Journal Issue: World Bank Economic Review, Volume 21, Issue 1

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Protecting the Vulnerable
(World Bank, 2007-01-30) Devarajan, Shantayanan ; Jack, William
In a risky world should governments provide public goods that reduce risk or compensate the victims of bad outcomes through social insurance? This article examines a basic question in designing social protection policies: how should a government allocate a fixed budget between these two activities? In the presence of income and risk heterogeneities a simple public insurance scheme that pays a fixed benefit to all households that suffer a negative shock is an effective redistributional instrument of public policy. This is true even when a well functioning private insurance market exists, and so the role of public insurance is not to correct a market failure. In fact, the existence of a private insurance market means that the public system has desirable targeting properties—all but the poor and high-risk take up private insurance. The provision of public goods that reduce risk for all should therefore be complemented with public insurance that (automatically) benefits those who are especially vulnerable.
The Incidence of Public Spending on Healthcare
(World Bank, 2007-01-30) O’Donnell, Owen ; van Doorslaer, Eddy ; Rannan-Eliya, Ravi P. ; Somanathan, Aparnaa ; Adhikari, Shiva Raj ; Harbianto, Deni ; Garg, Charu C. ; Hanvoravongchai, Piya ; Huq, Mohammed N. ; Karan, Anup ; Leung, Gabriel M. ; Ng, Chiu Wan ; Pande, Badri Raj ; Tin, Keith ; Tisayaticom, Kanjana ; Trisnantoro, Laksono ; Zhang, Yuhui ; Zhao, Yuxin
The article compares the incidence of public healthcare across 11 Asian countries and provinces, testing the dominance of healthcare concentration curves against an equal distribution and Lorenz curves and across countries. The analysis reveals that the distribution of public healthcare is prorich in most developing countries. That distribution is avoidable, but a propoor incidence is easier to realize at higher national incomes. The experiences of Malaysia, Sri Lanka, and Thailand suggest that increasing the incidence of propoor healthcare requires limiting the use of user fees, or protecting the poor Effectively from them, and building a wide network of health facilities. Economic growth may not only relax the government budget constraint on propoor policies but also increase propoor incidence indirectly by raising richer individuals’ demand for private sector alternatives.
A Short Note on Updating the Grilli and Yang Commodity Price Index
(World Bank, 2007-01-30) Pfaffenzeller, Stephan ; Newbold, Paul ; Rayner, Anthony
The Grilli and Yang commodity price index is one of the most widely used commodity price series in the applied economics literature. This note provides some practical advice on updating this data series by listing the base period index values, identifying relevant data sources, and describing a method for computing subindex weights.
Business Cycle Synchronization and Regional Integration
(World Bank, 2007-01-30) Fiess, Norbert
Deeper trade integration between Central America and the United States, as envisaged under the Central American Free Trade Agreement, is likely to lead to closer links between Central American and U.S. business cycles. This article assesses the degree of business cycle synchronization between Central America and the United States—relevant not only for a better understanding of the influence of important trading partners on the business cycle fluctuations in the domestic economy but for evaluating the costs and benefits of macroeconomic coordination.
Trade, Production, and Protection Database, 1976–2004
(World Bank, 2007-01-30) Nicita, Alessandro ; Olarreaga, Marcelo
The database described in this article provides researchers with a broad set of data on trade, production, and protection for 28 manufacturing sectors at the three-digit level of the International Standard Industrial Classification, Revision 2. The database covers up to 100 developing and developed countries over the period 1976–2004, but data availability varies by country and year. The trade, production, and protection database is available online and can be freely accessed through the World Bank trade website.
Dollars, Debt, and International Financial Institutions
(World Bank, 2007-01-30) Yeyati, Eduardo Levy
Financial dollarization is increasingly seen as a concern because of its tendency to contribute to financial crises and output volatility. As a result the debate on financial dollarization has shifted in favor of a more proactive stance on dedollarization. While often neglected, lending from international financial institutions is an important source of financial dollarization in emerging economies and must be considered in any dedollarization strategy. This article revisits old and new arguments in favor of international financial institution lending in the local currency and argues that any such initiative should rely, at least initially, on demand from residents seeking stable returns in units of the local consumption basket but who are reluctant to take on sovereign risk. Superior enforcement capacity enables international financial institutions to intermediate these savings, currently invested in dollarized foreign assets, back into the local economy. The international financial institutions can offer investment-grade local currency bonds and use the proceeds to dedollarize their own lending to noninvestment-grade countries, thereby reducing financial dollarization and fostering the development of local currency markets.
Growth and Risk
(World Bank, 2007-01-30) Elbers, Chris ; Gunning, Jan Willem ; Kinsey, Bill
How exposure to risk affects economic growth is a key issue in development. This article quantifies both the ex ante and ex post effects of risk using long-running panel data for rural households in Zimbabwe. It proposes a simulation-based econometric methodology to estimate the structural form of a micro model of household investment decisions under risk. The key finding is that risk substantially reduces growth in this particular setting: the mean capital stock in the sample is (in expectation) 46 percent lower than in the absence of risk. About two-thirds of the impact of risk is due to the ex ante effect (that is, the behavioral response to risk), which is usually not taken into account in policy design. These results suggest that policy interventions that reduce exposure to shocks or that help households manage risk could be much more effective than is commonly thought.
Did the Health Card Program Ensure Access to Medical Care for the Poor during Indonesia’s Economic Crisis?
(World Bank, 2007-01-30) Pradhan, Menno ; Saadah, Fadia ; Sparrow, Robert
The Indonesian Social Safety Net health card program was implemented in response to the economic crisis that hit Indonesia in 1997, to preserve access to health care services for the poor. Health cards were allocated to poor households, entitling them to subsidized care from public health care providers. The providers received budgetary support to compensate for the extra demand. This article focuses on the effect of the program on primary outpatient health care use, disentangling the direct effect of allocating health cards from the indirect effect of government transfers to health care facilities. For poor health card owners the program resulted in a net increase in use of outpatient care, while for nonpoor health card owners the program resulted mainly in a substitution from private to public health care. The largest effect of the program seems to have come from a general increase in the supply of public services resulting from the budgetary support to public providers. These benefits seem to have been captured mainly by the nonpoor. As a result, most of the benefits of the health card program went to the nonpoor, even though distribution of the health cards was propoor. The results suggest that had the program, in addition to targeting the poor, established a closer link between provision of services to the target groups and funding, the overall results would have been more propoor.