestic
            entrepreneurs. Using a large survey from Uganda, the authors
            show that domestic and foreign entrepreneurs, government
            officials, and households are unanimous in highlighting the
            pervasiveness and importance of corruption. Efforts to
            establish institutions to deal with corrupt practices have
            not been matched by public education on the proper
            procedures. The fact that such lack of knowledge on
            procedures to report corruption increases households'
            risk of being subject to bribery and significantly reduces
            the quality of public service delivery leads the authors to
            conclude that improved accountability will be important to
            reduce the incidence of corruption and improve delivery of
            public services.
Coordination failure in foreign aid
The author analyzes the allocation of
            foreign aid to various sectors in a recipient developing
            country. Donors tend to favor social sectors over other
            public expenditure programs. Due to incomplete information,
            donors may concentrate too much on priority sectors, leaving
            lower-priority yet important sectors lacking funds.
            Alternatively there may be gaps in services in priority
            areas because of the information problem. The author finds
            that the more similar preferences the donors have, the more
            scope there is for coordination failure. Therefore improving
            information is particularly important when the parties have
            similar priorities. A joint database on planned projects and
            budget allocations in each recipient country would provide
            such information. The author's point is that such
            databases should have both information on current projects
            and forward-looking information on the planned activities
            needed to improve aid coordination. She also analyzes the
            aid fungibility problem in an incomplete information setting
            and finds that incomplete information reduces the
            fungibility problem. On the other hand, incomplete
            information introduces coordination failure and the
            allocation can be inferior for both the recipient and the donor.