Development Research Group, The World Bank
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Macroeconomics, Debt management, Economic growth, Inequality and shared prosperity
Development Research Group, The World Bank
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Last updated January 31, 2023
Aart Kraay is Director of Research in the Development Research Group at the World Bank. He joined the World Bank in 1995 after earning a Ph.D. in economics from Harvard University (1995), and a B.Sc. in economics from the University of Toronto (1990). His research interests include international capital movements, growth and inequality, governance, and the Chinese economy. His research on these topics has been published in scholarly journals such as the Quarterly Journal of Economics, the Review of Economics and Statistics, the Economic Journal, the Journal of Monetary Economics, the Journal of International Economics, and the Journal of the European Economic Association. He is an associate editor of the Journal of Development Economics, and co-editor of the World Bank Economic Review. He has also held visiting positions at the International Monetary Fund and the Sloan School of Management at MIT, and has taught at the School of Advanced International Studies at Johns Hopkins University.
Publication Search Results
Now showing 1 - 9 of 9
Product Quality, Productive Efficiency, and International Technology Diffusion : Evidence from Plant-Level Panel Data(World Bank, Washington, DC, 2002-01) Kraay, Aart ; Soloaga, Isidro ; Tybout, JamesWhat mechanisms most frequently transmit foreign technologies to developing country firms? Do these foreign technologies affect both productive efficiency and product quality in the recipient firms? Under what circumstances do firms pursue activities that give them access to foreign knowledge? To address these questions, the authors develop a new methodology and apply the framework to plant-level panel data from Colombia, Mexico, and Morocco. Their results point to several basic messages. First, by imposing enough structure on the production function and the demand system, it is possible to measure product quality and marginal costs at the plant level and to relate the evolution of these variables to firms' activity histories. Doing so, the authors find strong firm-level persistence in both quality and marginal costs. But in most industry or country panels that they study, past international activities help little in predicting current performance once past realizations on quality and marginal cost are controlled for. That is, activities do not typically Granger-cause performance. Interestingly, in the minority of cases where significant associations emerge, international activities appear to move costs and product quality in the same direction. So the net effect on profits in these cases is not immediately apparent. Second, several basic patterns emerge with respect to the determinants of international activities. Most fundamentally, activities are highly persistent, even after unobserved heterogeneity is controlled for. That suggests that firms incur sunk threshold costs when they initiate or cease activities, so temporary policy or macroeconomic shocks may have long-run effects on the patterns of activities observed in a particular country or industry. Also, activities tend to go together, so that studies that relate firms' performance to one international activity and ignore the others may generate misleading conclusions. But the bundling of activities seems to mainly reflect unobserved plant characteristics, such as managerial philosophy, contacts, product niche, and location. Once these are controlled for, there is little evidence that engaging in one international activity increases the probability that a firm will engage in others in the future.
Publication(World Bank, Washington, DC, 2001-04) Dollar, David ; Kraay, AartWhen average income rises, the average incomes of the poorest fifth of society rise proportionately. This is a consequence of the strong empirical regularity that the share of income accruing to the bottom quintile does not vary systematically with average income. The authors document this empirical regularity in a sample of 92 countries spanning the past four decades and show that it holds across regions, periods, income levels, and growth rates. The authors next ask whether the factors that explain cross-country differences in the growth rates of average incomes have differential effects on the poorest fifth of society. They find that several determinants of growth--such as good rule of law, opennness to international trade, and developed financial markets--have little systematic effect on the share of income that accrues to the bottom quintile. Consequently, these factors benefit the poorest fifth of society as much as everyone else. Thee is some weak evidence that stabilization from high inflation and reductions in the overall size of government not only increase growth but also increase the income share of the poorest fifth in society. Finally, the authors examine several factors commonly thought to disproportionately benefit the poorest in society, but find little evidence of their effects. The absence of robust findings emphasizes that relatively little is known about the broad forces that account for the cross-country and intertemporal variation in the share of income accruing to the poorest fifth of society.
Publication(World Bank, Washington, DC, 2007-08) Geginat, Carolin ; Kraay, AartMultilateral development banks are frequently accused of "defensive lending," the practice of extending new loans purely in order to ensure that existing loans are repaid. This paper empirically examine this hypothesis using data on lending by and repayments to the International Development Association (IDA), which is the largest provider of concessional development loans to low-income countries. The authors argue that key institutional features of IDA both (i) potentially create incentives for defensive lending, and (ii) enable particularly sharp tests of the defensive lending hypothesis. The authors find that there is a surprisingly robust partial correlation between disbursements on new IDA loans and repayments on existing loans. However, a closer look at the evidence suggests that defensive lending is unlikely to be a major explanation for this partial correlation.
Publication(World Bank, Washington, DC, 2007-10) Kaufmann, Daniel ; Kraay, AartScholars, policymakers, aid donors, and aid recipients acknowledge the importance of good governance for development. This understanding has spurred an intense interest in more refined, nuanced, and policy-relevant indicators of governance. In this paper we review progress to date in the area of measuring governance, using a simple framework of analysis focusing on two key questions: (i) what do we measure? and, (ii) whose views do we rely on? For the former question, we distinguish between indicators measuring formal laws or rules 'on the books', and indicators that measure the practical application or outcomes of these rules 'on the ground', calling attention to the strengths and weaknesses of both types of indicators as well as the complementarities between them. For the latter question, we distinguish between experts and survey respondents on whose views governance assessments are based, again highlighting their advantages, disadvantages, and complementarities. We also review the merits of aggregate as opposed to individual governance indicators. We conclude with some simple principles to guide the refinement of existing governance indicators and the development of future indicators. We emphasize the need to: transparently disclose and account for the margins of error in all indicators; draw from a diversity of indicators and exploit complementarities among them; submit all indicators to rigorous public and academic scrutiny; and, in light of the lessons of over a decade of existing indicators, to be realistic in the expectations of future indicators.
Publication(World Bank, Washington, DC, 2008-06) Kaufmann, Daniel ; Kraay, Aart ; Mastruzzi, MassimoThis paper reports on the latest update of the Worldwide Governance Indicators (WGI) research project, covering 212 countries and territories and measuring six dimensions of governance between 1996 and 2007: Voice and Accountability, Political Stability and Absence of Violence/Terrorism, Government Effectiveness, Regulatory Quality, Rule of Law, and Control of Corruption. The latest aggregate indicators are based on hundreds of specific and disaggregated individual variables measuring various dimensions of governance, taken from 35 data sources provided by 32 different organizations. The data reflect the views on governance of public sector, private sector and NGO experts, as well as thousands of citizen and firm survey respondents worldwide. The authors also explicitly report the margins of error accompanying each country estimate. These reflect the inherent difficulties in measuring governance using any kind of data. The authors also briefly describe the evolution of the WGI since its inception, and show that the margins of error on the aggregate governance indicators have declined over the years, even though they still remain non-trivial. The authors find that even after taking margins of error into account, the WGI permit meaningful cross-country comparisons as well as monitoring progress over time. In less than a decade, a substantial number of countries exhibit statistically significant improvements in at least one dimension of governance, while other countries exhibit deterioration in some dimensions. These aggregate indicators, spanning more than a decade, together with the disaggregated individual indicators, are available at www.govindicators.org.
Publication(World Bank, Washington, DC, 2008-05) Kraay, AartThe validity of instrumental variables (IV) regression models depends crucially on fundamentally untestable exclusion restrictions. Typically exclusion restrictions are assumed to hold exactly in the relevant population, yet in many empirical applications there are reasonable prior grounds to doubt their literal truth. In this paper I show how to incorporate prior uncertainty about the validity of the exclusion restriction into linear IV models, and explore the consequences for inference. In particular I provide a mapping from prior uncertainty about the exclusion restriction into increased uncertainty about parameters of interest. Moderate prior uncertainty about exclusion restrictions can lead to a substantial loss of precision in estimates of structural parameters. This loss of precision is relatively more important in situations where IV estimates appear to be more precise, for example in larger samples or with stronger instruments. The author illustrates these points using several prominent recent empirical papers that use linear IV models.
Publication(World Bank, Washington, DC, 2000-09) Ghosh, Swati R. ; Kraay, AartGains in total factor productivity (TFP) reflecting more efficient use of inputs, have long been recognized as an important source of improvements in income and welfare. Cross-country differences in income levels and growth rates are mostly due to differences in productivity. Measuring TFP is therefore important in assessing countries' past and potential economic performance. But it is also difficult. This note discusses some of the difficulties using data for the Republic of Korea in 1960-70 for illustration.
Publication(World Bank, Washington, DC, 2000-01) Kraay, AartDrawing on evidence from a large sample of speculative attacks in industrial and developing countries, the author argues that high interest rates do not defend currencies against speculative attacks. In fact, there is a striking lack of any systematic association between interest rates and the outcome of speculative attacks. The lack of clear empirical evidence on the effects of high interest rates during speculative attacks mirrors the theoretical ambiguities on this issue.
Publication( 2009-06-01) Kaufmann, Daniel ; Kraay, Aart ; Mastruzzi, MassimoThis paper reports on the 2009 update of the Worldwide Governance Indicators (WGI) research project, covering 212 countries and territories and measuring six dimensions of governance between 1996 and 2008: Voice and Accountability, Political Stability and Absence of Violence/Terrorism, Government Effectiveness, Regulatory Quality, Rule of Law, and Control of Corruption. These aggregate indicators are based on hundreds of specific and disaggregated individual variables measuring various dimensions of governance, taken from 35 data sources provided by 33 different organizations. The data reflect the views on governance of public sector, private sector and NGO experts, as well as thousands of citizen and firm survey respondents worldwide. The authors also explicitly report the margins of error accompanying each country estimate. These reflect the inherent difficulties in measuring governance using any kind of data. They find that even after taking margins of error into account, the WGI permit meaningful cross-country comparisons as well as monitoring progress over time. The aggregate indicators, together with the disaggregated underlying indicators, are available at www.govindicators.org.