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Republic of Congo Country Climate and Development Report - Diversifying Congo's Economy: Making the Most of Climate Change
(Washington, DC: World Bank, 2023-10-09)The Republic of Congo (RoC) CCDR is a new World Bank core diagnostic report that integrate climate change and development considerations. It is intended to help the country prioritize the most impactful actions that can boost adaptation and reduce greenhouse gas (GHG) emissions, while delivering on broader development goals. The CCDR builds on data and rigorous research and identify main pathways to reduce climate vulnerabilities and GHG emissions, including the costs and challenges as well as benefits and opportunities from doing so. The report highlights that RoC could reduce poverty in rural areas by 40% and in urban areas by 20% by 2050 by implementing more ambitious reforms to promote economic diversification and climate resilience. It also concludes that business as usual is not an option. Economic losses could reach up to 17% of GDP by 2050 if reforms to diversify the economy and attract more climate investments are not taken. Climate impacts could also increase total health costs from $92 million in 2010 to $260 million by 2050. The report identifies four priorities to promote sustainable growth in the country: (i) stronger and greener infrastructure and services in electricity, transport, water, and sanitation can deliver transformative results; (ii) More climate-ready education, health systems and social services can save lives and bring critical resources to the poorest; (iii) More investments in natural capital including climate smart agriculture and greater forest management along will help create jobs while reducing carbon emissions; (iv) better climate governance to leverage carbon markets. The forest contributes to US$260 million in timber exports and store over 44 billion tons of carbon dioxide equivalent emissions. Protecting and valorizing the forest is critical to turn the country’s natural capital into wealth. The report emphasizes that the private sector has a critical role to play in mobilizing financing for an ambitious set of reforms and investments in the context of tight fiscal space. This will require raising awareness on risks and opportunities from climate change, and innovative solutions and financial sector reforms. -
Publication
Trading in Clusters and the Future of Small-Scale Trade in the Borderlands of the Great Lakes Region of Africa
(World Bank, Washington, DC, 2023-10-09)This paper presents a coping strategy that small-scale cross-border traders adopted in response to the shock of the COVID-19 pandemic and examines its impact. Using a cross-sectional data set of 1,159 traders from the borderlands of the Democratic Republic of Congo and Rwanda, the paper assesses the impact of adopting the Cluster Trading Approach on trade outcomes, household income and poverty reduction. When applying a local average treatment effect approach, the findings reveal that adoption of the CTA causes at least 21 and 31 percentage point increases in traders' turnover and profit respectively. The household income analysis and poverty decomposition highlight an increase in income, even within the depth and severity of poverty. Thus, although access to capital is important for small-scale cross-border traders joining a cluster according to the literature, the results show that the level of capital is less important for income increase once there. As the results are robust to competing explanations and heterogeneity of the sample, the paper concludes that the Cluster Trading Approach is a poverty-reducing strategy and discusses the challenges for its sustainability. -
Publication
Does Informality Depress Investments and Job Recovery?: Firm-Level Evidence from the COVID-19 Crisis in South Asia
(World Bank, Washington, DC, 2023-10-09)Using three rounds of the World Bank's Business Pulse Surveys in South Asia, this paper quantifies the relationship between informality and firms' investment and employment decisions. Accounting for multidimensionality in definition and the margins of informality, the analysis suggests that first, informal firms remain credit and liquidity constrained before and during the crisis, especially the necessity firms. In the pre-crisis period, access to finance is correlated with the extensive margin of informality, while during the crisis, both margins of informality matter. Second, informal firms perceive uncertainty to be higher because of pessimistic expectations on recovery and lower ability to predict future sales, especially the necessity firms. Third, credit constraints and accentuated uncertainty among informal firms discourage investments. Finally, while employment growth is slow and gradual for formal firms as they begin to recover sales, job growth in informal firms does not correspond to the recovery. The results suggest that countries with a large informal sector may face unusually depressed investments and jobs recovery and may have to deploy additional policy levers to accelerate recovery in the post-crisis period. -
Publication
Capital Controls in Emerging and Developing Economies and the Transmission of U.S. Monetary Policy
(World Bank, Washington, DC, 2023-10-09)Emerging markets and developing economies (EMDEs) exhibit significantly greater volatility in asset returns than advanced economies. The commonalities in these returns (and flows) across countries are particularly strong for EMDEs. If these occur independently of the exchange rate regime and if these global financial cycle effects are furthermore independent of countries’ financial openness, the result is Obstfeld (2022)’s “Lemma”: countries can do nothing to decouple from the global financial cycle. Under the prevalent view that U.S. monetary policy is the key driver of the global financial cycle, countries then inherit U.S. monetary policy no matter what they do on exchange rates or capital control policies. Using structural vector autoregression models for 78 countries over 1995–2019, as well as different methods of identifying U.S. monetary policy shocks from the literature, this paper tests the proposition that countries with less open capital accounts exhibit systematically smaller responses to U.S. monetary policy shocks than low capital control countries. This paper also considers the role of other institutional features such as exchange rate regimes and foreign exchange interventions in explaining cross-country differences in the responses to the shocks. The empirical results suggest that more stringent capital controls exhibit smaller responses of interest rates and exchange rates to U.S. monetary policy shocks and that this result holds more firmly for EMDEs than advanced economies. In contrast, the analysis finds only weak evidence that the degree of exchange rate flexibility affects U.S. spillovers to foreign interest rates and exchange rates. -
Publication
Geospatial Analysis of Displacement in Afghanistan
(World Bank, Washington, DC, 2023-10-09)Given increasing levels of displacement due to conflict and climate change, it is important to establish robust monitoring systems. This paper explores how remote sensing data, particularly geospatial data, can be leveraged to monitor displacement flows. It draws lessons from northeastern Afghanistan, namely the 2018 drought, which is considered one of the worst in decades. The analysis identifies displacement patterns by combining displacement data from the International Organization for Migration Displacement Tracking Matrix with nighttime lights. The results suggest that the cumulated displacement movements from 2018 to 2020 can be proxied by trends in nighttime light imagery. Settlements with higher net inflows of displaced persons between 2018 and 2020 have comparatively larger nighttime light growth. Allowing for nonlinearity suggests decreasing marginal returns of displacement on nighttime lights, as settlements showing the largest expansion of nighttime lights are those with the lowest displacement inflows. The model uses data on nighttime lights to predict whether a settlement was a net receiver of displacement flows during 2018–20 and correctly classifies 63.2 percent of the settlements as net inflow or net outflow. This study provides a proof of concept to test whether population displacements can be proxied using geospatial data trained on administrative records in a data-scarce environment, where real-time insights can inform humanitarian assistance. This work was done before the political crisis of August 2021.