Journal Issue: World Bank Economic Review, Volume 31, Issue 2

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Long-term Gains from Electrification in Rural India
(Published by Oxford University Press on behalf of the World Bank, 2017-06-01) van de Walle, Dominique ; Ravallion, Martin ; Mendiratta, Vibhuti ; Koolwal, Gayatri
We know surprisingly little about the long-run impacts of household electrification. This paper studies the impacts on consumption in rural India over a 17-year period, allowing for both internal and external (village-level) effects. Under our identifying assumptions, electrification brought significant consumption gains for households who acquired electricity for their own use. We also find evidence of a dynamic effect of village connectivity for households without electricity themselves. This is suggestive of an external effect, which also comes with a shift in consumption spending suggestive of status concerns among those still without electricity. Labor earnings were an important channel of impact. This was mainly through extra work by men. There was no effect on average wage rates.
Political Connections and Tariff Evasion Evidence from Tunisia
(Published by Oxford University Press on behalf of the World Bank, 2017-06-01) Rijkers, Bob ; Baghdadi, Leila ; Raballand, Gael
Are politically connected firms more likely to evade taxes? This paper presents evidence suggesting firms owned by President Ben Ali and his family were more prone to evade import tariffs. During Ben Ali's reign, evasion gaps, defined as the difference between the value of exports to Tunisia reported by partner countries and the value of imports reported at Tunisian customs, were correlated with the import share of connected firms. This association was especially strong for goods subject to high tariffs, and driven by underreporting of unit prices, which diminished after the revolution. Consistent with these product-level patterns, unit prices reported by connected firms were lower than those reported by other firms and declined faster with tariffs than those of other firms. Moreover, privatization to the Ben Ali family was associated with a reduction in reported unit prices, whereas privatization per se was not.
When Winners Feel Like Losers: Evidence from an Energy Subsidy Reform
(Published by Oxford University Press on behalf of the World Bank, 2017-06-01) Calvo-Gonzalez, Oscar ; Cunha, Barbara ; Trezzi, Riccardo
In 2011 the Government of El Salvador implemented a reform to the liquefied gas (LPG) subsidy that increased the welfare of households in all but the top two deciles of the income distribution. However, the reform turned out to be rather unpopular, including among winners. This paper relies on ad hoc household surveys conducted before the implementation and in the following two-and-a-half years to test which factors help explain the puzzle. The analysis uses probit regressions to show that misinformation (a negativity bias by which people with limited information inferred negative consequences), mistrust of the government's ability to implement the policy, and political priors explain most of the (un)satisfaction before implementation. Perceptions improved gradually—and significantly so—over time when the subsidy reception induced households to update their initial priors, although political biases remained significant throughout the entire period. The results suggest several implications with respect to policy reforms in cases where agents have limited information.
Property Rights for Fishing Cooperatives: How (and How Well) Do They Work?
(Published by Oxford University Press on behalf of the World Bank, 2017-06-01) Aburto-Oropeza, Octavio ; Leslie, Heather M. ; Mack-Crane, Austen ; Nagavarapu, Sriniketh ; Reddy, Sheila M.W. ; Sievanen, Leila
Devolving property rights to local institutions has emerged as a compelling management strategy for natural resource management in developing countries. The use of property rights among fishing cooperatives operating in Mexico's Gulf of California provides a compelling setting for theoretical and empirical analysis. A dynamic theoretical model demonstrates how fishing cooperatives’ management choices are shaped by the presence of property rights, the mobility of resources, and predictable environmental fluctuations. More aggressive management comes in the form of the cooperative leadership paying lower prices to cooperative members for their catch, as lower prices disincentivize fishing effort. The model's implications are empirically tested using three years of daily logbook data on prices and catches for three cooperatives from the Gulf of California. One cooperative enjoys property rights while the other two do not. There is empirical evidence in support of the model: compared to the other cooperatives, the cooperative with strong property rights pays members a lower price, pays especially lower prices for less mobile species, and decreases prices when environmental fluctuations cause population growth rates to fall. The results from this case study demonstrate the viability of cooperative management of resources but also point toward quantitatively important limitations created by the mismatch between the scale of a property right and the scale of a resource.
Does Input-Trade Liberalization Affect Firms’ Foreign Technology Choice?
(Published by Oxford University Press on behalf of the World Bank, 2017-06-01) Bas, Maria ; Berthou, Antoine
This paper studies the impact of input-trade liberalization on firms’ decision to upgrade foreign technology embodied in imported capital goods. Our empirical analysis is motivated by a simple theoretical framework of endogenous technology adoption, heterogeneous firms and imported inputs. The model predicts a positive effect of input tariff reductions on firms’ technology choice to source capital goods from abroad. This effect is heterogeneous across firms depending on their initial productivity level. Relying on India’s trade liberalization episode in the early 1990s, we demonstrate that the probability of importing capital goods is higher for firms producing in industries that have experienced greater cuts on tariffs on intermediate goods. Only those firms in the middle range of the initial productivity distribution have benefited from input-trade liberalization to upgrade their technology.
The Changing Structure of Africa’s Economies
(Published by Oxford University Press on behalf of the World Bank, 2017-06-01) Diao, Xinshen ; Harttgen, Kenneth ; McMillan, Margaret
Using data from the Groningen Growth and Development Center’s Africa Sector Database and the Demographic and Health Surveys, we show that much of Africa’s recent growth and poverty reduction has been associated with a substantive decline in the share of the labor force engaged in agriculture. This decline is most pronounced for rural females over the age of 25 who have a primary education; it has been accompanied by a systematic increase in the productivity of the labor force, as it has moved from low productivity agriculture to higher productivity services and manufacturing. We also show that, although the employment share in manufacturing is not expanding rapidly, in most of the low-income African countries the employment share in manufacturing has not peaked and is still expanding, albeit from very low levels. More work is needed to understand the implications of these shifts in employment shares for future growth and development in Africa south of the Sahara.
Pension Coverage for Parents and Educational Investment in Children: Evidence from Urban China
(Published by Oxford University Press on behalf of the World Bank, 2017-06-01) Mu, Ren ; Du, Yang
When social security is established to provide pensions to parents, their reliance upon children for future financial support decreases, and their need to save for retirement also falls. In this study, the expansion of pension coverage from the state sector to the non-state sector in urban China is used as a quasi-experiment to analyze the intergenerational impact of social security on education investments in children. In a difference-in-differences framework, a significant increase in the total education expenditure is found to be attributable to pension expansion. The results are unlikely to be driven by other observable trends. They are robust to the inclusion of a large set of control variables and to different specifications, including one based on the instrumental variable method.
Does Child Sponsorship Pay off in Adulthood?: An International Study of Impacts on Income and Wealth
(Published by Oxford University Press on behalf of the World Bank, 2017-06-01) Wydick, Bruce ; Glewwe, Paul ; Rutledge, Laine
We estimate the impact of international child sponsorship on adult income and wealth of formerly sponsored children using data on 10,144 individuals in six countries. To identify causal effects, we utilize an age-eligibility rule followed from 1980 to 1992 that limited sponsorship to children twelve years old or younger when the program was introduced in a village, allowing comparisons of sponsored children with older siblings who were slightly too old to be sponsored. Estimations indicate that international child sponsorship increased monthly income by $13–17 over an untreated baseline of $75, principally from inducing higher future labor market participation. We find evidence for positive impacts on dwelling quality in adulthood and modest evidence of impacts on ownership of consumer durables in adulthood, limited to increased ownership of mobile phones. Finally, our results also show modest effects of child sponsorship on childbearing in adulthood.
Prices, Engel Curves, and Time-Space Deflation: Impacts on Poverty and Inequality in Vietnam
(Published by Oxford University Press on behalf of the World Bank, 2017-06-01) Gibson, John ; Le, Trinh ; Kim, Bonggeun
Many developing countries lack spatially disaggregated price data. Some analysts use “no-price” methods by using a food Engel curve to derive the deflator as that needed for nominally similar households to have equal food shares in all regions and time periods. This method cannot be tested in countries where it is used as a spatial deflator since they lack suitable price data. In this paper, data from Vietnam are used to test this method against benchmarks provided by multilateral price indexes calculated from repeated spatial price surveys. Deflators from a food Engel curve appear to be a poor proxy for deflators obtained from multilateral price indexes. To the extent that such price indexes reliably compare real living standards over time and space, these results suggest that estimates of the level, location, and change in poverty and inequality would be distorted if the Engel method deflator was used in their stead.
Willing but Unable? Short-term Experimental Evidence on Parent Empowerment and School Quality
(Published by Oxford University Press on behalf of the World Bank, 2017-06-01) Beasley, Elizabeth ; Huillery, Elise
Giving power over school management and spending decisions to communities has been a favored strategy to increase school quality, but its effectiveness may depend on local capacity. Grants are one form of such a transfer of power. Short-term responses of a grant to school committees in Niger show that parents increased participation and responsibility, but these efforts did not improve quality on average. Enrollment at the lowest grades increased and school resources improved, but teacher absenteeism increased, and there was no measured impact on test scores. An analysis of heterogeneous impacts and spending decisions provides additional insight into these dynamics. Overall, the findings suggest that programs based on parent participation should take levels of community capacity into account: even when communities are willing to work to improve their schools, they may not be able to do so. The short-term nature of the experiment reduces the extent to which the results can be generalized.
Providing Policy Makers with Timely Advice: The Timeliness-Rigor Trade-off
(Published by Oxford University Press on behalf of the World Bank, 2017-06-01) Bell, Clive ; Squire, Lyn
Policy makers bemoan the lack of research findings to guide urgent decisions, whereas researchers' professional code puts rigor first. This article argues that provisional assessments, produced early in the research cycle, can bridge the gap. Numerous case studies point to the importance of early interaction with policy makers and the delivery of brief, policy-focused papers; but preliminary analyses may be flawed and so increase the chances of a wrong decision. This article demonstrates analytically that a preliminary assessment, supported by the offer of more refined research, provides an option that is superior, on average, to the current practice of submitting a final report at the end of the research cycle. Where practical implementation is concerned, it calls for donor-funded subsidies to promote the use of provisional assessments and for a rapid, independent, professional review process to ensure their quality. While the research-policy exchange in developing countries is a complex, context-specific phenomenon, the proposal offered here holds out some promise of improving decisions in the public sphere under a wide range of circumstances.
On the Effects of Enforcement on Illegal Markets: Evidence from a Quasi-Experiment in Colombia
(Published by Oxford University Press on behalf of the World Bank, 2017-06-01) Mejía, Daniel ; Restrepo, Pascual ; Rozo, Sandra V.
This paper studies the effects of enforcement on illegal behavior in the context of a large aerial spraying program designed to curb coca cultivation in Colombia. In 2006, the Colombian government pledged not to spray a 10 km band around the frontier with Ecuador due to diplomatic frictions arising from the possibly negative collateral effects of this policy on the Ecuadorian side of the border. We exploit this variation to estimate the effect of spraying on coca cultivation by regression discontinuity around the 10 km threshold and by conditional differences in differences. Our results suggest that spraying one additional hectare reduces coca cultivation by 0.022 to 0.03 hectares; these effects are too small to make aerial spraying a cost-effective policy for reducing cocaine production in Colombia.