rafmacalaba/datause-encoder-data huggingface dataset:
education, health, infrastructure etc. These transfers could be based on relevant service population (see education example in Box 1). They must also recognize a larger role of the central government in financing rural services in view of the inadequate potential for raising adequate own source revenues by rural areas.

**_Box 1. An example of a performance oriented grant: education grant to set minimum standards, while encouraging competition and innovation_** Allocation basis among local governments: school age population. Distribution to providers: equal per pupil to both government and private schools. Conditions: universal access to primary and secondary education regardless of parents’ income; improvements in achievement scores; no condition on the use of grant funds. Penalties for non-compliance with standards: public censure, reduction of grant funds. Incentives for cost efficiency: retention of savings. Source: Shah (2002)

_Provincial-local transfers must recognize the urban/rural, size class of local governments_ . General purpose transfers to local governments require special consideration as local governments vary in population, size, area served and the type of services offered e.g. urban versus rural. In view of this, it would be advisable to classify local governments by population size, municipality type, and urban/rural distinction and have a separate formula for each class and type of municipalities. It is also important to give special consideration to financing of rural services.

_Introduce capital transfers and responsible access to borrowing to deal with infrastructure deficiencies._ To deal with infrastructure deficiencies, a varying blend of capital grant finance and responsible access to borrowing may be needed in different provinces. The central government may consider providing local governments with assistance on project design and evaluation and credit market access.

33
TABLE 13 : REAL EXCHANGE RATE DETERMINATION SIIPL 1964 1997 24 Obseruations Instrunent list: C TSGDP(-1) TSGDP(-2) PD PD(-1) LPXI1 LPX1(-1) TEGDP ThCDP( 1) Conuergence achlieued after 4 iterations

|C<br>5.1585599<br>TSGDP<br>0.0713868<br>LPXt<br>-0.4925328<br>TEGDP<br>-0.8212179<br>_A1RM()_<br>0.3487151|<br>8.2979595<br> <br>080290358<br> <br>081745254<br> <br>.08872522<br> <br>0.2224754|<br>17,312952<br> <br>2.4585765<br>-2.8221277<br>-2.9257233<br> <br>1.5674318|0,008<br>8.024<br>8.011<br>8.089<br>0.134|
|---|---|---|---|
|lI-squared<br>8,612|130 ilean<br>of|dependent<br>var|4.392887|
|Adjusted<br>H-squared<br>0.530<br>|836 S.D. of<br>|dependent<br>uar<br>|0.214294|
|S.E. of regression<br>8.146|702Sunof|squared resid|8.409352|
|Dttrbin-Watson<br>stat<br>1.637<br>Log lIkelIhwod<br>14.80|667 F-stat<br>827|istic|7.5H5894|

FIGURE 14 RELATION BETWEEN THE REAL EXCHANGE RATE AND THE TRADE BALANCE (NorMalized Uariables) 64 6 ~6 7b 72 74 **76 78** 88 **8'2 84 86 88** _RERN ....... T SGDP 63
to policy-making and implementation, but often involve the channeling of funds and, not infrequently, the need to allocate fiscal resources at many government levels.

# **5. Recent Reforms and Their Impact**

The rural sector has been the arena for some of the boldest fiscal reforms during this decade. Starting with the Rural Fee Reform in 2001, a number of measures have been introduced – the abolition of agricultural taxes, adjustments to the Tax Sharing System, the _yixian weizhu_ reform to move the payment of rural teachers’ salaries to the county level, the reform to put counties directly under provincial administration, the “three rewards and one subsidy” program, etc. All of these have aimed at strengthening rural public finance. They reflect a clear recognition by government that rural governments are operating under severe financial constraints, and that problems of rural public finance constitute a bottleneck to building a harmonious, well-off society.

Eliminating rural fees and abolishing agricultural taxes were by far the most important reforms affecting rural public finance in recent years **.** Because they were implemented close together and their effects are similar and cumulative, these two reforms are often lumped together and considered as part of a comprehensive reform of rural taxes and fees called the “rural tax and fee reform” (农村税费改革). However, we will discuss the two reforms separately since they were driven by different motives, and have different impacts on rural public finance. Nevertheless, throughout this report we will also adopt the shorthand of “rural tax and fee reform” to refer to these two reform programs, hereafter RTFR.

# **5.1.  The Rural Fee Reform**

In a speech in April 2000, then-Vice Premier Wen Jiabao called the RFR one the most important reforms in the rural sector over the past 50 years, whose impact is comparable to that of the Land Reform in the early 1950s and the return to household farming in the early 1980s.<sup>42</sup> The RFR was first piloted in Anhui province starting from the late 1990s. It was adopted for

> 42 “Vice Premier Wen Jiabao speech at the conference on disseminating Anhui’s experience and mobilization for RFR pilots, April 13, 2000.”  Reprinted in State Council RFR Work Group (2001).

44
WPS3843

# Regional Subsidies and Industrial Prospects of Lagging Regions

by Alexandre Carvalho DIRUR, Instituto de Pesquisa Econômica Aplicada (IPEA) <u>alexandre.ywata@ipea.gov.br</u> Somik V. Lall Development Research Group, The World Bank <u>slall1@worldbank.org</u> Christopher Timmins Department of Economics, Duke University <u>timmins@econ.duke.edu</u>

### **ABSTRACT**

Large and sustained differences in economic performance across regions of developing countries have long provided motivation for fiscal incentives designed to encourage firm entry in lagging areas. Empirical evidence in support of these policies, however, has been weak at best. This paper undertakes a direct evaluation of the most prominent fiscal incentive policy in Brazil, the Fundos Constitucionais de Financiamento (Constitutional Funds). In doing so, we exploit valuable features of the Brazilian Ministry of Labor's RAIS data set to address two important elements of firm location decisions that have the potential to bias an assessment of the Funds: (i) firm “family structure” (in particular, proximity to headquarters for vertically integrated firms), and (ii) unobserved spatial heterogeneity (with the potential to confound the effects of the Funds). We find that the pull of firm headquarters is very strong relative to the Constitutional Funds for vertically integrated firms, but that, with non-parametric controls for time invariant spatial heterogeneity, the Funds provide statistically and economically significant incentives for firms in many of the targeted industries.

JEL Classification: L22, R12, R58 World Bank Policy Research Working Paper 3843, February 2006 _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._

## <u>Acknowledgements</u>

This research has been funded a World Bank Research Grant “Assessing the Impacts of Alternate Policies for the Development of Lagging Regions.” We have benefited from discussions with Mansueto Alemeida, Carlos Azzoni, Pedro Cavalcanti Ferreira, Ken Chomitz, Uwe Deichmann, Marianne Fay, Mila Freire, Marcelo Piancastelli and Zmarak Shalizi.

1
the _between effect_ as the sum of changes in market share weighted by ending period productivity (i.e. period t). The final two terms on the RHS of (2) represent the contributions of firm entry and exit respectively. These will be positive when there is entry (exit) of above (below) average productivity firms.

As observed by Foster et al. (2001), the key advantage of this method in comparison to the BHC decomposition technique is its simpler interpretation: only new entrants with above average productivity will produce a positive contribution to aggregate productivity growth. The FHK productivity decomposition results from 19872001 for the manufacturing sector as a whole are shown in Figures 5a (labor productivity) and 5b (TFP).

Once again the TFP and labour productivity decomposition results show very similar patterns. One of the most obvious differences from the earlier BHC decomposition results is the reduced positive productivity growth contribution of net entry, due to the adjustment for relative productivity levels of entering and exiting firms.<sup>26</sup> Indeed, even the prior positive contribution in the earlier years is reduced.

The other striking result is the positive and large effect from the covariance term, suggesting that Moroccan firms with rising productivity also experience gains in market share in their respective sectors. The _between effect_ is more negative, but still rising.<sup>27</sup> The positive sizeable effect for the covariance term is consistent with the findings of Haltiwanger (1997) and Foster et al. (2001) but in contrast to Foster et al. (2002), who finds a negative effect, and Disney et al. (2001) and Bartelsman et al. (2004) who find the

> 26 In particular, the FHK decomposition has removed some of the productivity bias stemming from the large number of new entrants with below average productivity.

> 27 The _within effect_ is formulated exactly as under the BHC decomposition and thus is unchanged from this earlier analysis.

18
<!-- Start of picture text --> Figure 28, Restrictions in Services, Development, and Services Value Added in GDP, 2013<br>C. STRI and Development<br><!-- End of picture text --> <!-- Start of picture text --> IND<br>IDN<br>CHN<br>ZAF<br>TUR RUS<br>BRA<br>6 7 8 9 10 11<br>GDP per cap PPP (log)<br>B. STRI and Services Value Added<br>80<br>IND<br>60<br>IDN<br>40 CHN<br>ZAF<br>RUS TUR<br>BRA<br>20<br>0<br>40 60 80<br>Services value-added in GDP<br>80<br>60<br>STRI 40<br>20<br>0<br>STRI<br><!-- End of picture text --> Source: Borchert et al, 2012a, 2012b, and WDI Notes: GDP = Gross Domestic Product, STRI = Services Trade Restrictiveness Index; RUS = Russia, BRA = Brazil, CHN = China, IDN = Indonesia, IND = India, TUR = Turkey, ZAF = South Africa.

52
13 economy for FSU countries and a circa 1989 baseline for each CEE country in the sample. On the basis of the Berkeley-Duke research project on the USSR Second Economy conducted during the late 1980s, as well as the work of J. Braithwaite, estimates ranging roughly between 10 and 15 percent of total economic activity were arrived at.<sup>23</sup> Thus, for purposes of our calculations below, we use the 1989 midpoint estimate share of unofficial activities of 12 percent.

The next step is to calculate the figures for the overall GDP proxy, based on overall electricity consumption. We also compute the indices for the official GDP. First, we perform the computations for the unitary elasticity scenario.

Table 3: Ukraine

# Electricity Consumption (as proxy of Overall GDP) and Official GDP--1989-94

||1982|1990|1921|1922|1993|1994|
|---|---|---|---|---|---|---|
|Growth rate in<br>Electricity Consumption||0.0%|-2.2%|-6.2%|-7.8%|-11.7%|
|Estimated growth rate<br>in overall GDP (unitary<br>elasticity assumption)||0.0%|-2.2%|-6.2%|-7.8%|-11.7%|
|Overall GDP Index<br>(1989=100)|100.0|100.0|97.8|91.7|84.6|74.7|
|Official GDP Index<br>(Index 1989=88)|88.0|84.5|73.2|60.4|51.4|38.8|

The figures in Table 3 are our proxy variables for the calculations on the overall and official GDP, respectively. They incorporate the baseline 1989 estimate for the unofficial economy of 12 percent (hence, the official GDP index starts at 88.0 in 1989).

Next, we calculate the evolution of the unofficial economy during the period shown in Table 4, which is presented in index numbers, starting at 12.0 in 1989 (since the base index is 100.0 for the overall economy).<sup>2 4</sup>
# **6 Earnings Results**

## **6.1 Measurement**

We examine the impact of treatment on earnings histories as represented by earnings in the first job, in the last job and in the current job, as well as average monthly earnings over the lifetime. The current job is equal to the last job if the person is currently employed. We include the last job in order to reduce concerns over censoring as all but two of the study participants have had some labor market experience. Average monthly lifetime earnings are calculated as the ratio of total lifetime earnings divided by the number of months worked. All variables are expressed in terms of monthly earnings and are deflated to 2005 dollars using the CPI and then transformed into logs. Migrants’ earnings are first deflated to 2005 using the local CPI, then converted to Jamaican dollars using PPP adjusted exchange rates.<sup>23</sup> One issue is that there is a significant portion of the sample that is both working and in school full time. Working, full-time students are likely to have lower earnings than nonstudents with the same education, and there are significantly more full time students working in the treatment group than in the control group. Hence, we likely underestimate the longrun earnings of those who are still in school. As a result, observed average earnings likely understate the long run earnings of the treatment more than the control group. This would imply that we are underestimating the long-run effects of treatment on earnings.

In order to assess the extent to which including working full time students in the sample underestimates the effect of treatment on long run earnings, we additionally analyze the impact of the program on samples restricted to workers in full time jobs and further restricted to workers in non-temporary permanent jobs. Restricting the sample to full time workers partially controls for this source of selection as many of the participants had part-time jobs while primarily attending school. We define full time as working at least 20 days per month.

> 23The PPP deflators are from the University of Pennsylvania, Center for International Comparison of Production, Income and Prices. As robustness checks, we also estimated the models by converting monetary amounts using the 2005 currency exchange rates and using the World Bank PPP exchange rates. Results in both cases are close to the estimates reported in the paper and are available upon request.

16
On the role of political institutions, Argentina has some characteristics that stand out with respect to other Latin American countries (IDB, 2006). For example, on an index of political party centralization, Argentina scores the lowest of any country in the region: suggesting that Presidential influence over his/her party is exercised through negotiation with regional factions or political factions within the party, or individual legislators.<sup>63</sup> Argentina ranks very low on the degree of political party nationalization, suggesting that regional territorial interests remain strong.<sup>64</sup> Argentina has an unusually low reelection rate for representatives in Congress, which also reinforces the strength of local party leaders who control party candidate lists.<sup>65</sup> Argentina also ranked at the lowest level in the region for the degree of judicial independence, implying the potential for political influence on judicial rulings.<sup>66</sup> _“Micro-political foundations”_<sup>_67_</sup> _of the credibility problem in Argentina_ The “macro-dominance” described above is closely linked to what one might call the “micro-political foundations”—a more detailed approach to the institutional features described above. Spiller and Tomassi (2007) take a transactions approach to understanding policy making and apply it to the Argentine case. The fact that policies need to be both decided and enforced over time requires the ability to reach “intertemporal political agreements.”<sup>68</sup> The policy reversal problem--described in historical detail above—can be viewed in this framework. “Macrodominance” can also be viewed as a problem of short-sighted political actors responding to external macro events and taking distortionary micro-economic actions in response to those events. Without getting into all the details of their book, Spiller and Tommasi conclude that there are nine key features of the Argentine policy-making process:<sup>69</sup> “1. Congress is not an important policy-making arena.

2. The executive has substantial leeway to take unilateral policy action.

3. Provincial political powers (especially provincial governors) are very important in national policy making.

4. There is a symbiotic interaction between national and provincial policy making that operates through political and fiscal channels.

5. Given the incentives of the executive of the day, of legislators, and of provincial governors, there is little investment in policy-making capacities in several spheres.

6. Fiscal federalism considerations are a factor in almost every policy issue, adding transaction difficulties and rigidities to policy making.

> 63 IDB (2006), Figure 3.3., page 40. 64 IDB (2006), Figure 3.4, page 41. 65 IDB (2006), Figure 3.5, page 51. 66 IDB (2006), Table 4.3

> 67

> Term coined by Spiller and Tommasi (2007).

> 68 Ibid, page 3. 69 Ibid, page 7.

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**PEN 1992 Sector Review**

dimensions of quality. Again, lessons of experience and innovative features of the FY92 portfolio are reviewed and offer some guidance in this regard.

# _Conclusion_

25. Health lending is now a decade old; and many innovations in PHN lending have emerged only recently -- over the past four or five years. Notable among these are multisectoral operations aimed at poverty alleviation objectives, and sector funds, which accommodate a decentralized, demand-driven approach to the provision of social services and social safety net assistance. Furthermore, fully one half of PHN projects approved since 1980 (or over the past 13 years) were approved only during the last _three_ years (FY92 included). Thus PHN experience in the Bank is very short and project designs are still somewhat experimental. PHN staff are, therefore, challenged to exploit lessons of experience and to develop innovative approaches to still new and emerging sector issues. This review has shown that there are indeed good practices and new and promising ideas scattered across PHNwork, which are well worth noting and emulating.

26. Overall, the thrust of PHN work is moving in the right direction and the quality of work is generally seen to be improving. Noteworthy and welcome trends include serious attention to the poorest and most vulnerable populations, growing consideration of the demand of target groups/beneficiaries and increased attention to monitoring and evaluation of sector performance. These trends should be encouraged and reinforced.

Prior to January **1,** 1993, **the** PHN Department was known as the Population, Health and Nutrition Division of the Population and Human Resources Department (PHRHN).
would group, for example, Istanbul with Kocaeli and Mersin with Adana and result in 109 agglomerations. While a 50 km cut-off would include Bursa in the first group and Hatay in the second group and result in 44 agglomerations (larger than 10 grid cells). We report our results for the larger agglomerations (Figure 5).<sup>22</sup> As with the construction of urban agglomerations, there is no standard approach to delineating peripheral areas. For this paper, we define peripheral areas as being in the same district as an agglomeration but not classified as being a high-density urban area by the GHSL in 2000 (see Figure 6). Once again, there are other choices that may be made. Our choice is based on the reasoning that buffers around urban agglomerations that are not contiguous are challenging to both conceive of in theory and construct in practice. In contrast, classifying grid cells that are not high-density, but in the same district as an agglomeration as peripheral, is both simpler to conceive of and to construct. In the next section, we examine changes in nighttime light emissions across periods using this typology.

# **3.3 Booms and Busts within and across Urban Agglomerations**

In what we follow we restrict our analysis to comparing estimates of Night-Time Light Luminosity (NTL) using one sensor (DMSP) or both (DMSP and VIIRS) but being careful to not compare changes using two different sensors. Table 5 shows average changes in growth rates of NTL by period employing the core-periphery delineation discussed above. We do not include the periods after 2012 (when the DMSP is not available) but include the 2000-2002 recession and the 2008-2009 recession. We find a clear pattern. NTL falls during the two recessions, rises slowly during the 2004-2006 expansion, and rises rapidly during the two rebounds. This confirms (part of) our classification of time periods.

Table 5 also shows that the 2010-2011 rebound was much more pronounced (in terms of increases in NTL) than the 2002-2004 rebound. On average in the urban cores, NTL increased by 5.6 percent during the 2002-2004 rebound and by 11.6 percent during the 2010-2011 rebound. In the peripheries, NTL increased by 10.9 percent during the 2002-2004 rebound and 16.3 percent during the 2010-2011 rebound. Further, relative changes in NTL growth differed across cores and peripheries and across development levels. During the 2002-2004 rebound, across all development levels the peripheral areas grew faster than the urban cores. In contrast, during the 2010-2011 rebound the urban cores in the least developed provinces grew almost as fast as the peripheries. While in the developed provinces, the cores grew less fast. Our main takeaway from Table 5 is that the 2010-2011 rebound was associated with exceptionally large increases in

> 22 Some economic mechanisms may be more relevant for shorter distances (e.g., education spillovers, labor markets for less skilled works), while others for longer distances (within-city trade, labor markets for higher skilled workers). We leave further analysis of this idea to future research.

14