Journal Issue: World Bank Economic Review, Volume 21, Issue 2

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Tracking Poverty Over Time in the Absence of Comparable Consumption Data
(World Bank, 2007-05-30) Stifel, David ; Christiaensen, Luc
Tracking Poverty Over Time in the Absence of Comparable Consumption Data David Stifel and Luc Christiaensen Following the endorsement by the international community of the Millennium Development Goals, there has been an increasing demand for practical methods for steadily tracking poverty. The minimum data requirements for this methodology are the availability of a household budget survey and a series of surveys with a comparable set of asset data also contained in the budget survey. JEL codes: C81, I32 The worldwide endorsement of the Millennium Development Goals and the shift to results-based lending in supporting developing countries have intensified the importance of being able to reliably gauge the evolution of poverty. While the method is straightforward, the predicted evolution of poverty holds only under a series of stringent assumptions such as distribution-neutral growth, a correct attribution of sectoral GDP growth to households (World Bank 2005), and a close correspondence between growth observed in the national accounts and income or consumption growth measured in household surveys (Ravallion 2003; Deaton and Kozel 2005). The empirical application uses the asset information from the 1993, 1998, and 2003 Kenyan Demographic and Health Surveys and the consumption measure from the 1997 Welfare Monitoring Survey (WMS). 3 Tracking Wt by tracking xt requires essentially three steps: developing an accurate empirical model of ct as a function of xt; estimating ct k as a function of xt k, where k is a positive or negative integer; and generating an estimate of expected Wt k from the estimated ct k. 3. Comparison of these indicators across the population in rural areas, other urban localities, and Nairobi between 1993 and 2003 based on the Demographic and Health Surveys (table 4) shows substantial improvements in primary and secondary enrollment rates and stunting prevalence in rural areas, even stronger improvements in these indicators in Nairobi, and a mixed picture in other urban areas, with primary enrollment rates increasing, secondary enrollment rates falling marginally, and stunting prevalence increasing Further inspection indicates that their relative prices (in terms of the overall consumer price index) declined substantially, possibly because of technological innovation, trade liberalization, or exchange rate misalignment (in particular, real exchange rate overvaluation). Going forward, comparing economic asset-based poverty measures with those derived from household budget surveys using actual consumption data emerges as an important research agenda for applied economists to shed further light on the empirical validity of the stationarity assumption. var(b To obtain estimates of the expected welfare indicator in stage 2, a vector of t beta coefficients (bs) is first drawn from a multivariate normal distribution with a mean btGLS and variance covariance V(btGLS) and applied to the target 0 t data xt k to predict household log expenditures (xcht kbs).
Measuring International Skilled Migration
(World Bank, 2007-05-30) Beine, Michel ; Docquier, Frédéric ; Rapoport, Hillel
Measuring International Skilled Migration: A New Database Controlling for Age of Entry Michel Beine, Frederic Docquier, and Hillel Rapoport Recent data on international migration of skilled workers define skilled migrants by education level without distinguishing whether they acquired their education in the home or the host country. Using these data and a simple gravity model to estimate the age-of-entry structure of the remaining 23 percent, alternative brain drain measures are proposed that exclude immigrants who arrived before ages 12, 18, and 22. the Belgian National Fund for Economic Research, professor of economics at the Universite Catholique de Louvain (Belgium), and a research fellow at the Institute for the Study of Labor (Bonn) and the Center for Research and Analysis of Migration at University College London; his email address is docquier Hillel Rapoport (corresponding author) is senior lecturer in economics at Bar-Ilan University, a member of EQUIPPE, Universites de Lille (EA CNRS 4018), and a research fellow at the Center for Research and Analysis of Migration at University College London; his email address is hillel This article is part of the World Bank Migration and Development Program, which provided financial support. For permissions, please e-mail: journals.permissions 249 250 THE WORLD BANK ECONOMIC REVIEW source country, which should consider as skilled emigrants only people who received post-secondary training in their home country. After zeros and a few suspicious observations were eliminated, 1,580 observations remained for each age threshold (1990 and 2000 included). Survey data are not available for many countries, and when they are (for example, in the EU Labor Force Survey and in the European Community Household Panel), they do not provide representative cross-sectional pictures of immigrants' characteristics. Included as origin country characteristics in Zk are i democracy indicators and measures of public expenditures on primary, secondary, and tertiary education. And included as host country characteristics in Wk f are indicators of social expenditures, education expenditures,3 and degree of openness to immigration. Bringing together the census data on age of entry, which represent 77 percent of skilled immigrants to the OECD, and the estimated structure computed using the results of the parsimonious model for the remaining 23 percent5 provides alternative measures of the brain drain from which skilled immigrants who arrived before a given age are excluded.
Are Remittances Insurance?
(World Bank, 2007-05-30) Yang, Dean ; Choi, HwaJung
A basic theoretical result is that if there is a Pareto-efficient allocation of risk across individual entities (in this case, individual household members) in a risk-sharing arrangement, individual consumption should not be affected by idiosyncratic income shocks. Data and Sample Construction The empirical analysis uses data from linked household surveys conducted by the Philippine National Statistics Office covering a nationally representative household sample: the Labor Force Survey, the Survey on Overseas Filipinos, the Family Income and Expenditure Survey, and the Annual Poverty Indicators Survey. The variables included in the vector of controls, Wh, are a set of household characteristics in the first period (January June 1997): an indicator for urban location; five indicators for the household head's highest level of education completed (elementary, some high school, high school, some college, and college or more; less than elementary omitted); six indicators for head's occupation ( professional, clerical, service, production, other, not working; agricultural omitted); and log per capita household For example, a need to accumulate resources for a large household purchase (such as a vehicle) or some other lump-sum payment (tuition, medical expenses) might lead to both increased remittances, increased domestic labor supply, and increased domestic income. Table 4 presents the results from OLS and instrumental variable regressions where the outcome variable is the change in household expenditures between the January June 1997 and April September 1998 reporting periods, expressed as a share of initial (January June 1997) household expenditures. This may reflect the fact that international migration requires fixed up-front costs (such as fees to recruitment agencies), so that households facing credit and savings constraints become more willing or able to pay the fixed costs when current income increases. Impact of Domestic Income Shock on All Outcomes, 1997 98: Fixed Effect OLS and Instrumental Variable Estimates, Controlling for Exchange Rate Shock, Migrant Households Only Migrant households Ordinary least squares 20.080* (0.042) 0.500*** (0.071) 20.032 (0.021) Instrumental variable 20.639** (0.219) 0.256 (0.169) 20.107 (0.176) Outcome Total remittance Total expenditure Overseas worker indicator Number of observations 1,655 1,655 *Significant at 10 percent level; **Significant at 5 percent level A key question is whether remittance responses to income shocks depend on the performance or availability of alternative methods of coping with risk, such as asset sales, credit markets, and reciprocal transfer networks. One reason for the finding of such large responses of remittances to rainfall-driven income shocks could be that such shared shocks make it more difficult to access credit or interhousehold assistance networks that normally help households cope with risk. Policies to facilitate remittances include strengthening financial infrastructure and payment systems to lower the cost and broaden the reach of formal remittance channels.
The Anarchy of Numbers
(World Bank, 2007-05-30) Roodman, David
The way out of the quagmire, he argued, was for econometricians to explore larger regions of "specification space," systematically analyzing the relationship between assumptions and conclusions. Their evidence: the statistical significance in crosscountry panel growth regressions of an interaction term of total aid received and an indicator of the quality of recipient economic policies (aid  policy). Section I reviews the approaches and conclusions of the studies that are tested for robustness, section II describes the tests, and section III reports the results. The DAC considers a loan concessional if it has a grant element of at least 25 percent of the loan value, using a 10 percent discount rate. In contrast, EDA includes development loans, regardless of how concessional (for example, it includes loans on nearcommercial terms by the World Bank to middle-income countries such as Brazil), but counts only their grant element--that is, their net present value. 264 THE WORLD BANK ECONOMIC REVIEW diversity of conclusions about the slope of growth with respect to aid at the margin (table 2 illustrates these conclusions for the 20 largest aid recipients in 1998). Simple Correlations of Aid and Good Policy Measures, Four-Year Periods, on Available Observations EDA/real GDP EDA/real GDP ODA/real GDP ODA/exchange rate GDP 1.00 0.97 0.78 Inflation, budget balance, Sachs-Warner Inflation, budget balance, Sachs-Warner Inflation, Sachs-Warner CPIA 1.00 0.98 0.53 1.00 0.52 ODA/real GDP ODA/exchange rate GDP 1.00 0.82 Inflation, Sachs-Warner 1.00 CPIA 1.00 EDA, effective development assistance; ODA, net official development assistance; CPIA, World Bank's Country Policy Applying the Hadi procedure directly to a full, many-dimensioned data set typically identified 20 percent or more of observations as outliers. 275 ODA/ exchange rate GDP 0.05* (1.96) 275 INFL, BB, SACW INFL, SACW 0.29*** (3.12) 296 CPIA 20.03 (20.25) 264 12-year 0.06 (0.60) 96 Aid  policy Daid  negative shock Observations Aid  policy Observations Post-conflict 1 ÂAid  policy Observations Aid Aid2 Daid D(aid2) Observations 0.10* (1.70) 0.04*** (3.17) 234 0.14** (2.15) 344 0.18*** (3.92) 344 0.90*** (4.22) 20.02*** (23.83) 20.70*** (24.91) 0.01*** (3.64) 213 0.12* (1.84) 337 0.18*** (3.89) 337 0.03 (0.47) 0.02 (1.12) 242 0.02 ( Coefficients on Key Terms under Data Set Modifying Tests Original data set Specification Burnside and Dollar (2000) Collier and Dehn (2001) Key term Aid  policy Observations Aid  policy DAid  negative shock Observations Aid  policy Observations Post-coflict  aid  policy Observations Aid Aid2 DAid DAid 2 Observations Aid Aid  tropical area Observations Aid  environment Observations Full sample 0.19*** (2.61) 270 0.10* (1.70) 0.04*** (3.17) 234 0.14** (2.15) 344 0.18*** (3.92) 344 0.90***
Incremental Reform and Distortions in China's Product and Factor Markets
(World Bank, 2007-05-30) Zhang, Xiaobo ; Tan, Kong-Yam
Incremental Reform and Distortions in China's Product and Factor Markets Xiaobo Zhang and Kong-Yam Tan The purpose of economic reform is to reduce distortions and enhance efficiency. This could happen, for example, if increased interregional competition as a result of fiscal decentralization led local governments to impose trade protection measures against each other. For permissions, please e-mail: journals.permissions 279 280 THE WORLD BANK ECONOMIC REVIEW panel data set of 32 industries at the two-digit level of aggregation in 29 provinces, Bai and others (2004) find, after an initial decline, an increase in regional specialization of industrial production, suggesting diminishing impediments to regional trade flows. The second approach, drawing from the risk-sharing literature, is to check the degree of consumption smoothing across time and space, which is an important indicator of capital mobility and asset market completeness. As in Young, the analysis uses the following sum of the squared deviations of the sectoral output shares of China's provinces from the group average to the degree of product market integration: Unweighted measure : Weighed measure : XX Sij À j 2 S i j 1 2 XX i j N wi Sij À j 2 S where Sij denotes the share of sector j in province i's output; Sj is the group average Sij across provinces; wi denotes the province's share of total GDP of N 286 THE WORLD BANK ECONOMIC REVIEW TABLE 2. Graphing the unweighted and weighted measures of the composition of output shares for 1978 2001 shows similar results--the composition of output converges up to the early 1990s and diverges thereafter (figure 1). The results are supported by an independent early study by Yang and Zhou (1999), who find gains in aggregate output of 0.7 percent, 3.1 percent, and 5.8 percent based on the same three hypothetical percentage transfers of labor using 1992 as a baseline. This article has examined the changing patterns of distortions during the reform process, how past policies have contributed to these distortions, and the estimated cost to the economy through lower output and greater regional and sectoral disparity. However, in response to the increasing fragmentation in product markets, the government has undertaken measures to remove local protections. While empirical estimates and policy simulations can provide rough order of magnitude estimates of structural problems, policy recommendations on gradual elimination of these distortions need to take into account complex issues of political feasibility, sequencing, implementation problems, downside risks of policy measures, nature of vested interests and how to overcome them, the need to minimize negative side effects, and the effects on equity, regional disparity, and rural-urban inequality.
Migration, Remittances, and the Brain Drain
(World Bank, 2007-05-30) de Melo, Jaime
International migration will be one of the major challenges of the twenty-first century. Lower transaction and communication costs have already greatly eased the formation of migrant networks and reduced migration costs, for long a deterrent to migration from developing countries to developed countries. Migratory pressures will also increase as falling dependency ratios in developing countries contribute to the swelling of their labor forces. Remittances from migrants to developed countries should then help to close the developing-country developed-country divide.
Brain Drain in Developing Countries
(World Bank, 2007-05-30) Docquier, Frédéric ; Lohest, Olivier ; Marfouk, Abdeslam
Brain Drain in Developing Countries Frederic Docquier, Olivier Lohest, and Abdeslam Marfouk An original data set on international migration by educational attainment for 1990 and 2000 is used to analyze the determinants of brain drain from developing countries. The analysis starts with a simple decomposition of the brain drain in two multiplicative components, the degree of openness of sending countries (measured by the average emigration rate) and the schooling gap (measured by the education level of emigrants compared with natives). Yet recent theoretical studies emphasize several compensatory effects, showing that a limited but positive skilled emigration rate can be beneficial for sending countries (Commander, Kangasniemi, and Winters 2004; Docquier and Rapoport 2007; Beine, Docquier, and Rapoport 2001, forthcoming; Schiff 2005 provides a critical appraisal of this literature). However, without reliable comparative data Frederic Docquier (corresponding author) is a research associate at the National Fund for Economic Research; professor of economics at the Universite Catholique de Louvain, Belgium; and research fellow at the Institute for the Study of Labor, Bonn, Germany; his email address is docquier Olivier Lohest is a research is a researcher at the Institut Wallon de l'Evaluation, de la Prospective et de la Statistique, Regional Government of Wallonia Section I presents the data set on the brain drain, as measured by the emigration rate of post-secondary-educated workers, and describes the average brain drain from developing countries by income group and country size. Section II decomposes the brain drain into two multiplicative components: the degree of openness, measured by the average emigration rate of workingage natives, and the schooling gap, measured by the relative education attainment of emigrants compared with natives. 202 THE WORLD BANK ECONOMIC REVIEW The Docquier Marfouk (2006) study, which collected census, registry, and survey data from all OECD countries, enables the size of these biases for developing countries to be evaluated. 40 million) 1990 Worlda High-income countries Developing countries Low-income countries Lower medium-income countries Upper-medium-income countries Least developed countries Landlocked developing countries Small island developing economies Large developing countries (. Cross-Section Regression Results (2000 data) OLS-1 General model Variable Country size Native population (logs) Small island developing economies Level of development Proportion of post-secondary educated natives  100 (logs) GNI per capita (logs) Least developed country Oil exporting country Sociopolitical environment Political stability Government effectiveness Religious fractionalization Geographic and cultural proximity Distance from selectiveimmigration countries (logs) Distance from EU15 countries ( The analysis starts with a simple multiplicative decomposition of the brain drain into two components: degree of openness of sending countries, as measured by average or total emigration rate, and schooling gap, as measured by the relative education level of emigrants compared with natives.
Remittances and the Brain Drain
(World Bank, 2007-05-30) Faini, Riccardo
This trend is raising considerable concern among policymakers in developing countries, wary of having to bear the cost of educating and then losing their most entrepreneurial and talented workers. The possibility for educated migrants to move abroad should raise the returns to education and, in the end, may even lead to an increase in the number of educated workers who stay at home (Bhagwati and Hamada 1974; Bhagwati 1976; Mountford 1997; Stark, Helmenstein, and Prskawetz 1997, 1998). The European Community Household Panel is a closed panel and therefore cannot easily be used to study return migration. The key finding (table 1, column 3) is that more educated immigrants from non- EU countries are less likely to drop out of the panel, even after controlling for age, gender, employment status, and length of stay in the host country. The Pattern of Attrition in the European Community Household Panel Sample (dependent variable: probability that respondent does not drop out of the panel) Variable Household size Age Highest education Intermediate education Gender Employment Spouse Visitsa Minutesb Immigrant Immigrant EU Immigrant non-EU Lengthc ,5 years Lengthc 6 15 years Lengthc 16 25 years Constant Country dummy variable Time*origin Time dummy variable Number of observations Number of observations censored a Natives 0.012* Assume that the household is composed of two groups, one very close to the migrant and the other less close. Faini 185 Detragiache (1998) and Docquier and Marfouk (2004) relate the total number of skilled migrants to the Barro and Lee (2001) data set on educational achievements to derive a measure of migration rates for skilled workers, here defined as migrants having completed tertiary education. When the fact that 64 of 188 observations are censored at zero (using the Tobit maximum likelihood estimation procedure) is taken into account, the results are basically 8. In response to suggestions by a referee, a dummy variable for small island countries (mS/P) was introduced both additively and multiplicatively to capture the possibility that remittances are measured less accurately for these countries, which have the largest brain drain, thereby mechanically leading to a negative relation between (mS/P) and remittances. The findings of this article need to be confirmed by further research, especially at the household level.
Child Labor, School Attendance, and Intrahousehold Gender Bias in Brazil
(World Bank, 2007-05-30) Emerson, Patrick M. ; Souza, André Portela
Child Labor, School Attendance, and Intrahousehold Gender Bias in Brazil Patrick M. Emerson and Andre Portela Souza An extensive survey data set of Brazilian households is used to test whether intrahousehold gender bias affects the decisions of mothers and fathers to send their sons and daughters to work and to school. An intrahousehold allocation model is examined in which fathers and mothers may affect the education investment and the child labor participation of their sons and daughters differently because of differences in parental preferences or differences in how additional schooling affects sons' and daughters' acquisition of human capital. The results suggest that fathers generally have a greater impact on decisions about sons and mothers generally have a greater impact on decisions about daughters. These results support models of intrahousehold bargaining in the child labor and schooling decisions of a family, even though most theoretical work on child labor has assumed a unitary family model. This study uses Brazilian household survey data to estimate the impact of fathers' and mothers' education on the labor market status and school attendance of their sons and daughters separately. Bargaining models assume that household allocation outcomes reflect a bargaining process in which household members seek to allocate the resources they control to the goods that they individually prefer. 2 As male and female household heads may have different preferences in general, and different specific preferences for the outcomes for their children depending on the gender of the child, the allocation of resources within a household can be seen as the result of some kind of resolution of the preference differences of the male and female heads. Because the impact of both parents' human capital on the labor status and schooling of children is of primary concern, a sample of observations is used that has complete information on each parent's characteristics, including years of schooling. For example, if the policy goal is to reduce child labor, and child labor is predominantly a male activity in an economy, then the findings suggest that transfers allocated to the father may be more effective in reducing overall child labor than transfers to the mother. From a program effectiveness standpoint, it may be important to determine which parent receives the money, and how much they receive, based on the composition of the family and on the goals of the program.