Journal Issue: World Bank Economic Review, Volume 23, Issue 1

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Psychological Health Before, During, and After an Economic Crisis : Results from Indonesia, 1993–2000
(World Bank, 2009-02-28) Thomas, Duncan ; Friedman, Jed
The 1997 Indonesian financial crisis resulted in severe economic dislocation and political upheaval. Previous studies have established the detrimental consequences for economic welfare, physical health, and child education. The crisis also affected the psychological well-being of the Indonesian people. Comparing responses of the same individuals interviewed before and after the crisis, this study documents substantial increases in several dimensions of psychological distress among men and women across the age distribution. It shows larger impacts of the economic crisis on the more vulnerable groups, including those with low education, the rural landless, urban residents, and those in provinces most affected by the crisis. Elevated psychological distress persists even after the economy returns to precrisis levels, suggesting that the deleterious effects of the crisis may persist longer on the psychological well-being of the Indonesian population than on standard measures of economic well-being.
Mental Health Patterns and Consequences : Results from Survey Data in Five Developing Countries
(World Bank, 2009-02-28) Das, Jishnu ; Do, Quy-Toan ; Friedman, Jed ; McKenzie, David
The social and economic consequences of poor mental health in the developing world are presumed to be significant, yet remain underresearched. This study uses data from nationally representative surveys in Bosnia and Herzegovina, Indonesia, and Mexico and from special surveys in India and Tonga to show similar patterns of association between mental health and socioeconomic characteristics. Individuals who are older, female, widowed, and report poor physical health are more likely to report worse mental health. Individuals living with others with poor mental health are also significantly more likely to report worse mental health themselves. In contrast, there is little observed relation between mental health and consumption poverty or education, two common measures of socioeconomic status. Indeed, the results here suggest instead that economic and multidimensional shocks, such as illness or crisis, can have a greater impact on mental health than poverty. This may have important implications for social protection policy. Also significant, the associations between poor mental health and lower labor force participation (especially for women) and more frequent visits to health centers suggest that poor mental health can have economic consequences for households and the health system. Mental health modules could usefully be added to multipurpose household surveys in developing countries. Finally, measures of mental health appear distinct from general subjective measures of welfare such as happiness.
Infrastructure and Public Utilities Privatization in Developing Countries
(World Bank, 2009-02-28) Auriol, Emmanuelle ; Picard, Pierre M.
Should governments in developing countries promote private ownership and deregulated prices in noncompetitive sectors? Or should they run publicly owned firms and regulate prices at the expense of rents to insiders? A theoretical model is used to answer these normative questions. The analysis focuses on the tradeoff between fiscal benefits and consumer surplus during privatization of noncompetitive sectors. Privatization transfers control rights to private interests and eliminates public subsidies, yielding benefits to taxpayers at the cost of increased prices for consumers. In developing countries, where budget constraints are tight, privatization and price liberalization may be optimal for low profitability industries but suboptimal for more profitable industries. And once a market has room for more than one firm, governments may prefer to regulate the industry. Without a credible regulatory agency, regulation is achieved through public ownership.
Globalization and the Gender Wage Gap
(World Bank, 2009-02-28) Oostendorp, Remco H.
There are several theoretical reasons why globalization will have a narrowing as well as a widening effect on the gender wage gap, but little is known about the actual impact, except for some country studies. This study contributes to the literature in three respects. First, it is a large cross-country study of the impact of globalization on the gender wage gap. Second, it employs the rarely used ILO October Inquiry database, which is the most far-ranging survey of wages around the world. Third, it focuses on the within-occupation gender wage gap, an alternative to the commonly used raw and residual wage gaps as a measure of the gender wage gap. This study finds that the occupational gender wage gap tends to decrease with increasing economic development, at least in richer countries, and to decrease with trade and foreign direct investment (FDI) in richer countries, but finds little evidence that trade and FDI also reduce the occupational gender wage gap in poorer countries.
Decentralizing Eligibility for a Federal Antipoverty Program
(World Bank, 2009-02-28) Ravallion, Martin
In theory, the informational advantage of decentralizing the eligibility criteria for a federal antipoverty program could come at a large cost to the program's performance in reaching the poor nationally. Whether this happens in practice depends on the size of the local-income effect on the eligibility cutoffs. China's Di Bao program provides a case study. Poorer municipalities adopt systematically lower thresholds—roughly negating intercity differences in need for the program and generating considerable horizontal inequity, so that poor families in rich cities fare better. The income effect is not strong enough to undermine the program's overall poverty impact; other factors, including incomplete coverage of those eligible, appear to matter more.
Systemic Risk, Dollarization, and Interest Rates in Emerging Markets
(World Bank, 2009-02-28) Bacha, Edmar L. ; Holland, Márcio ; Gonçalves, Fernando M.
This study investigates the impact of systemic risks and financial dollarization on real interest rates in emerging economies. Higher systemic risks induce both higher real interest rates and increased dollarization. Using appropriate instruments for the dollarization ratio, the study overcomes the simultaneous equation problem and correctly estimates a negative coefficient for the dollarization ratio in the interest rate equation. It confirms the theoretical prediction that a strategy of "dedollarizing" the economy will raise the equilibrium domestic real interest rate if the strategy fails to address fundamental macroeconomic risks. Even so, it also finds that this effect is small, after controlling for the risks of dilution and default. The results bring to light the systemic-risk reasons for high interest rates in emerging economies—and contribute to evaluating the difficulties of dedollarization policies.
Quantitative Approaches to Fiscal Sustainability Analysis : A Case Study of Turkey since the Crisis of 2001
(World Bank, 2009-02-28) Budina, Nina ; van Wijnbergen, Sweder
This case study of fiscal sustainability in Turkey after the crisis in 2001 reviews and extends quantitative approaches to fiscal sustainability analysis and brings them together in a user-friendly tool applicable in a data-sparse environment. It combines a dynamic simulations approach with a steady-state consistency approach. It also incorporates user-defined stress tests and stochastic simulations to deal with uncertainty. And it derives the future distribution of debt-output ratios, evaluating the fiscal adjustment required to stabilize them. Value at Risk analysis shows that considerable risks remain unless explicit feedback rules from debt surprises to the primary surplus are implemented.