rafmacalaba/datause-encoder-data huggingface dataset:
# WPS3627

## **_Reforming the Posts: Abandoning the Monopoly-Supported Postal Universal Service Obligation in Developing Countries_**

### Charles Kenny<sup>1</sup>

The monopoly-supported universal service obligation (USO) is usually defended on the grounds that the monopoly allows for cross-subsidy in letter services that in turn allows universal access to a service of great importance to all. This paper argues that letter delivery (as opposed to other services that may be provided by post offices) is not in universal demand in poor countries, that the size of the market in developing countries is such that USOs could not be met under the monopoly model, and that the monopoly carries heavy costs for sector development and consumer welfare. It proposes in the place of the postal USO a competitive approach involving universal access to a range of services that poor people have a need to access. Regarding reform of the incumbent, the paper takes a preliminary first cut at examining the statistical relationship between postal performance (as measured by letters per capita allowing for income per capita), trust in the postal service, and postal efficiency, and finds a significant link between the three. The results suggest that reforms that improve postal efficiency and trust in the postal network will improve the performance of the postal network. The paper suggests that there may be better uses of cross-subsidy from within the sector and government subsidy from without than supporting the inefficient delivery of a service rarely used by poor people.

### World Bank Policy Research Working Paper 3627, June 2005

_The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the view of the World Bank, its Executive Directors, or the countries they represent. Policy Research Working Papers are available online at http://econ.worldbank.org._

> 1 Senior Infrastructure Economist, the World Bank <u>ckenny@worldbank.org.  Thanks to Isabel Andress, Alex Dieke,</u> Graeme Lee, Gareth Locksley, Pierre Guislain, Paul Noumba Christine Qiang and Bjorn Wellenius for comments on various drafts.
the proportion of rural households receiving pensions from public institutions averages 30 percent in Brazil’s poorer Northeast, and 24 percent in the Southeast. Delgado (1999), Beltrao _et al_ . (1999) and others find that the implementation of the 1988 eligibility and benefit criteria has been effective in lowering the incidence of poverty among rural households<sup>4</sup> .

Various other factors, apart from the demographic changes and the stabilization of inflation since 1994, may explain part of the poverty reduction that has occurred in Brazil. The increased globalization with the opening of the Brazilian economy together with an overvalued exchange rate in most of the 1994-99 period affected the nontradable goods sectors. After the devaluation of the Real in 1998, traded goods became more expensive and hence a relative price change occurred favoring demand of nontradables. Moreover, informal-sector employment increased, particularly in services (which are primarily nontradables). This also hints at relative price changes that favored the poor. The aggregate demand channels were also important and affected the incomes of the poor. For example, the reduction in inflation uncertainty may have caused a decline in precautionary savings and an increase in consumer credits.

Furthermore, it is generally agreed that there is a strong association between growth and poverty reduction (Dollar and Kraay, 2000). Whether growth translates into significant poverty reduction depends on various factors. The degree of inequality in the country or state matters. Poverty is more responsive to growth when income, asset, gender and education inequality is lower. Hence, more equal societies will generally grow faster.

This paper is organized in five sections. Section 2 briefly explains the data and methodology. Section 3 provides a short overview of the recent picture and evolution of poverty in the Northeast region, before focusing on more disaggregated poverty profiles. The emphasis is firmly on the characteristics of the poor, rather than on exact measures of poverty. Section 4 presents findings from probit poverty analyses and compares these over the past two decades. Furthermore, this section shows clear indications of groups that are particularly vulnerable to shocks, policy and macroeconomic changes. Finally, section 5 concludes and brings policy recommendations. Additionally, the paper includes four

> 4 Paes de Barros, Mendonça and Santos (2000) provide detailed analysis of old age poverty in Brazil and find a substantially lower incidence of poverty for this age group. Camarano (2000) provides a detailed social profile of old age in Brazil.

4
|**Table 8: Descriptive Statistics for 1-year-old cohort**|Mean|SD|N|
|---|---|---|---|
|**Enrollment in ECED programs**||||
|Whether enrolled in project playgroups|0.361|0.480|2842|
|Whether enrolled in non-project playgroups|0.182|0.386|2842|
|Whether enrolled in RA programs|0.408|0.492|2842|
|Whether enrolled in TK programs|0.068|0.252|2842|
|Total Number of Months of project playgroup|5.582|8.864|2842|
|Total Number of Months of non-project playgroup<br>|2.561<br>|6.472<br>|2842<br>|
|Total Number of Months of RA programs|4.031|5.827|2842|
|TotalNumberof Months of TKprograms|0.781|3.345|2842|
|**Standardized Child Development Outcomes**||||
|EDI: Physical health and well-being|-0.007|0.999|2725|
|EDI: Social competence|-0.008|0.998|2728|
|EDI: Emotional maturity|-0.013|0.993|2731|
|EDI: Language and Cognitive Development|-0.014|0.994|2737|
|EDI: Communications and General Knowledge|0.004|1.001|2738|
|SDQ: Emotional problems|0.004|1.000|2740|
|SDQ: Conduct problems|0.010|0.998|2740|
|SDQ: Hyperactivity|0.007|1.000|2740|
|SDQ: Peer problems|0.003|1.002|2739|
|SDQ: Pro-social behavior (reversed)|0.001|0.998|2738|
|SDQ:Totalproblems|0.009|0.997|2739|
|**Child and Household Characteristics**||||
|Age (years)|4.846|0.394|3185|
|Household size|4.605|1.465|2744|
|Household Wealth|0.232|0.865|2848|
|Mother’s education = 2. Did not finish elementary school|0.078|0.268|2926|
|Mother’s education = 3. Elementary school / equivalent|0.377|0.485|2926|
|Mother’s education = 4. Junior high school / equivalent|0.258|0.438|2926|
|Mother’s education = 5. Senior high school / equivalent|0.200|0.400|2926|
|Mother’s education = 6. 1/2/3 year diploma|0.029|0.169|2926|
|Mother’s education = 7. 4 year diploma/Bachelor's degree|0.032|0.176|2926|
|Mother’s education = 8. Master's/PhD|0.001|0.032|2926|
|Mother’s education = 98. Don't know|0.001|0.037|2926|
|Child is a girl (1 = Yes)|0.449|0.497|3185|
|<br>**Health status at baseline**||||
|Not stunted (1 = Yes)|0.734|0.442|2680|
|Moderately stunted (1 = Yes)|0.214|0.410|2680|
|Severely stunted (1 = Yes)|0.052|0.222|2680|
|Not wasted(1 = Yes)|0.664|0.472|2696|
|Moderately wasted(1 = Yes)|0.247|0.431|2696|
|Severely wasted (1 = Yes)|0.089|0.285|2696|
|Totalgood parenting score|0.177|1.005|3060|

Note: All variables are values at endline except where indicated.

42
24 the national tariff line level so the two sources of information are comparable. Given that patterns of protection change only relatively slowly, the SMART and IDB records will, together, afford reasonable insight into the patterns ruling over the early 1990s.

As far as intra-block preferences are concerned, Article 5 of the Treaty of Asuncion, which created Mercosur, required "progressive, linear and automatic tariff reductions" be implemented starting in 1991 "with a view to arriving at zero tariffs for the entire tariff area by 31 December 1994." Although there was some slippage in this objective, the World Trade Organization (October 1996) reports "that by the end of 1994 intra-regional trade between Brazil and its Mercosur partners has been duty-free since 1 January 1995 except for 29 tariff line items" (out of 9,107).'6 The same report quotes (p. 23) Brazilian authorities as stating that duty free trade covered close to 95 percent of intra-regional (Mercosur) trade in 1994. From these observations we conclude that the reported external tariffs will be highly correlated with the degree of preferences offered on intra-Mercosur trade.<sup>17</sup> As such, the average levels of current "applied" tariffs were computed and these were taken as a measure of intra-block preferences. 18 A second attempt at identifying discriminatory trade barriers focuses on nontariff barriers. Two measures of the potential importance of NTBs are available. The first, a NTB trade coverage ratio shows the share of all imports (measured in current values) subject to nontariff barriers. The second, often 16Behar (1995) reports that the first preferential reduction in Mercosur's tariffs took place in June of 1991. A 1994 background study for a World Bank country economic memorandum gave the schedule along which tariffs on intra-trade were then being reduced. This schedule set a minimum margin of preference of 47 percent and augmented the margins of preference which already exceeded this minimum (due to previous arrangements) by an additional 7 percent. A 7 percent cut every six months would follow until the zero tariff objective was fulfilled. As noted, in the case of Brazil, this objective was achieved for all but 29 tariff line items.

17Moreover, if in fact the bulk of the preferences was not implemented until late 1994 the trade reorientation we reported above would have arisen from partial preferences and so one might expect an even larger effect to follow over 1995 and 1996.

18The 1996 tariff statistics reported in Table 7 are drawn from the WTO's Integrated Data Base and are the average duties actually applied by Argentina, Brazil and Uruguay to imports from non-Mercosur sources. They are based on the lower of the following two rates: (i) the legally bound tariff, or (ii) the current MFN applied rate. Primary products and raw materials, which typically have lower import duties are not included in the tabulations. A description of the methodology used in computing these averages can be found in Finger, Ingco and Reincke (1996, pp. 1-21).
addition inputs. As a result, when teacher training is added to books, the increase in student outcomes is likely to improve education at least as much the eect of teacher training provided as a stand-alone intervention. More concisely, we argue that in this resource constrained setting, the education production function is likely to exhibit increasing returns to scale. Therefore, the estimated treatment eect of training should be considered as the maximum possible contribution of providing a short training to teachers, without providing complementary books.<sup>6</sup> (3) Books only: Impact of the classroom libraries intervention is identied by comparing outcomes of (matched) _T_ 2 against _C_ 2 .

Due to the change in the intervention plan from the initial evaluation design halfway through the treatment period, specically the exposure of part of the control group ( _C_ 1 ) into unplanned treatment,<sup>7</sup> the application of the standard randomized control trial (RCT) estimation techniquethrough direct comparisons of dierences in mean outcomes between _T_ 1 and _T_ 2 on the one hand, and the remaining control group ( _C_ 2 ) on the otheris not feasible. Therefore, to ensure that the counterfactuals are properly set, and the treatment eect is consistently estimated, propensity score matching is used as an alternative identication strategy. More specically, this approach involves two steps: (1) estimating propensity scores (PS) by matching control with treatment group of students on relevant covariates, using endline survey data only; and (2) applying a regression of student outcomes on covariates using the matched data in step one, with PS serving as weighting factor and standard error clustered at aimag level.

In the rst step, we estimate PS. _P_ ( _Xi_ ) = _p_ ( _Ti_ = 1 _|Xi_ ) is the likelihood that student _i_ would be exposed to treatment ( _Ti_ ) conditional on covariates, _Xi_ (Rosenbaum and Rubin, 1983; Becker and Ichino, 2002)). As the number of students in treatment arm is larger than those in control group, in this step, some students that do not satisfy the matching criteria are excluded.<sup>8</sup> Specically, observations o-common support are

> 6The ideal scenario would be to have another treatment group of students whose teachers were provided training alone. The comparison of test scores of these students with a control group that has not received any treatment could have provided the impact of training only, which is anticipated to be lower than the treatment eect estimated using the above setting.

> 7Part of the control group was given the books and shelves ahead of schedule because of community demand.

> 8The typical application of propensity score matching method is when there are larger number of observations in the control group to be matched with fewer observations in the treatment group. In this case, we have many more treated than control students. Therefore, each student in control group

12
# **5. References**

Africa Ministers’ Council on Water (2006). _Getting Africa on Track to Meet the MDGs on Water and Sanitation: A Status Review of Sixteen African Countries_ , October.

- Akinlo, Anthony (2005). “Impact of Macroeconomic Factors on Total Factor Productivity in Sub-Saharan African Countries.” WIDER Research Paper 2005/39.

- Alam, Asad et al. (2008). Unleashing Prosperity: Productivity Growth in Eastern Europe and the former Soviet Union, World Bank report, Washington D.C. (forthcoming).

- Annabi, Nabil, John Cockburn, and Bernard Decaluwe (2006). “Functional Forms and Parametrization of CGE models.” MPIA working paper 2006-04, Poverty and Economic Policy (PEP) network.

- Coulombe, Harolde and Quentin Wodon (2007). “Poverty, Livelihoods, and Access to Basic Services in Ghana,” in World Bank, _Ghana Country Economic Memorandum: Meeting the Challenge of Accelerated and Shared Growth_ , Report No. 40934-GH, Vol. 3.

- Estache, Antonio, and Maria Vagliasindi (2007). “Infrastructure for Accelerated Growth in Ghana: Needs and Challenges.” In World Bank, _Ghana Country Economic Memorandum: Meeting the Challenge of Accelerated and Shared Growth_ , Report No. 40934-GH, Washington D.C.

- Ghana Joint Assistance Strategy (2007). _Commitments by Partners to Work Toward GPRSII Goals and Harmonization Principles_ , February.

- Ghana Statistical Services (2006). _A 2004 Social Accounting Matrix (SAM) for Ghana_ , October.

- Government of Ghana (2003). _Education Strategic Plan 2003 to 2015_ , Volume 1. Ministry of Education, May.

- Government of Ghana (2004). _Report of the Auditor General on the Public Accounts of Ghana_ , Accra, Ghana.

- Lofgren, Hans and Carolina Diaz-Bonilla (2005), “ _An Ethiopian Strategy for Achieving the Millennium Development Goals: Simulations with the MAMS model_ ,” February 2005 Draft, DECPG, World Bank, Washington D.C.

- Lofgren, Hans and Carolina Diaz-Bonilla. 2006. “MAMS: An Economywide Model for Analysis of MDG Country Strategies: Technical Documentation.” Mimeo. World Bank.

- Lofgren, Hans, Rebecca Lee Harris, and Sherman Robinson (2002). _A Standard Computable General Equilibrium (CGE) Model in GAMS_ . International Food Policy Research Institute.

- World Bank (2006). _Ghana External Review of Public Financial Management_ , Washington D.C.

World Bank (2007). _Ghana Debt Sustainability Analysis_ , February.

22
# **3. Results**

# _3.1 Progress in MNCH_

Over the last two decades, there has been considerable improvement in MNCH outcomes, though there still exist high levels of child undernutrition and mortality rates and limited coverage of maternal and health services. This holds true for all the health status and health service indicators analyzed in this study. Table 2 presents the progress at the national level and for rural and urban areas. The progress over the period is shown by a decline in ill health (under nutrition and mortality) and an increase in the coverage of health services (immunizations and maternal health services). For example, in the 2014 DHS, about 48.2% (6.3 million) of children under the age of five years were malnourished as measured by at least one of the three standard indicators of undernutrition: stunting, underweight or wasting. However, the current rates of undernutrition are much improved when compared to the 64.4% in the 2000 DHS. This decline, by 15 percentage points, is roughly equivalent to improvements in the nutritional status of over 2 million children under the age of five years.<sup>9</sup> Looking at each indicator separately, in DHS 2000, at the national level, over half of children under five years old were stunted and over 4 in 10 were underweight (Table 2). Over the years covered by the surveys, however, stunting declined by 17 percentage points (from 57% to 40.6%); and prevalence of underweight declined by 15 percentage points (from 41.9% to 26.6%). There has also been a significant reduction in wasting,

> 9 The estimate is based on the 97.1 million total population in 2013 (World Bank data) and the proportion of the age group which is 13.6 % (DHS 2014) and the current prevalence of undernutrition which is 48% (DHS 2014).

10
consequently, spans between 2002 and 2010. Data from 2002 to 2005 comes from the _Encuesta Continua de Hogares_ and the _Gran Encuesta Integrada de Hogares_ from 2006 to 2010. Both surveys are comparable across time, but the later introduced improvements such as new questions and a sharp increase in the number of municipalities surveyed. From 2002 to 2005 we can only identify the exact location of workers located in the 13 main cities of Colombia (i.e., 13 municipalities), but beginning in 2006 we observe their locations in 609 municipalities.

We estimate a linear probability model for the probability of being employed in these sectors on IDP inflows including fixed effects by year, municipality, month (when the survey was collected), individuals covariates (such as gender, marital status, education level, and household size), and municipal controls (including all the controls included in our previous estimates). The results are presented in Table XII and largely suggest that the probability of begin employed in a highly informal sector increases with higher IDP inflows. Additionally, the effects of IDP inflows on the employment probability within highly formal sectors are not significant and even has a negative sign. Particularly, our estimates in Panel C and column 2 suggest that when the share of IDP increases in 1 percent, the probability of being employed in a highly informal sector increases by 0.2%.

Considering that the labor force surveys are only available between 2002 and 2010 and that they only include data for a handful of municipalities, we also re-estimate all of our previous analysis restricting the sample in the manufacturing surveys in two ways. First, by restricting the sample period (to either 1995-2010 and 2002-2010) and second, by restricting the municipalities to only include those available in the manufacturing census and the labor force surveys. Our results are presented in Appendix II and are consistent with our previous results.

# **VII Discussion**

This paper investigates the effects of inflows of IDP on the behavior of firms in an economy segmented into a normal-sized formal sector and a large informal sector as is commonly observed in 23
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has been largely exempted from VAT in industrial countries. For developing countries which already tax their financial systems in a distorting manner, it is arguable that a move to value-added would represent an improvement. In particular, by removing pure interest flows from the scope of tax, such a move would reduce the bias in favor of curb credit markets. Furthermore, a properly designed VAT on banking would be super-neutral. It is important to define carefully what is meant by value added in the banking system in order to achieve the hoped-for efficiency gains.

Value added in the banking system is generally calculated by reference to the difference between gross receipts on the one hand, and the sum of interest and intermediate goods expenses on the other. Thus, a stylized operating account of an African commercial bank might look like this (based on published figures for the largest bank in Cote d'Ivoire in 1986):

|Income:||Expenditure:||
|---|---|---|---|
|Interest|35|Interest|18|
|Fees and Commissions|5|Loan-loss provisions|5|
|||Depreciation|2|
|||Materials|4|
|||Wages|8|
|||Profit before tax|3|
|Total|40|Total|40|

A standard definition of the contribution of the banking system to the total value of 40 is the contribution of the primary factors of production employed by the banking system. Borrowed funds are not a primary factor of production, so that the interest which the bank pays on its borrowings must be subtracted from the 40. Intermediate consumption represents a portion of the value of banking output which is contributed indirectly by other industries, whose output has been used by the banking industry; this too must therefore be subtracted from the 40. Provisions for bad or doubtful debts must also be subtracted; the purpose of these provisions is to offset a potential overstatement of receipts.

(To the extent that the bad debts for which provision had not been made were not realized in the longer term, this would depress the item "interest, etc." in subsequent years). Depreciation represents a bringing 31