rafmacalaba/datause-encoder-data huggingface dataset:
the spring of 2000, its investment returns have been much higher than those reported by the other three funds examined in this paper.

# **5.3 Institutional Structure and Fund Governance**

The Board of Guardians consists of six professionals who are appointed by the government after a proposal by an independent nominating committee. The first Board was appointed in August 2002. The act specifies that only persons who, in the opinion of the minister, have substantial experience, training and expertise in the management of financial investments, can be appointed to the board.

The Board of Guardians is responsible for investing the fund on a commercial and prudent basis in order to maximize investment returns without incurring undue risks. The Board is charged with investing the fund in a manner consistent with best practice portfolio management.

The Board is required to be transparent in its activities. A formal independent review of the performance of the Board will be carried out at least every five years and be reported to Parliament, while the New Zealand Treasury will monitor its activities on a regular basis. While accountable to government, the Board and the fund operate at arm's length from it. The Act gives the Minister of Finance limited powers of direction on the government's expectations of fund performance, but no such directions have been issued so far.

The Board established 5 board committees. The Audit and Governance Committee is responsible for overseeing the financial reporting of the fund and the establishment of internal risk control policies. There are also board committees on Manager Selection, Responsible Investing, Communications, and Employee Policy and Remuneration. Two of these committees (on Manager Selection and Communications) were eliminated in fiscal 2004.

An independent review of the performance of the fund was carried out in fiscal 2005. This confirmed that the investment policies and operating model of the fund were appropriate. It also concurred with the Board's view to increase the allocation to alternative assets.

The Board is taking steps to enhance the database of fund transactions to ensure future capability for portfolio analysis. It is also formalizing its internal control policies and building a comprehensive risk management plan.

In early 2006, the fund joined the UN initiative on corporate governance and adopted the Principles of Responsible Investing.

56
# **4.1.2 Fiscal Policy and Unemployment: How Latvia Dealt with the Business Cycle**

As a tool to stabilize aggregate demand shocks, fiscal policy has an important role in a country with an exchange rate peg regime like Latvia. This role will become even more important after EU accession, as monetary policy within the euro area is designed to address developments in the entire union. While rigid fiscal rules may cause fiscal policy to be procyclical, Latvian authorities could design rules that allow for some cyclical stabilization and reduce demand shocks that create frictional unemployment.

**Figure 7: Fiscal Balance and GDP Growth (as percent of GDP)**

<!-- Start of picture text --> 10<br>8<br>6<br>4<br>2<br>0<br>-2<br>-4<br>-6<br>-8<br>-10<br>1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003*<br>Fiscal Balance Real GDP<br><!-- End of picture text --> A quantitative analysis of the use of fiscal policy to manage the business cycle would normally rely on comparing indicators of the cyclical situation (typically the so-called output gap) and indicators of the fiscal policy stance (usually the change in the overall fiscal balance and the change in the structural primary balance, which is often used as a proxy for the discretionary elements of fiscal policy (the “fiscal impulse”).<sup>16</sup> Thus, a positive impulse reflects an improvement in the structural balance that is a discretionary fiscal contraction. If fiscal policy is procyclical, periods of negative output gap should be accompanied by fiscal contraction. Likewise, if fiscal policy is a countercyclical, a negative output gap should be accompanied by a deteriorating fiscal balance reflecting either discretionary measures by the government or the operation of automatic stabilizers.

A rigorous estimation of Latvia’s structural budget balance would involve three steps: estimating the output gap derived from the country’s potential output; measuring the cyclical component of public revenues and expenditures; and deducting cyclical revenues and expenditures from their actual levels.<sup>17</sup> While it is difficult in the current circumstances to systematically carry out such an analysis (because of the rapid transformation of the economy

> 16 Different methodologies can lead to different estimates of the fiscal impulse. For an analysis of these issues in the context of a sample of EU countries, see IMF (2001).

> 17 See Hagemann (1999) for a detailed discussion of these three basic steps.

19
Our impact estimates controlling for selective placement of the aid project suggest the existence of a sectoral flypaper effect in that part of the project funds were diverted from rehabilitation to the building of new roads but stayed within the roads sector. Project communes ignored the donor stipulation that they not build new roads. Instead, they imposed their own priorities and diverted some of the funding to priority road building. We also find that, in general, the quality of rehabilitated roads improved in the project communes. This entailed a switch from the donors preferred technology, namely earth road rehabilitation.

The paper first briefly reviews the literature on aid fungibility and the flypaper effect. This is followed by a description of the project being evaluated and the setting. Section 4 describes the survey instrument and some very preliminary results, while section 5 lays out the methods used. Section 6 discusses the main results and other evidence. Section 7 concludes.

# **2. Development aid fungibility and the flypaper effect**

A number of studies have investigated the degree to which donors’ earmarked development or project aid substitutes for, rather than supplements, local spending intended for that purpose. Fungibility ─ whereby categorical aid substitutes for government funding by being diverted to spending on other sectors or being used to reduce taxes ─ tends to be difficult to detect and to identify empirically.

Empirical investigations of aid fungibility have attempted to identify government responses from the variance in spending across countries or from within country changes in spending over time. For example, many past studies have used pooled cross-country time series data to examine the impact of tied aid on government spending across sectors (for example, Feyzioglu et al., 1998; World Bank, 1998). Another set of studies have used country specific time series of macro aggregates to explore the effect of categorical aid on the public sector’s expenditure mix (Pack and Pack, 1990 and 1993). Government responses to targeted aid are found to vary quite a lot. But with notable exceptions, a significant amount of fungibility tends to be found in this strand of the literature.

A related public finance literature investigates the flypaper effect. This refers to the observed phenomenon that the expenditure stimulated by central to local government 3
may play an important role in explaining performance. They found, however, that income typology—classification of countries above and below the median GDP per capita—to be suitable to predict human development indicators and economic performance when tested against others. In any case, the next section analyzes the recent growth record more rigorously over a longer period of time.

# **III. Growth Diagnostics - What Is Different Since 1995?**

How different is the recent experience in the context of Africa’s history of frequent growth accelerations and collapses? This section examines the issue on the basis of findings from a series of growth diagnostics and statistical tests conducted by Arbache and Page using long time-series and most recent purchasing power parity data for 45 African countries. One of those studies (Arbache and Page 2007c) examine the characteristics and patterns of long-term growth in Sub-Saharan Africa for cross-country income structure, convergence, country level, growth persistence, and evidence for the formation of country groups or clubs. The growth diagnostics of this section are derived from the two other studies on growth cycles and their robustness (Arbache and Page 2007a, 2007b), as well as various briefs by the Office of the Chief Economist of the World Bank’s Africa recion (AFRCE various years).

## **_A. Africa’s growth 1975-2005_**

The analysis uses GDP per capita (or per capita income hereafter) with regard to purchasing power parity (PPP) at 2000 international prices and its growth rate. Data on per capita income (PPP at 2000 international prices) and its growth rate are taken from the World Bank’s (various years) _World Development Indicators_ ( _WDI_ ), unless otherwise specified. The sample includes all Sub-Saharan countries except Liberia and Somalia, for which there are no data. Because the emphasis is on the representative country, unweighted country data in the aggregate analysis are used unless otherwise stated. The time-series spans 1975–2005.<sup>21</sup> Thus, there is an unbalanced panel of data with _T_ = 31 and _N_ = 45. This period follows the first oil shock and includes the commodity prices plunge, when many African economies collapsed and several conflicts erupted; the introduction of structural reforms, which brought significant changes in many economies; and the recently observed growth recovery.

Figure 4 shows that mean per capita income in Africa had a slow, positive longterm trend, consisting of about 20 years of virtual stagnation with a point of inflexion upward in the mid-1990s. Since then, actual income has remained above the trend most of the time and the variance appears to have declined.<sup>22</sup> The same is true if growth rates of per capita income are used. Figure 5 shows Africa’s growth path over the same period. Trend growth declined until the late 1980s and increased thereafter, although there is

> 21 The _WDI_ ’s GDP per capita PPP series starts in 1975.

> 22 The Hodrick-Prescott filter is used in figures 1.4 and 1.5 to smooth the estimate of the long-term trend component of the GDP series.

9
-21-

# Announcement Data

32. The money stock data consist of announced weekly percentage changes in narrowly defined money stock (MS) **as** reported in the Federal Reserve H.6 Statistical Release. 1/ Since March 22, 1984, the money stock announcements have been made on Thursdays at 4:30 P.M. (E.S.T.). The Fed announces changes in the level of the money stock for the statement week ending on Wednesday of the previous calender week minus the revised estimate of the previously reported level of the money stock.

33. The data on inflation are the monthly percentage changes in the producer price index (PPI) and the consumer price index (CPI), **as** announced by the Sureau of Labor Statistics (BLS). These two figures on inflation are released at 8s30 a.m. once every month on various days of the week and the released figures provide inflation information during the preceeding month. The PPI announcement is always made earlier in the month than the CPI announcement and hence it may contain more news on inflation for the preceeding month. The announced figures for the CPI and PPI are from the BLS Press Release.

34. Data on industrial production (IP) and unemployment rate (UR) are used to represent information on real economic activity. Both indicators are announced monthly on various days of the week and they report figures for the previous month. The figures for the percentage change in industrial 1/ The narrowly defined money stock was used in this study because a survey of expectations data on M2 and M3 by MMS International are available starting February 1988.
1

# A Hybrid Approach to Efficiency Measurement with Empirical Illustrations from Education and Health

by Adam Wagstaff and L. Choon Wang Development Research Group, The World Bank, Washington DC, USA

**Corresponding author and contact details:** Adam Wagstaff, World Bank, 1818 H Street NW, Washington, D.C. 20433, USA. Tel. (202) 473-0566. Fax (202)-522 1153. Email: <u>awagstaff@worldbank.org.</u>

**Keywords:** Frontier, Efficiency, Cost, Education, Health.

**Acknowledgements:** Without wishing to implicate him in any way, we thank Martin Ravallion for helpful comments on an earlier version of the paper. The findings, interpretations and conclusions expressed in this paper are entirely those of the authors, and do not necessarily represent the views of the World Bank, its Executive Directors, or the governments of the countries they represent.
transit cost almost one percent of the value of the fruits and vegetables. Hummels has statistically significant estimates of the AVE of one day saved in transit for slightly more than 600 HS4 products. The AVE of one day of time saved in shipping is independent of the country.

The data for Hummels estimates come from the U.S. Merchandise Imports database 1991-2005, and a database on shipping times between ports. Hummels calculates average shipping times between ports around the world and U.S. ports. As such, the AVE estimates of one day saved in shipping are based solely on U.S. data and assumed to apply to all countries.

# **2. Estimation of the value of one day saved in transit for the GTAP database** (“the per day value of time savings” by GTAP product category)

To obtain estimates of the AVE of one day saved in transit for the GTAP product categories, Peter Minor (2013) aggregated from the HS4 categories for which Hummels has provided estimates, to the 57 product categories of the GTAP database. The 600 plus HS4 product categories for which Hummels has statistically significant estimates, however, is less than the number of HS4 categories underlying the GTAP database. The missing HS4 categories account for about 38 percent of the value of trade, based on the MacMap 2007 database.<sup>34</sup> Minor proposes three methodologies to address the lack of estimates for the missing HS4 categories and provides estimates using all three methodologies. We believe the first two methodologies are biased down and Minor shows evidence of this. We believe the third of his three methodologies is theoretically unbiased (although Minor shows it may be empirically biased up), and we chose the third -- he calls it “tau-3.” In tau-3, where there is a missing estimate at the HS4 level, Minor replaces the missing value with the average for the same GTAP product category based on values that exist from Hummels. Minor then aggregates from HS4 to the GTAP product categories using trade weights from the MacMap 2007 data set for GTAP. The trade weights in the MacMap data set vary by country; so, despite the fact that there is a unique AVE for the value of one day saved in trade at the HS4 level for each of the 600 plus product categories from Hummels, due to differing trade weights across countries, the value of one day saved in transit varies across countries at the GTAP 57 product level. Minor’s full data set of results is available at: http://mygtap.org/resources/.

> <sup>34</sup> See Minor (2013, table 1).

95
**Plc,Planning, and Research**

# **Welfare and Human Resourc**

How useful and relcvant are the rcsults of standard optimal commodity tax models when one or more commodities are rationed? Kakwani and Ray investigatcd the implications of optimal commodity taxation under ratior ng and reached these conclusions:

- In a single-person economy, optimal policy dictates that the rationed commodity bears the entire tax. The implication for developing countries using ihis model is that if the government has a fixed budget to subsidize certain commodities, optimal policy will be to subsidize only the iationed commodities, such as food.

- In a many-person economy (which reflects reality), optimal policy will tax all nonrationed

commoo.es at an infinite rate if the rule is that taxes on all commoditit. are proportional to prices.

* The widely used linear expenditure system cannot be used to find a sensible optimal commodity tax structure under rationing.

* The more a society is concemed out inequality, the greater the tax should be on nonrationed commodities.

Kakwani and Ray present an alternative (more realistic) model of rationing that overcomes some of the restrictive features of the previous rationing model.

This paper is a product of the Welfare and Human Resources Division, Population and Human Resources Department. Copies are a"lailable free from the World Bank, 1818 H Street NW, Washington DC 20433. Please contact Maria Felix, room No. S9- 114, extension 33724 (23 pages).

Thc PPR Working Paper Scrics disscminates thc findings of work under way in thc Bank's Policy, Planning, and Rcscarci Complex. An objectivc of thc series is to get thesc findings out quickly, even if prcsentations are lcss than fully polished. The findings, interpretations, and conclusions in thcsc papers do not necessarily represent official policy of the Bank.

Produccd at thc PPR Dissemination Ccnter
Policy Research Working Paper 6905

# **Abstract**

This paper presents evidence on the determinants of cross-border mergers and acquisitions in services sectors. It develops a stylized model of mergers and acquisitions that predicts that the incidence of merger and acquisition deals depends, inter alia, on the target economy’s size, industrial structure and investment policies, as well as on bilateral transactions costs. These predictions are examined with bilateral merger and acquisition flow data and detailed information on policy barriers from a new database of restrictions on services investment. The analysis finds that: (1) geographical factors affect mergers and acquisitions in services and manufacturing similarly but cultural factors affect mergers and acquisitions in services more than in manufacturing. (2) Controlling for these bilateral factors, restrictive investment policies reduce the probability of merger and acquisition inflows but this negative effect is mitigated in countries with relatively large shares of manufacturing and (to a lesser extent) services in gross domestic product. The same results hold for the number of merger and acquisition deals received. These findings suggest that the impact of policy is state-dependent and related to the composition of gross domestic product in the target economy.

This paper is a product of the Trade and International Integration Team, Development Research Group. 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 authors may be contacted at barattieri.alessandro@uqam.ca, I.Borchert@sussex.ac.uk, and amattoo@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
- (ii) _MIN_WAGE_ : minimum wage level (expressed as percentage of average wage in industry and services)<sup>13</sup> ;

- (iii) _GDP_PC_ : log GDP per capita in  PPP USD (annual average, lagged 1 year);

- (iv) _GROWTH:_ Real GDP growth, y-o-y, quarterly data lagged 1 quarter;

- (v) _UNION:_ Union density, % of employees (survey-based, using ESS data)<sup>14</sup> ;

- (vi) _IMMIGR:_ Share of population with immigrant background: first generation immigrants and second generation immigrants (survey-based, using ESS data).

- In addition, specification {1} includes

- (vii) _RULE_LAW_ : the _Rule-of-Law_ indicator (on a scale from -2.5 to 2.5) from the World Governance Indicators (Kaufmann et al., 2010; World Bank, 2010).

- (viii) _TAX_WEDGE:_ Tax wedge for low wage earners (lagged 1 year).

Specification {2}, instead of _RULE_LAW_ and _TAX_WEDGE_ , includes

- (ix) _GOV_EFFECT:_ The _Government Effectiveness_ indicator (on a scale from -2.5 to 2.5) from the World Governance Indicators (see Kaufmann et al. 2010; World Bank, 2010).

- (x) _INVEST_FREE:_ Investment Freedom – the Heritage Foundation (2010) index (on a 0 to 100 scale) which ―evaluates a variety of restrictions<sup>15</sup> typically imposed on investment‖; a higher score indicates less restrictions (more freedom);

- (xi) _TRADE_FREE:_ Trade Freedom – the Heritage Foundation (2010) index (on a 0 to 100 scale) which ―is a composite measure of the absence of tariff and nontariff barriers that affect imports and exports of goods and services”; a higher score indicates less barriers (more freedom).

Both specifications explain about 80% of variation in the prevalence of informal dependent employment and slightly more than a half of variation in unemployment and discouragement; in the case of the prevalence of informal self-employment, specification {1} explains 64% of variation, whilst specification {2} explains 79% (these R-squared are from underlying OLS regression). There are no cases of significant effects having opposite signs in

> 13 Note that this measure is likely to capture the employment-depressing effect of minimum wage better than the alternative which uses economy-wide average wage.

> 14 Alternative specifications (available on request) which use union density lagged two years back (either from the previous ESS round, or from OECD database) give similar results, but with larger estimated mean squared errors.

> 15 Labor market regulations are not included in this index, as they are covered by another Heritage index.

12
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