Journal Issue: World Bank Economic Review, Volume 32, Issue 2

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The Short-Run Impact of Import Bans on Poverty: The Case of Nigeria (2008–2012)
(Published by Oxford University Press on behalf of the World Bank, 2018-06) Dabalen, Andrew ; Nguyen, Nga Thi Viet
The Nigerian government uses food import prohibition as part of policies that seeks to protect existing domestic producers and reduce the country's dependence on imports. This paper argues that such policies have negative effects on net consumers of such products due to higher prices. With 70 percent of poor households' budget spent on food, and about 13 percent of the total budget devoted to products subject to import bans, poor households are vulnerable to such trade policies. Prices of some import prohibited food products are found to be higher than what they would be in the absence of such bans. The elimination of import bans is estimated to reduce national poverty rates by as much as 2.6 percentage points.
Determinants of Productivity and Structural Change in a Large Commercial Farm Environment: Evidence from Ukraine
(Published by Oxford University Press on behalf of the World Bank, 2018-06) Deininger, Klaus ; Nizalov, Denys ; Singh, Sudhir K.
The coincidence of productivity improvements and growth of agriholdings in Ukraine over the last decade is often interpreted as evidence of technology-induced increasing returns to scale and superiority of very large farms. Panel data for the country’s commercial farms in 2001–2012 do not allow us to reject the hypothesis of constant returns to scale but point toward the importance of farms and rayon- (district) fixed effects. This suggests productivity growth was driven by exit of unproductive and entry of more efficient farms. Higher initial shares of area under farms above 3,000 or 5,000 ha at rayon level significantly reduce subsequent exit, pointing towards one channel through which land concentration may reduce productivity growth.
Top Incomes and the Measurement of Inequality in Egypt
(Published by Oxford University Press on behalf of the World Bank, 2018-06) Hlasny, Vladimir ; Verme, Paolo
This study exploits unprecedented access to income data and a combination of newly developed statistical methods to evaluate income inequality in Egypt and test for potential top incomes biases. Income inequality in Egypt is found to be low by regional and world standards; top incomes are found to follow the Pareto distribution and do not show anomalies compared to surveys worldwide. Correcting for top incomes biases increases the Gini coefficient significantly. The magnitude of the upward correction varies between 1.1 and 4.1 percentage points depending on the choice of correction method and welfare measure.
The Microfinance Business Model: Enduring Subsidy and Modest Profit
(Published by Oxford University Press on behalf of the World Bank, 2018-06) Cull, Robert ; Demirgüç-Kunt, Asli ; Morduch, Jonathan
Recent evidence suggests only modest social and economic impacts of microfinance. Favorable cost-benefit ratios then depend on low costs. This paper calculates the costs of microcredit and other elements of the microcredit business model using proprietary data on 1,335 microfinance institutions between 2005 and 2009, jointly serving 80.1 million borrowers. The costs of making small loans to poorer clients are high, and when revenues fall short of costs, subsidies are necessary to deliver services to those clients on a sustainable basis. Using a method that accounts for the opportunity costs of all forms of subsidy, the analysis finds that the median institution receives five cents of subsidy per dollar lent and $51 of subsidy per borrower (in PPP-adjusted terms). Relatively low levels of median subsidy suggest that even modest benefits of microcredit could yield impressive cost-benefit ratios. The distribution of subsidies is highly skewed, however: the average subsidy per dollar lent is 13 cents, and the average subsidy per borrower is $248. The data show that subsidies per borrower are substantially higher for commercial microfinance banks and some non-bank financial institutions that make relatively large loans. MFIs organized as non-governmental organizations (NGOs), in contrast, generally rely less on subsidy.
Geopolitics, Aid, and Growth: The Impact of UN Security Council Membership on the Effectiveness of Aid
(Published by Oxford University Press on behalf of the World Bank, 2018-06) Dreher, Axel ; Eichenauer, Vera Z. ; Gehring, Kai
We investigate the effects of short-term political motivations on the effectiveness of foreign aid. Specifically, we test whether the effect of aid on economic growth is reduced by the share of years a country served on the United Nations Security Council (UNSC) in the period the aid is committed, which provides quasi-random variation in aid. Our results show that the effect of aid on growth is significantly lower when aid was committed during a country’s tenure on the UNSC. This holds when we restrict the sample to Africa, which follows the strictest norm of rotation on the UNSC and thus where UNSC membership can most reliably be regarded as exogenous. We derive two conclusions from this. First, short-term political favoritism reduces the effectiveness of aid. Second, results of studies using political interest variables as instruments for overall aid arguably estimate the effect of politically motivated aid and thus a lower bound for the effect of all aid.
Career Choices and the Evolution of the College Gender Gap
(Published by Oxford University Press on behalf of the World Bank, 2018-06) Rossi, Martin A. ; Ruzzier, Christian A.
The opportunity cost for men of pursuing a college degree has been rising due to the increase in the rewards to becoming a superstar in occupations typically dominated by men, like professional sports. This suggests a novel explanation for the evolution of the college gender gap (which shows a clear upward trend in female college enrollments relative to male enrollments). Causal evidence from a natural experiment in European soccer markets—that provides exogenous variation in the expected earnings for men associated with a superstar path—supports this explanation: an increase in male earnings has a significant positive effect on the ratio of female to male tertiary enrollment in college education. Results are robust to using different samples of countries, to allowing for regional time trends, to analyzing lagged effects, to changing the definition of the treatment, and to exploiting alternative definitions of exposure.
Trains, Trade, and Transaction Costs: How Does Domestic Trade by Rail Affect Market Prices of Malawi Agricultural Commodities?
(Published by Oxford University Press on behalf of the World Bank, 2018-06) Zant, Wouter
We measure the impact of low-cost transport by rail in Malawi on the dispersion of agricultural commodity prices across markets by exploiting the quasi-experimental design of the nearly total collapse of domestic transport by rail in January 2003 due to the destruction of a railway bridge at Rivirivi, Balaka. Estimations are based on monthly market prices of four agricultural commodities (maize, groundnuts, rice, and beans) in 27 local markets for the period 1998–2006. Market pairs connected by rail when the railway line was operational are intervention observations. Railway transport services explain a 14 to 17 percent reduction in price dispersion across markets. Geographical reach of trade varies by crop, most likely related to storability and geographical spread of production. Perishability appears to increase impact, reflecting limited scope for arbitrage. Overall, impacts are remarkably similar in size across commodities.
Who Benefited from Burundi’s Demobilization Program?
(Published by Oxford University Press on behalf of the World Bank, 2018-06) D’Aoust, Olivia ; Sterck, Olivier ; Verwimp, Philip
This paper assesses the impact of the demobilization, reinsertion and reintegration program in post-war Burundi. Two major rebel groups benefited from cash and in-kind transfers, the CNDD-FDD from 2004, and the FNL from 2010. We combine panel data of households collected in 2006 and 2010 with official records from the National Commission for Demobilization, Reinsertion and Reintegration. We find that the cash payments received by FNL demobilized households had a positive impact on consumption, nonfood spending and investments. The program also generated positive spillovers in the villages where FNL combatants returned. Ex-combatants indeed spent a large part of their allowance on consumption goods and clothing, thereby generating a short-run economic boom in villages. However, the long-run evolution of consumption indicators is negative for CNDD-FDD households, as well as for villages where CNDD-FDD combatants returned, suggesting that the direct impact and the spillovers of the program vanished in the long run.
What Type of Finance Matters for Growth? Bayesian Model Averaging Evidence
(Published by Oxford University Press on behalf of the World Bank, 2018-06) Hasan, Iftekhar ; Horvath, Roman ; Mares, Jan
We examine the effect of finance on long-term economic growth using Bayesian model averaging to address model uncertainty in cross-country growth regressions. The literature largely focuses on financial indicators that assess the financial depth of banks and stock markets. We examine these indicators jointly with newly developed indicators that assess the stability and efficiency of financial markets. Once we subject the finance-growth regressions to model uncertainty, our results suggest that commonly used indicators of financial development are not robustly related to long-term growth. However, the findings from our global sample indicate that one newly developed indicator—the efficiency of financial intermediaries—is robustly related to long-term growth.
If It Pays, It Stays: Can Agribusiness Internalize the Benefits of Malaria Control?
(Published by Oxford University Press on behalf of the World Bank, 2018-06) Sedlmayr, Richard
Might a malaria control intervention entail agricultural effects that allow a commercial agribusiness to offset its costs? The randomized allocation of 39,936 insecticide-treated mosquito nets among 81,597 smallholder cotton farming households in 1,507 clusters helps evaluate this in the context of Zambia's cotton outgrowing industry. But despite large health impacts on treated households, no impact on cotton deliveries to the agribusiness is detected. With some caveats, the results tend to strike a discord with recent evidence on the agricultural productivity effects of malaria control.
Environmental Shocks and Sustainability in Microfinance: Evidence from the Great Famine of Ireland
(Published by Oxford University Press on behalf of the World Bank, 2018-06) Goodspeed, Tyler Beck
I study the effects of a major environmental shock on microfinance lending by analyzing the Irish Loan Funds during the Great Famine of Ireland. I find that funds in districts worse affected by blight experienced higher failure rates and greater credit retrenchment and flight-to-quality than funds in less affected districts. Though greater leverage was generally associated with a higher predicted probability of institutional survival, the reverse was true where blight infection was more severe, and though more profitable funds were generally no more likely to survive, higher pre-famine margins were positive predictors of institutional survival where blight infection was worse. Results further indicate that the primary mechanisms by which pre-famine balance sheet metrics influenced survival probabilities were differential balance sheet contraction and flight-to-quality during the famine. The results of this study, therefore, suggest that optimal lending models in ordinary circumstances may render microfinance institutions (MFIs) more vulnerable to tail-probability aggregate shocks, with higher leverage, lower paid staff, lower economic rents, and more extensive liabilities limiting the scope for credit retrenchment and flight-to-quality. Results further indicate that one cost of MFI resilience to adverse environmental change is substantially reduced outreach to borrowers of lower credit quality.
What Is the Equity-Efficiency Tradeoff When Maintaining Wells in Rural Haiti?
(Published by Oxford University Press on behalf of the World Bank, 2018-06) Aliprantis, Dionissi
This paper quantitatively compares water infrastructure interventions that prioritize equity with those that prioritize efficiency. The community-based model developed by Haiti Outreach (HO) trains communities to operate and maintain wells and has clear efficiency gains over the status quo aid model in Haiti that gives communities wells: HO’s wells were 8.7 percentage points more likely to be functioning after one year than similarly-constructed wells managed under the status quo model. Because HO’s model includes user fees, which raise concerns about equity, I quantify the equity-efficiency tradeoff posed by community-based and aid interventions by determining the preferences of a social planner indifferent between these types of water infrastructure interventions. Since HO’s user fees are only 0.6 percent of median income in rural Haiti, under most specifications the efficiency gains of the community-based model outweigh the equity concerns addressed by the aid model.