rafmacalaba/datause-encoder-data huggingface dataset:
Policy Research Working Paper 6121

# **Abstract**

This paper presents new global evidence on the key determinants of public-private partnership investment in electricity transmission and distribution, based on a panel data analysis of 105 developing countries over a period of 16 years from 1993 to 2008. It aims to identify the key factors affecting the private investor’s decision to enter electricity transmission and distribution, through a probit analysis and the amount of investment sunk in this market segment, based on Heckman’s sample selection analysis. One of the key results of the analysis is that sector regulatory governance affects only the entry of private investors in electricity transmission and distribution. It is not significantly linked to higher investment in transmission and distribution. The result implies that the power of the incentive has not been so strong as to affect the volume of investment. Similarly, economy-wide governance factors, including control for corruption and degree of political competition, are factored in by private investors only in the initial stage of the game when the decision to enter into the transmission and distribution market is taken. This reinforces the expectation that private investors seem to be adequately protected against risks, so that once they have entered the market, they can accommodate the governance environment. Finally, the introduction of renewables in the power system enhanced overall public-private partnership investment in transmission and distribution. Renewable-based energy also requires technical and regulatory certainty about the availability of renewable-ready transmission resources.

This paper is a product of the Energy Unit, Sustainable Energy Department. It is part of a larger effort by the World Bank to provide open access to its research and make a contribution to development policy discussions around the world. Policy Research Working Papers are also posted on the Web at http://econ.worldbank.org. The author may be contacted at mvagliasindi@worldbank.org.

_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 views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent._ Produced by the Research Support Team
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# **References:**

Klapper, Leora. 2006. “Entrepreneurship: How Much Does the Business Environment Matter?” Viewpoint Series, Note 313. World Bank Group, Financial and Private Sector Development Vice Presidency, Washington D.C.

Klapper, Leora and Juan Manuel Quesada Delgado 2007. “Entrepreneurship; New Data on Business Creation and How to Promote It,” Viewpoint Series, Note 316. World Bank Group, Financial and Private Sector Development Vice Presidency, Washington D.C.

<mark>Kaufmann, Aart Kraay, and Massimo Mastruzzi, 2008, “Governance Matters VII: Aggregate and Individual Governance Indicators, 1996-2007”, World Bank Policy Research Working Paper No. 4654 .</mark> Klapper, Leora, Raphael Amit, Mauro Guillen, 2008. “Entrepreneurship and Firm Formation Across Countries” (with Raphael Amit, and Mauro Guillen), NBER Volume <u>on International Differences in Entrepreneurship,</u> Forthcoming.

Lewin, Anat, Leora Klapper, Bruno Lanvin, David Satola, Sophie Sirtaine, Richard Symonds, and Cara Zappala, 2007. “Implementing Electronic Business Registry (e-BR) Services: Recommendations for policy makers based on the experience of EU Accession Countries.” Processed.

World Bank Group, 2008. _Doing Business in 2008._ Washington D.C. http://www.doingbusiness.org 19
# **TABLE 2. VAT PRODUCTIVITY a/**

|Country|ProductivityRate|
|---|---|
|Peru(1994-1998)|0.32|
|México(1990-1997)|0.26|
|Uganda(2000)|0.25|
|KRA(1996-2000)|0.19|

_Source: Author’s calculations. a/ Calculated net of VAT collections on imports._ The cases show impressive increases in tax effort in Peru and Uganda, coinciding with the introduction of the revenue authorities there, and some progress in Venezuela and South Africa, which also coincides with the ARA reforms. They also show that tax effort declined in Kenya, though the data would suggest that this occurred primarily as a result of tax policy changes. In Mexico collections stagnated and then declined; the data suggest that tax administration rather than tax policy were to blame. Though revenue collections is a very crude indicator of administrative performance, owing to the large number of exogenous factors influencing collections, the cases show that the ARA reforms are associated with significant improvements in revenues in some cases.

# _Taxpayer Registration and Compliance Management_

The foundation of compliance is the ability of the tax agency to keep a current registry of taxpayers to ensure that they are submitting their tax declarations and making their tax payments according to schedule. Equally important is the ability of the agency to broaden the tax base to cover all the taxpayers who legally ought to be paying taxes. The cases show that Peru and South Africa have done well here, and that Kenya has made some strides in the area of taxpayer registration. The other cases demonstrate less progress.

Peru was one of the most successful in broadening the tax net, as the number of active registered taxpayers increased from 895,000 in 1993 to 1,766,000 in 1999. At the same time, the quality of information taxpayer registries is often a major problem. Peru, however, continually cleaned its registry, and, from 1995 to 1998 purged the registry of about 15% of inactive taxpayers per year. SUNAT has been able to increase in absolute terms the number of taxpayers filing declarations every year since the creation of the 30
9 Table 4 Costs of Regulation and Gains from Deregulation' (as a Percentage of GDP)

|_Countyy_|_Cost of Regulation_|_Projected Benefits_<br>_of Economic_<br>_Deregulation_|_Source_<br>|
|---|---|---|---|
|United States|7.2-9.5%|0.3%|Hopkins (1992)"; Winston (1993)c|
|Australia|9-19%|_5.5%_|OECD (1996a)d|
|Canada|11.8%||Mihlar (1996)'|
|Japan||2.3-18.7%|OECD (1996b)y|
|European Union||3-7%|OECD (1996b)g|
|Germany||0.3%|OECD (1996b)h|
|Netherlands||0.5-1.1%|OECD (1996b)'|

- a These numbers are underestimates of the effects of deregulation since the studies do not include all sectors where deregulation can be beneficial.

- _b_ The cost estimates, as of 1991, include process costs. The range reflects the inclusion of economic transfers.

- c Winston estimated the gains of deregulation in the United States at 0.7-0.8% of GDP in 1990. The 0.3% estimate represents the potential gains if the industries could achieve optimality.

- _d_ The costs of regulation, as of 1986, are derived from Commonwealth (1986). The projected benefits from deregulation are based on both the Hilmer and related reforms (Industry Commission, 1995). These reforms essentially cover legislative and regulatory changes in order to provide a national competition policy framework and to broaden the coverage of competition policy instruments. They also cover moves to foster competition in national infrastructure areas such as electricity, gas, water and road transport.

- e The costs estimates are calculated in 1993-94.

- _f_ Projections of savings from deregulation are based on reducing the price and productivity gap with the United States. See Shimpo and Nishizake (1996) for an overview of the studies.

- **g** Citing Emerson (1988). Projections of savings from deregulation are based on dismantling technical trade barriers and custom formalities, enhanced economies of scale and lower profit margins from enhanced competition.

- Citing Lipschitz, et al. (1989). Projections of savings from deregulation are based on more market oriented pricing in agriculture and mining, the dismantling of tariff and non-tariff barriers in selected industries and reforms in product and labor markets.

- Citing Van Sinderen, et al. (1994) and Van Bereijk and Haffner (1995). Projections of savings from deregulation are based on the reduction of product market rigidities in 20 major sectors of the Dutch economy.
percent coupon dollar Eurobond over the comparable 2001/6.25 coupon percent U.S. Treasury note. The target devaluation rate ( _dx/x_ )* was obtained from the macroeconomic program assumptions and was 9 percent for 1997 and 6 percent for 1998. Lastly, _DRP_ was obtained as a residual.

Figure 3: Dynamics of Sovereign Risk and Devaluation Risk Premia <!-- Start of picture text --> 120.0 30.0<br>100.0 25.0<br>80.0 20.0<br>60.0 15.0<br>SRP DRP<br>40.0 10.0<br>20.0 5.0<br>0.0 0.0<br>DRP SRP<br>10/21/1... 11/18/1... 12/16/1... 12/30/1...<br>7/1/1997 7/15/1997 7/29/1997 8/12/1997 8/26/1997 9/9/1997 9/23/1997 10/7/1997 11/4/1997 12/2/1997 1/13/1998 1/27/1998 2/10/1998 2/24/1998 3/10/1998 3/24/1998 4/7/1998 4/21/1998 5/5/1998 5/19/1998 6/2/1998 6/16/1998 6/30/1998 7/14/1998 7/28/1998 8/11/1998<br><!-- End of picture text --> Source: Figure 3, Kharas, Pinto and Ulatov (2001).

Figure 3 shows the jump in both the DRP and SRP in November 1997 when the spillover from East Asia occurred. The blip towards the end of January 1998 is also noticeable. Finally, the sustained deterioration in market signals after mid-May 1998 is evident. Yet Russia increased its dollar-denominated external debt by $16.4 billion in the 10 weeks between June 1 and the meltdown of August 17, equal to 8 percent of post-crisis GDP; 60 percent of this came from the private sector. Why were private investors willing to increase their exposure to Russia while at the same time signaling exceptionally high levels of devaluation and default risk? Because of moral hazard in the expectation of a large bailout by the international financial institutions and possibly the G-7. Here is a telling quote from Reuters News Service from June 10, 1998: 24
9

**Figure 4  Average returns for switching to pineapples as an intercrop can exceed 1,200 percent**

<!-- Start of picture text --> 0 20 40 60 80 100<br>cumulative percent of plots<br>pineapple profits non-pineapple profits<br>20000<br>15000<br>10000<br>5000<br>Per-Hectare Profits (1,000 Cedis) 0<br>-5000<br><!-- End of picture text --> _Source_ : Goldstein and Udry (1999).

A final example comes from the impact of belonging to a low caste on individual performance. To examine the effect of stereotypes on the ability of individuals to respond to economic incentives, Hoff and Pandey (2004) undertook experiments with low- and high-caste children in rural north India. The caste system in India can be described as a highly stratified social hierarchy in which groups of individuals are invested with different social status and social meaning.

In the first experiment, groups composed of three low-caste (“dalits”) and three highcaste junior high school students were asked to solve mazes and were paid based on the number of mazes they solved. In one condition, no personal information about the participants was announced. In a second condition, caste was announced with each participant’s name and village. In a third condition, participants were segregated by caste and then each participant’s name, village, and caste were announced in the six-person group.

When caste was not announced, there was no caste gap in performance (figure 5). But increasing the salience of caste led to a significant decline in the average performance of the low caste, regardless of whether the payment scheme was piece rate (that is, participants were paid 1 rupee per maze solved) or tournament (that is, the participant who solved the most mazes was paid 6 rupees per maze solved; the other participants received nothing). When caste was announced, the low-caste children solved 25 percent fewer mazes on average in the piece-rate treatments, compared with the performance of subjects when caste was not announced. When caste was announced and groups were composed of six children drawn from only the low caste (a pattern of segregation that for the low caste implicitly evokes their traditional outcast status), the decline in low-caste performance was even greater. While we cannot be sure from these data what the
- There may be forgone income, i.e., an opportunity cost to the worker from forgone economic activity such as similar work in the casual labor market.

Dutta et al. (2012) report all-India survey results indicating substantial unmet demand for work on MGNREGS. This is based on the National Sample Survey (NSS) for 2009/10. With the survey instrument used in this paper (designed specifically for this purpose), Dutta et al. (2013) also find evidence of considerable un-met demand for work on BREGS. Of those demanding work on the scheme, only one-third got that work.

A second way in which the scheme can potentially reduce poverty is by creating assets of value to poor people (either directly or indirectly, such as through private employment effects). This aspect of MGNREGS has had less attention than the direct employment gains to participants. A widely heard characterization says that the assets are mostly worthless, but this is clearly an exaggeration. Verma (2011) reports field work assessing the returns to 140 waterbased projects under MGNREGS. The results suggest that some MGNREGS projects do bring lasting positive benefits beyond the direct employment. However, the sample was purposively selected in favor of the “best-performing” projects and so cannot be used to generalize about the portfolio of projects. There have been many anecdotal observations about the lack of local capabilities for devising and maintaining projects and a lack of interest among local engineers.<sup>9</sup> There have also been anecdotal observations that any durable asset creation on the scheme has often favored local landowners and politicians, rather than poor households directly, who are typically landless.

MGNREGS is not, of course, the only anti-poverty program in India. The country also has a system of subsidized food rations based on an assignment of “Below Poverty Line” (BPL) cards done by state governments and delivered through local outlets with wide coverage. The BPL ration card is intended to define the poverty status of households for determining entitlements to food subsidies and other government programs. There have been many claims that BPL cards are not as well targeted to the poor as they could be.<sup>10</sup> Here we take the existing assignment of cards in our survey data as given and use it to construct an alternative counterfactual for assessing the

> 9  See, for example, the comments in Verma (2011), Mann and Pande (2012) and Zimmerman (2012).

> 10 For example, Besley et al. (2012) find that being a local politician makes it more likely that someone will have a BPL card after controlling for wealth indicators, including landlessness. At the time of writing the BPL card system is under review by the Government of India. Food rations will no longer be restricted to only those with the BPL card; setting criteria for targeting (albeit at higher coverage levels) has been left to the decision of individual State governments.

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- 63 -

# Table 1

# Bolivia Annual Indicators

||Budget<br>Deficit<br>(asxGNP)|Seigniorage<br> <br>(as % GDP)|Inflation<br>Rates<br>(Averages)|GDP<br>Growth|Unemployment<br>Rate|Terms<br>of<br>Trade|
|---|---|---|---|---|---|---|
|1980|<br>9.0|3.2|47.2|1.2|5.8|100.0|
|1981|<br>7.8|1.6|28.6|-0.4|9.7|99.7|
|1982|<br>14.7|12.2|133.3|-5.6|10.9|98.1|
|1983|<br>19.1|10.0|269.0|-7.2|13.0|99.3|
|1984|<br>27.4|15.9|1,281.4|-2.4|15.5|104.1|
|1985|<br>9.1|8.8|11,749.6|-4.0|18.0|104.3|
|1986*|<br>2.9|n.a.|276.3|-2.9|20.0|81.9|

Source: IFS for Inflation and Seigniorage, Morales (1987b) for other variables.

* Preliminary Figures
||`(0.58)`|`(0.16)`|
|---|---|---|
|`Stayed Non-farm`|`0.262`|`-0.203`|
||`(1.29)`|`(1.19)`|
|`Moved to non-farm`|`0.510`|`-0.331`|
||`(1.87)`|`(1.36)`|
|`Moved to farm`|`-0.620`|`-0.054`|
||`(2.20)*`|`(0.24)`|
|`Constant`|`-1.908`|`1.176`|
||`(1.21)`|`(1.07)`|
|`Observations`|`1185`|`3687`|

The economic characteristics of the individual also play a role. Wage earners have a higher probability of entering poverty, probably as a consequence of formerly non-poor employees falling into poverty as a result of the crisis. By contrast the initial level of working hours in 1993 has no significant influence on exit or entry.

Geography as always is important, with people living outside of Jakarta often more likely to enter poverty or less likely to exit it (although the latter effect is always statistically insignificant). Individuals from certain provinces (all of Java except central Java, South and West Sumatra, West Nusa Tenggara and South Kalimantan) appear to have been particularly vulnerable to poverty relative to those in Jakarta. The same was true of workers in urban households who, _ceteris paribus_ , were less likely to exit poverty than their rural counterparts and more likely to enter.

Moreover, moving either province or kabubaten appears to be positively associated with exiting poverty. Such movements are not associated with entering poverty, suggesting that geographical movements are associated with things getting better rather than with distress movement as a result of a shock.

Finally, looking at the sectoral characteristics, it is interesting to note that moving to or staying in non-farm employment, which was strongly and significantly associated with poverty exit in Table 10, is no longer statistically significant. Clearly, moving to and staying in the non-farm sector is correlated with other characteristics which themselves support exit from poverty. By contrast, moving back into agriculture clearly and significantly reduces the chances of exiting poverty relative to those who stay in agriculture.

43
the top FDI recipients in the world during the period under study, receiving US$165 billion of direct investment fl ows between 1998 and 2001 (World Investment Report 2002, Annex Table B3). Rising inequality between Chinese provinces has been of growing concern to the Chinese government which has introduced a number of policies aimed at mitigating this development.<sup>2</sup> With over 90 percent of foreign investment being directed to the coastal regions, the in fl ux of FDI has widened regional disparities between coastal and central regions within China. By providing an assessment of the importance of market access and supplier access relative to production costs, this study provides some guidance on the kinds of policy instruments that would be most successful in attracting FDI to disadvantaged regions.

In addition to an intrinsic interest in determinants of FDI fl ows into China, our study sheds some light on the economic impact of inter-provincial barriers to trade. There exists evidence suggesting that in an effort to protect industries from competition, local governments in China are erecting barriers to entry of goods from other provinces. The presence of such barriers was reported by Kumar (1994) and Young (2000) and is consistent with anecdotal evidence. For instance, managers of Chinese fi rms con fi rmed that they have indeed experienced some difficulties in accessing markets in other provinces. A manager of a medical manufacturing plant reported that the shipments to other provinces are occasionally stopped by local rail officials for 2 to 4 weeks for no apparent reason. The administrative units of industry and commerce department were reportedly obstructing access to markets through

> 2Strong economic growth experienced by China during this time did not bene fi t all provinces equally. For instance, while in 1999 the GDP of coastal provinces increased by 7.2%, central and western provinces experienced a growth rate of only 3.8 and 4.7%, respectively. In the same year, coastal provinces accounted for 60% of Chinese GDP and almost three-quarters of national output of manufactured goods. See Amiti and Wen (2001) for a discussion on regional inequality in earlier years and the spatial distribution of manufacturing industries in 1995.

4
participants draw the self compared to how large they draw the others. Earlier research found that Americans draw themselves about 6 mm bigger than they draw others, Europeans draw themselves 3.5 mm bigger, and Japanese draw themselves slightly smaller than others (Kitayama et al. 2009). The finding in the China study was that people from the rice culture drew the circle of themselves slightly smaller (-0.20 mm) than the circles of their close associates (that is, they deflated the self relative to others), while people from wheat provinces self-inflated by 1.5mm (Talhelm et al. 2014). See figure 6, right panel.

Other studies have confirmed these differences in cognition. East Asians, in general, are more holistic and interdependent in their thinking than Westerners (a literature review is Nisbett and Masuda 2003). Experimental subjects were asked to explain outcomes in sports and the movement of animate and inanimate objects. The East Asians were more likely to explain the events with reference to interactions between the object and the field— external, contextual, and historical factors. The Americans, in contrast, were more likely to explain the same events by reference to presumed traits, abilities, and other characteristics of the individual.

Not surprisingly, there are behavioral consequences to these differences in cognition. The study comparing the rice and wheat cultures of China, as well asa cross-country study (Lester 1995), find that individualistic cultures have higher divorce rates (controlling for GDP per capita). In China, the wheat provinces had a 50% higher divorce rate than the rice provinces in 1996. Despite the near doubling of the divorce rate in China in the past 15 years, the raw divorce rate gap between the wheat and rice provinces remained the same in 2000 and 2010.

# 5.9  Brain activity

So far, we have identified fundamental differences in cognition—in holism versus analytical thinking and in individualism—across cultures. Such differences are also reflected in observed brain activity: there are neurological differences between East Asians and Westerners. For instance, a universal human feature is to engage a particular part of the brain (the medial prefrontal cortex, or mPFC) while thinking about the self (see references in Kitayama and Park, 2010, p. 115). But the Chinese, in contrast to Westerners, also engage the mPFC when they think about others in their social network. Among Chinese, the mPFC is strongly engaged when one’s mother is thought about.

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