Economic Premise
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The Economic Premise series summarizes good practices and key policy findings on topics related to economic policy. They are produced by the Poverty Reduction and Economic Management (PREM) Network Vice-Presidency of the World Bank.
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Publication
Can Trade Reduce Poverty in Africa?
(World Bank, Washington, DC, 2013-04)While most economists accept that, in the long run, open economies fare better in aggregate than closed ones, many fears that trade could harm the poor. African countries, for example, have realized significant improvements in trade liberalization in recent decades, yet Africa remains the poorest continent in the world. It seems that the large gains expected from opening up to international economic forces have been limited in Africa, especially for poor people. Drawing on the findings of a recently published working paper (Le Goff and Singh 2013), this note argues that the benefits of trade are not automatic, but rather depend on accompanying policies aimed at developing the financial sector, promoting primary education, and improving governance. This accompanying policy agenda allows people to take advantage of the opportunities offered by freer trade, by reallocating resources away from less productive activities to more promising ones. Trade liberalization therefore should not be implemented on its own, but with the necessary complementing policies. -
Publication
Avoiding Middle-Income Growth Traps
( 2012-11)Since the 1950s, rapid growth has allowed a significant number of countries to reach middle-income status; yet, very few have made the additional leap needed to become high-income economies. Rather, many developing countries have become caught in what has been called a middle-income trap, characterized by a sharp deceleration in growth and in the pace of productivity increases. Drawing on the findings of a recently released working paper (Agenor and Canuto 2012), as well as a growing body of research on growth slowdowns, this note provides an analytical characterization of 'middle-income traps' as stable, low-growth economic equilibrium where talent is misallocated and innovation stagnates. To counteract middle-income traps, there are a number of public policies that governments can pursue, such as improving access to advanced infrastructure, enhancing the protection of property rights, and reforming labor markets to reduce rigidities all implemented within a context where technological learning and research and development (R&D) are central to enhancing innovation. Such policies not only explain why some economies particularly in East Asia were able to avoid the middle-income trap, but are also instructive for other developing countries seeking to move up the income ladder and reach high-income status. -
Publication
Service with a Smile
(World Bank, Washington, DC, 2012-11)Can service be a growth escalator? The world is experiencing its third industrial revolution, and services are at the forefront of this revolution. Services have already surpassed industry as a source of economic growth and job creation, in both developed and developing economies. In the industrial sector, technologies have matured and employment is shrinking. However, services are getting more sophisticated and jobs are expanding. Services growth is also more inclusive and sustainable. It increases the participation of women in the labor force and places a lighter burden on natural resources. The promise of the services revolution is that countries do not need to wait to get started with rapid development. There is a new boat that development latecomers can take. -
Publication
Quality of Government and Living Standards
(World Bank, Washington, DC, 2012-09)It is generally acknowledged that a government's output is difficult to define and its value is hard to measure. The practical solution adopted by national accounts systems is to equate output value to input costs, but well-documented inefficiencies in government activities make this approximation questionable. One solution is to purge from gross domestic product (GDP) the fraction of government inputs that is wasted. This note illustrates such a correction, computing corrected per capita GDP on the basis of two studies that estimate efficiency scores for several dimensions of government activities. Results show that the correction could be significant and reorder the rankings of living standards. -
Publication
Sophistication in Service Exports and Economic Growth
(World Bank, Washington, DC, 2011-04)Services can now be stored and traded digitally, and they are not subject to many of the trade barriers that physical exports have to overcome. Services are no longer exclusively an input for trade in goods, but have become a 'final export' for direct consumption. It is important to note that services not only have become more tradable, but also can be increasingly unbundled: a single service activity in the global supply chain can now be fragmented and done separately at different geographic locations. This has led to a new channel of growth-what we call service exports sophistication. -
Publication
Decomposing the Effects of CCTs on Entrepreneurship
(World Bank, Washington, DC, 2010-11)This note assesses whether Bolsa-Familia increases the probability of starting a venture in Brazil by decomposing its potential effects into three channels: wealth-constraint alleviation, insurance provision, and reduction of children's labor supply (through the effect of the conditionality). Results are that entrepreneurship is indeed stimulated by Bolsa-Familia in urban areas through the insurance and wealth-constraint alleviation effects, notwithstanding that new ventures are typically secondary sources of income. The conditionality seems not to impact the level of entrepreneurship. Hence, Bolsa-Familia might have a positive long-term effect as well, instead of just offering short-term poverty relief. -
Publication
Export-led growth v2.0
(World Bank, Washington, DC, 2010-03)The United States (U.S.) recession could hurt the South, particularly in oil and apparel exports, and Latin America and the Caribbean. But South-South trade is partly picking up the slack. Middle-income countries are driving export diversification of low-income countries. Developing countries may be moving toward a new version of export-led growth.