rafmacalaba/datause-encoder-data huggingface dataset:
The literature examining labor market frictions from the firm side is much less developed, with several recent studies beginning after this paper. Cohen (2016) develops a structural model using data from our earlier capital experiment in Sri Lanka and finds, under specific assumptions, that microenterprises do seem to be constrained in expanding labor as their capital grows. Bertrand and Crépon (2016) find that firms with between five and 300 employees in South Africa hire more workers when offered labor law advice that explains to them that firing restrictions are not as burdensome as many firms think, suggesting constraints on labor expansion for SMEs. In work most closely related to ours, Hardy and McCasland (2015) randomly place apprentices with small firms in Ghana, and find firms retain this extra labor for at least six months, and earn higher profits in doing so. Their context, in which employees typically pay for entry-level positions in order to get trained, differs from the standard labor market contractual form in most developing countries (including Sri Lanka). If their results persist over time, this may explain the difference in results.

The remainder of the paper is structured as follows: Section 2 outlines different theories of why small firms might be labor constrained, and the implications for the impact of a wage subsidy; Section 3 details the experimental design and intervention; Section 4 discusses take-up; Section 5 provides the results; Section 6 investigates different mechanisms leading to these results; and Section 7 concludes.

# **2. Theory: Why Might Small Firms Be Labor-Constrained, and How Could a Temporary Subsidy Have Lasting Impacts on Firm Employment?**

The most common firm size in many developing countries, including Sri Lanka, is one – an owner with no paid employees. What explains the small size of these firms, and how might we expect a temporary wage subsidy to change this firm size?

# **2.1 Classic complete markets model**

Consider first the standard complete markets model of firm size of Lucas (1978), where differences in employment size among firms facing the same output production technology f(.) reflect differences in their management ability and productivity, θ. A firm facing a wage rate for workers _w,_ and an interest rate on capital _r,_ will choose capital, _K_ and labor _, L_ to maximize profits f(θ,K,L) – _w_ L – _r_ K. Firms are small and are assumed to be price-takers, who can sell all output they produce at a price normalized to 1. This yields the familiar first-order conditions in which the optimal levels 4
# **Table 2: Taxonomy of Financial Openness***

# _Country Grouping by Financial Openness_

||(|Open) (|Largely Open)|(Largely Closed)<br>|(Closed)<br>|
|---|---|---|---|---|---|
|_1_|_Democracy index'_<br>|0.81|0.71|0.63<br>|0.48<br>|
|2|_Civil liberties_<sup>_2_</sup>|2.28|3.30|3.38|4.55|
|3|_GDP per capita_<sup>_3_</sup><br>|13,147|3,051|2,317|1,557|
|4|_Social expenditure (%GDP)_<sup>_4_</sup>|22.3|23.5|12.5|6.7|
|5|_Total government exp/GDP(%)5_|26.0|19.9|23.4|27.7<br>|
|6|_General government consumption_<br>_(% of GDP)_<sup>_6_</sup>|16.1|17.9<br>|15.5<br>|14.7<br>|
||_Number of countries_|46|10|34|11|

* The table displays the group averages computed<sup>for the</sup><sup>**countries**where the data were available. Definition of variables:</sup><sup>**_(1)_**</sup> Democracy index ranges from 0 (lowest) to<sup>1 (highest) and is computed on the bases of</sup><sup>_pdkl_</sup> _ria?s_ and _ci%d Iirties_ indices _(2) Ciad likrties,_ see footnote 13. _(3) GDP/cap,_ Gross<sup>Domestic Product per capita, average of 1990-97.</sup><sup>_(4) Social e_t7r9</sup> includes the sum of health, education, and social security and<sup>welfare; average 1991-97.</sup><sup>_(5) Total g_</sup> _xwnD.mt expeditkw,_ average of central government and budgetary accounts plus state or provindal<sup>govermment, 1990-97.</sup><sup>_(5) Geea gow_</sup> 7 _eit xnwnpti^_ includes all current expenditures for purchases of goods and services<sup>by all levels of government, excluding most government enterprises. It also includes</sup> capital expenditure on national defense and security,<sup>1990-197.</sup>

**Figure 4: Relationships among Democracy, Capital mobility,**<sup>**and**</sup> **Government social expenditures**

<!-- Start of picture text --> Democracy Financial<br>openness<br>r- 0.45<br>=0.47 7r 0.53<br>r= 0.70 r= 0.32<br>Gov't social r= 0.58 Transfers<br>expenditures (% GDP)<br>(% GDP)<br><!-- End of picture text --> 19
- 13 -

and unevenly distributed, causing resentment among less favored civil servants. To the extent that they moderate the effect of salary erosion, however, allowances may, in the short term, be a necessary evil. In any case, allowances are a big, permanent part of the pay system in many countries and it is misleading not to take them into account. Although some research has been carried out in the Bank exploring various facets of non-wage benefit systems, Bank operational work has generally paid only minimal attention to this issue.

The degree to which any of the above mechanisms can attract and keep higher level personnel in government depends largely on the available alternatives. In Guyana where professionals may make one-fourth the salaries of their counterparts in neighboring countries, the prospects for attracting qualified high-level personnel are dismal, especially given the weak state of the economy. In other countries, however, non-material incentives such as prestige, patriotism, or access to social and political connections may motivate well-qualified individuals to take low-paying jobs in government, assuming minimally acceptable conditions for subsistence.

# D. OPERATIONAL TECHNIQUES

This section delineates the main techniques used in Bank operations to carry out the substantive approaches discussed above. (As a reminder, this discussion includes initiatives that may or may not have been directly in a Bank program. Some activities discussed were the result of government action (some with IMF support) and thus may have precedod and perhaps laid the foundation for the Bank's operational intervention.)

# PreXeauisites to Reform: Data Collection. CoMnuterization. Civil Service Census, Functional Review

Some Bank operational activities are prerequisites to further reforms. These are usually related to the need to collect and access necessary information to get control of the personnel system. They include data collection and information management system improvements, civil service censuses, functional reviews of whole governments or selected ministries, diagnostic studies of overall employment problems, and other specific aspects of employment and pay policy.

# Civil Service Censuses

Civil service censuses are often viewed as a preliminary step to generating information crucial to making necessary changes in public employment and pay policy. Such surveys have been carried out in 6 countries where the Bank has been active in pay and employment reform. They are intended as a head count of civil servants actually working in government. They should be able, in principle, to distinguish those actual employees from fictitious or fraudulent names (ghosts) on the staffing lists of the civil service ministry or the individual technical ministries. This can be achieved by comparing the results of the census with the payroll. In 3 cases, this comparison was made and ghosts were eliminated. Such follow-up comparisons are not always performed, however, calling the usefulness of the census itself into question. Civil service censuses have generally been carried out by government functionaries, often teamed with
<!-- Start of picture text --> 1990 2000 2005<br>i + ° Msg<br>2 4 3.<br>Ee A :<br>=2,s°) MG2 \<br>=5 %e , be AS ‘<br>=25< n‘Jey¢y t , suaNe8 ow atsreS“4.".<br>2<br>6 8 10 2 STS6 8 10 2 6 & 10 12<br>Log GDP per capita<br>Agriemp share ~~~ ~~ Linearfit<br>‘Graphs by year<br><!-- End of picture text --> <!-- Start of picture text --> 1990 2000 2005<br>2<br>2<br>$2= * A, .<br>2 Tn 7“ oy - ;<br>gs3EanSez eo.> . 7 / toyatatM7s ©aieAYte<br>° < 7<br>6 8 10 1206ee8 10 12.6 é 10 12<br>Log GDP per capita<br>Industry emp share ~~ ~ ~~ Linearfit<br>Graphs by year<br><!-- End of picture text --> <!-- Start of picture text --> 1990 2000 2005<br>2<br>5<br>5=a©<br>E ; . ‘<br>&8¢B+5 oe°ar)e” paieetBAPa4 < 4 eSwreeeRt¥<br>* .<br>.<br>6 8 10 1206ee8 10 126 6 10 12<br>Log GDP per capita<br>Services emp share ~~ ~~~ Linear fit<br>Graphs by year<br><!-- End of picture text -->
Policy Research Working Paper 8683

# **Abstract**

This paper explores the methodological differences underlying the construction of the national consumption aggregates that are used to estimate international poverty rates for all countries in the South Asia region, including Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka. The analysis draws on a regional dataset of standardized consumption aggregates to assess the sensitivity of international poverty rates to the items included in national consumption aggregates. A key feature of the standardized aggregate is that it includes the reported value of housing rent for urban Indian homeowners. Using the standardized consumption aggregates reduces the international poverty rate in South Asia by 1.3 percentage points, or about 18.5 million people. Comparing standardized and non-standardized monetary welfare indicators to other nonmonetary indicators suggests that the latter are more consistent with the standardized consumption aggregates. Overall, the results strongly suggest that harmonizing the construction of welfare measures, particularly the treatment of imputed rent, can meaningfully improve the accuracy of international poverty comparisons.

This paper is a product of the Poverty and Equity Global Practice. 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://www.worldbank.org/research. The authors may be contacted at Myanezpagans@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
Inflation, which typically does the greatest harm to poor people, fell significantly during the 1990s; at the same time, macroeconomic management improved, exchange rates were more stable, and trade barriers were reduced. But there was little progress in governance, controlling corruption, and quality of institutions worldwide—as measured by the governance component of the World Bank’s CPIA index—although there is significant variation across countries. On the other hand, adjustment was, by and large, a failure in terms of growth. As shown by Easterly (1985), none of the top 20 recipients of repeated adjustment lending over 1980-99 were able to achieve reasonable growth and contain all policy distortions. About half of the adjustment loan recipients showed severe macroeconomic distortions regardless of cumulative adjustment loans. Econometric tests fail to show that adjustment lending has any positive effect on policies or growth.<sup>51</sup> This is also a conclusion reached by several internal OPCS reports.<sup>52</sup> Thus, despite good intentions, the record of adjustment lending by IDA (and by IBRD and the IMF) in the 1980s and 1990s is mixed at best. To be sure, it includes a number of success stories. But it also includes cases where adjustment programs were misguided or not followed. First, heavy reliance on conditionality was usually ineffective, with the large number of conditions doing nothing to strengthen borrower ownership of the reforms. Second, while the focus on improving poor policies was understandable, the design of adjustment programs paid inadequate attention to governance and institutional problems, which were major constraints on the investment climate. Finally, there was too little emphasis on equity issues and mitigating the social costs of adjustment. This was probably because many of the poor policies that adjustment lending targeted were both inefficient and biased against poor people. Nevertheless, the lack of specific attention to poverty issues led to progress involving damage to poor people and understandably attracted heavy criticism.

Although conditionality can support policy changes, it cannot persuade reluctant reformers. The number and frequency of conditions attached to adjustment loans and

> 51 William Easterly 2005

> 52  See Adjustment Lending Retrospective, June 15, 2001; Review of World Bank Conditionality, September 2005; Conditionality in Development Policy Lending, November 15, 2007, and  2009 Development Policy Lending Retrospective, October 27, 2009

38
**Figure 1c: Gross enrollment at primary, secondary, and tertiary levels, 1970–2000**

<!-- Start of picture text --> 1960 1970 1980 1990 2000<br>year<br>Mean gross prim. enrolment Mean gross sec. enrolment<br>Mean gross ter. enrolment<br>100<br>80<br>60<br>40<br>Gross enrolment<br>20<br>0<br><!-- End of picture text --> Moreover, figure 2 clearly indicates a converging trend in educational attainment across time, while at the same time providing no indication for convergence in incomes or in public spending on education. This suggests a secular convergence in educational attainment.

**Figure 2: Convergence in Measures of Educational Attainment, Income per Capita, and Public Expenditure on Education: Coefficient of Variation**

<!-- Start of picture text --> 1960 1970 1980 1990 2000<br>year<br>enroll_pr_gr_5_stvar enroll_se_gr_5_stvar<br>enroll_te_gr_5_stvar yrsch_stvar<br>lnexedppp_stvar lnrgdppc_stvar<br>1.5<br>1<br>.5<br>Coefficient of variation<br>0<br><!-- End of picture text --> _Note_ : For each period, coefficient of variation is calculated as a ratio of the standard deviation to the mean. In other words, figure 3 reports changes in the standard deviation, weighted by the inverse of the mean.

Concomitantly, spending on education has also grown. Figure 3a indicates that the absolute value of public spending on education grew fairly consistently between 1960 and 1999 except for a short period of decline in early 1980s; over the forty-year period our data cover, it grew by almost 500 percent.

5
perhaps surprisingly high 76 percent response rate.<sup>11</sup> Second, other factors could be correlated with both exports and EPA budgets, which will also result in spurious correlations between the two variables of interest. Third, the direction of causality might go from exports to the EPA budgets, as countries with higher exports might tend to provide more generous funding to their EPAs than other countries.

We correct selection bias by using a selection equation (Heckman, 1979) that explains why some countries were not surveyed, and why some agencies did not answer. Our experience collecting contact information for EPAs helped us identify variables that should be part of this selection equation. It was clear that in poorer and smaller countries it was more difficult to obtain contact information for the relevant Ministry or institution, and even when we did, it was difficult to get them to answer the survey. So GDP per capita and GDP are part of the selection equation. Aid per capita also seemed to be an important determinant because many of the poorest agencies were substantially funded by bilateral and multilateral donors. More formally, the selection equation that explains the latent variable _zc_<sup>_∗_,whichcapturesthe</sup> likelihood of obtaining a response to the export promotion survey in country _c_ , is given by: where _ξ_ is a vector of parameters and **x** _c_ is a matrix of independent variables determining the probability that the EPA in country _c_ answered the survey. The latter includes variables explaining exports below, except the budget of the EPA and the activities of the agency that help us identify the export equation plus the log of GDP, the log of aid per capita discussed above, and dummy variables identifying developing countries in Africa, EEA, Latin America, Sub-Saharan Africa, and the OECD.

Regarding the endogeneity of export promotion, we control for numerous determinants of exports that may be also correlated with export promotion budgets. The control variables

> 11Even with such a high response rate, it may still not be a representative sample.

13
1990<sup>4</sup> ). This definition accounts for both protection on the product side that might increase gross revenues, as well protection on the input side that might increase costs. The following algebraic presentation is meant to arrive at a final, practical equation for the calculation of ERPs from observed cost-share data and applied tariffs (and where available ad valorem equivalents of NTBs).

_a. Deriving the basic ERP formula_

> The observed value added in some industry g, VA g , is defined as gross revenues less the costs of tradable inputs; and this net is therefore the fund available for payments to non-tradable inputs (labor and capital) used in the industry. Gross revenues in industry g, R g , are simply the quantity produced of the good, yg , sold at its domestic price, which is the unprotected price, pg , (referred to as the border price) adjusted by the ad

> valorem equivalent of domestic protection, 1(  t g ) , and any net subsidies per unit of

> output, (1  sg ) ; that is, value added at exchange prices might be less to the degree subsidies are positive (a negative subsidy would be a tax). The tariff could be the “formal” as stated in the tariff schedules, and should be distinguished from the nominal tariff rate (or nominal rate of protection) usually defined as the ad valorem equivalent of tariffs and non-tariff barriers expressed in relation to the CIF price of imports.<sup>5</sup> (In addition, the two tariffs differ if the formal rate is applied to FOB prices, as some

> countries do.) In what follows the tariff adjustment factors (1 <sup>_t_</sup> _i_ ) includes the formal applied tariffs on output and inputs and the ad valorem tariff equivalents due to NTBs. Annex 3 discusses the estimation of the additional component of the ti’s due to NTBs.

The costs of tradable inputs are similarly obtained by summing over the individual costs, Cgi , of inputs i used in the industry g ( i <sup>I</sup> g ); the cost of a specific tradable input, i, is its quantity used in the industry, x gi , purchased at its unprotected price,<sup>p</sup> i<sup>, adjusted</sup> by an appropriate ad valorem protection 1(  t i ) . That is, which can be rewritten in terms of tradable input costs as shares of gross revenue, The hypothetical value added for the industry – the value added which would otherwise prevail without any protections and subsidies whatsoever on the revenue or cost sides – can be at least approximated under the assumption that the industry technology is of the

> 4 The theory of effective protection has been well established since Johnson, H.G. 1965. “The theory tariff structures with special reference to world trade and development,” in H.G. Johnson and P.B. Kenen, eds., _Trade and Development_ , Geneva, 1965. Balassa, B. 1965. “Tariff protection in industrial countries, an evaluation.” _Journal of Political Economy_ , v. 73 (December): 573-94.

> 5 Note that tobacco in Egypt has a specific duty applied per weight, rather than a tariff applied against unit value.

5
13 There is no a priori reason why we need be confined to the rather simple stylizations of "distributionally neutral growth", or Kakwani's assumption of a proportionate shift in the Lorenz curve. The use of a point elasticity is also restrictive, when the changes involved are not small. By explicitly modelling the Lorenz curve, one can estimate the effect on poverty of any discrete shifts in either the mean, or the Lorenz curve, or any combination of the two. The results of the previous section illustrated how this can be done for discrete changes in the mean (due to measurement error in that case, though changes due to distributionally neutral growth can be modelled the same way). Explicit shifts in the Lorenz curve can **also** be simulated. Ravallion and Huppi (1989) discuss the methodology and give examples for Indonesia.

However, in applying these ideas to the Bangladesh data, I shall concentrate solely on point elasticities estimated from the 1981/82 HES. It would certainly be of interest to study further the change in poverty in - Bangladesh over time for example, using the various decomposition formulae - in Ravallion and Huppi (1989) but the doubts about comparability of the HES daca for other years must lead one to seriously question any results of such an exercise. All is not lost though, as there is still someching that can be learnt about the possible effects of growth on poverty by examining the distribution for only one year.

# Prospects for **Poverty Alleviation through Growth**

Table 3 gives my estimates of the point elasticity of each poverty measure to distributionally neutral growth in Bangladesh, as well as the elasticity with respect to an increase in the Gini coefficient, assuming the proportional Lorenz curve shift described above.
# **Table 7: Mapping of Collateral Registries**

|**Country**|**Collateral Registry**|**Centralized**|**Electronic**<br>**or paper**|**Easily accessible**<br>**to public for**|
|---|---|---|---|---|
||||**based**|**searches**|
||Various (Centre National du Registre du||||
|**Algeria**|Commerce only for Natissements sur fond de<br>commerce)|N|Paper|N|
|**Bahrain**|Commercial Registry for Pledges over shares<br>and floating charges over business assets;<br>Traffic Directorate for pledges over vehicles;<br>Bahrain Civil Aviation Authority for<br>mortgages over planes; Bahrain Stock<br>Exchange for Pledges over shares in publicly<br>listed companies|Yes for<br>commercial<br>registry|Semi-<br>electronic|-|
|**Egypt**|Various|N|Paper|Some|
|**Iran**|Various|N|Paper|-|
|**Iraq**|N|N|-|-|
|**Jordan**|N|N|Paper|Some|
|**Kuwait**|The department of authentication in the<br>Ministry of Justice|Y|Electronic|-|
|**Lebanon**|Vehicles, RCCM|Y|Electronic /<br>Paper|-|
|**Libya**|-|-|-|-|
|**Morocco**|Various, RCCM (fond de commerce)|N|Paper|Some|
|**Oman**|Commercial mortgages over assets registered<br>at the Ministry of Commerce and Industry<br>(MOCI). Charges over shares registered<br>with the Muscat Depository and Securities<br>Registration Company (MDSRC).|Y|Paper /<br>Electronic|-|
|**Qatar**|Vehicles|N|-|-|
|**Saudi Arabia**|Various|N|Paper|-|
|**Syria**|N|-|-|-|
|**Tunisia**|Various, RCCM|N|Paper|-|
|**UAE**|N for movable collateral|N|-|-|
|**West Bank**<br>**& Gaza**|Vehicles|Y|Electronic|N|
|**Yemen**|N|-|-|-|

_Source: Doing Business_ 2010 21