The research projects described here are directed by World Bank staff and funded by the Bank's central Research Support Budget (RSB). Research proposals being prepared with RSB funding are listed on page 9. For information about the research projects described here, contact the researchers at the Bank's main address (see back page).
Concern about the weaknesses of financial systems in transition economies has led to a "vulnerability minimization initiativeÓ in the World Bank designed to help protect financial systems against shocks. This effort must draw on a range of approaches to assess the strength and condition of financial systems. One approach that has shown promise in case studies of Latvia and Lithuania is flow-of-funds analysis.
This research project will apply flow-of-funds analysis
more systematically by extending the work to six other transition
economies: Estonia, Hungary, Kazakhstan, Poland, Romania, and
Russia. The eight case studies will then be compared and contrasted to
assess the usefulness of the approach and identify insights for
policymakers in the region.
RSB support: $16,000
The World Bank's World Development Report 1991: The Challenge of Development (New York: Oxford University Press, 1991) attempted to summarize the best current thinking about development when it was written. This research project will update the report to reflect the lessons of nearly a decade more of development experience.
The 1991 report characterized the preferred approach in development as market-friendly. It argued that prime responsibility for development rests with developing countries, which should emphasize investing in people through education, improving the climate for enterprises, opening economies to international trade and investment, and getting macroeconomic policy right.
This study will add new emphases to these messages. Beyond the quantity of education, it will look at its quality and distribution. Beyond the business climate, it will investigate structures of corporate governance. And beyond economic openness, it will address the risks and implications of globalization.
The study
will also add new dimensions. It will examine the financial sector and
financial regulation, drawing on lessons from the recent East Asian
crisis. It will also address market-based environmental policies,
giving fuller treatment to the relationships between trade openness,
growth, and the environment.
RSB support: $39,000
Staff weeks: 20
The province of Chiang Mai, in northern Thailand, saw a big expansion in cultivated land–and thus in deforestation–in 1986-96. Could fine-tuning agricultural policies slow the deforestation? It depends on whether the agricultural expansion has been population-driven (resulting from increases in the Hill Tribe population, which practices shifting cultivation) or market-driven (resulting from increases in production for export). If it has been market-driven, input subsidies and other measures introduced by the Thai government to increase the profitability of upland crops have probably exacerbated deforestation.
In reality, the deforestation has
probably been both population- and market-driven. To determine to what
extent deforestation can be influenced by agricultural policies, this
research project will explain variation in agricultural land across
villages in Chiang Mai as a function of village population, the price
of agricultural outputs, the wage rate, and prices of other
inputs. Using data from a biennial survey of Thai villages in 1986-96,
the research will construct a panel data set of input and output
prices and acreage devoted to different crops for about 1,100
villages. It will estimate separate models of land use for different
subdistricts to capture variance in price sensitivity. The research
will complement spatial models of deforestation being completed for
northern Thailand.
RSB support: $40,000
Understanding how policy actions can (or cannot) reduce poverty and inequality requires understanding the microeconomic processes underlying changes in household incomes. This research project is aimed at identifying those processes and eliciting implications for policy, especially in education and labor markets.
The research will be based on a simple model of the mechanisms through which household incomes and their distribution are affected by changes in the rates of return to assets or attributes in labor or product markets; changes in the distribution of human and physical capital; demographic trends; and individual decisions on labor force participation, occupation (self-employment or wage employment), marriage, and child-bearing. Individual income equations, labor supply equations, and a total household income equation will be jointly estimated for repeated cross-sectional surveys to capture effects over time. The resulting semi-reduced-form estimates of the determinants of household incomes will then be used to simulate changes in returns to education and in the educational makeup of the population (among other factors) and to trace the effect of these changes on labor force participation and on the level and distribution of household income.
The significance of focusing on household rather than individual incomes is illustrated by a pilot study of Taiwan (China). There, an increase in the returns to schooling between 1979 and 1992 that tended to aggravate inequality in individual earnings was more than offset by the equalizing effect of an expansion in education and changes in labor supply and occupational choice behavior. But for household incomes the unequalizing effect of higher returns to education was dominant and not offset by the labor supply effect.
The project will apply this approach to eight case
studies, four in East Asia–Indonesia, Malaysia, Taiwan (China), and
Thailand– and four in Latin America–Brazil, Colombia, Mexico, and
Venezuela–and synthesize the findings.
RSB support: $149,000
Staff weeks: 18
Trade liberalization has raised concerns about possible harm to the environment resulting from the predicted migration of "dirty industries" from industrial countries to developing countries with less stringent environmental regulation. Econometric analysis of this issue has been limited to single-equation models, which do not allow for the full complexity of the relationship between trade liberalization and environmental damage. For a country with a comparative advantage in dirty goods, the static effect of trade liberalization should worsen environmental damage. Yet trade liberalization also raises income–maybe even the growth rate of income–which is likely to increase environmental regulation. Thus the static and dynamic effects of trade liberalization may work in opposite directions.
This research project will test the effect of trade liberalization on the environment, capturing both the static and the dynamic relationships among trade, environment, and growth. It will estimate the effect of freer trade on water pollution in China, using a two-equation simultaneous system for a small trading economy. And it will test whether the relationships that emerge for water pollution also hold for some types of air pollution.
The project will draw on
provincial data for 1987-95, which include information on trade flows
and income, labor force, capital investment, and emissions of air and
water pollutants in manufacturing.
RSB support: $17,000
Staff weeks: 27
Agriculture accounts for 15-20 percent of GDP and employment in many of the transition economies of Europe and Central Asia (compared with 2-3 percent in market economies). Because of the sector's critical role in the livelihood of rural families in these transition economies, successful agricultural reforms could do much to improve rural standards of living. This research project is aimed at determining which models of reform are most effective under different conditions in moving toward market-oriented agriculture in the transition economies.
The project will survey experience with land reform and farm restructuring in 23 countries of Europe and Central Asia. It will assess agricultural performance and the effect of the reforms on the rural population, to identify winners and losers under the reforms. The research will also analyze the factors underlying the different choices made by countries in implementing reforms, including economic, political, social, and cultural conditions. And it will explore the reasons for the continued dominance of collective forms of organization and the obstacles to establishing individual farming.
The project is expected to produce a book providing
lessons and models from the reform experience for scholars,
international donor organizations, and policymakers in transition
economies.
RSB support: $39,550
Staff weeks: 20
Developing countries are contending with the labor market effects of evolving industrial structures, changing export markets, and trade liberalization. Obtaining a full picture of how labor markets adjust to such changes is difficult because most economic survey data sets for developing countries portray only the demand side (firms) or only the supply side (households). While some industrial countries have used administrative records to link the two types of data, greatly increasing their value for little additional cost, no such exercise has been carried out in a developing country. This research project aims to demonstrate the feasibility and usefulness of a procedure for linking firm and household survey data in developing countries through a case study in Morocco.
The project will use data from an annual
survey of manufacturers and from administrative records of the social
security administration to document job creation and destruction by
industry and the flow of workers into, out of, and within the formal
sector. This exercise will show how much the labor market
adjusts. Linking these data with the household survey data and
obtaining longitudinal earnings data for workers matched with a
sample, the project will then compare the fortunes of workers with
those of the firms employing them, to see who bears the brunt of the
adjustment burden.
RSB support: $39,980
Staff weeks: 2
Banking crises pose serious challenges for monetary authorities. These crises may affect the efficiency of monetary policy instruments, the usefulness of monetary indicators in predicting future movements in prices, and the impact of monetary policy–with possibly severe implications for the economy.
This research project will document general problems and distortions in the conduct of monetary policy during banking crises by analyzing the experience of 17 industrial and developing countries that endured such crises between 1970 and 1998. The analysis will compare periods of bank unsoundness with periods of soundness to investigate the effects of banking crises on the usefulness of monetary instruments and indicators and on the transmission of monetary policy.
The project will also assess the information
content of monetary indicators–their predictive power in explaining
the behavior of prices–during periods of bank unsoundness. This
analysis will distinguish between classical monetary indicators (M0,
M1, M2, discount rates), those most commonly used, and "supplemental"
indicators (asset prices, yield curves, exchange rates), which have
been used less often. Supplemental indicators tend to be less subject
to the distortions arising during periods of bank unsoundness and
might therefore help to predict prices during these periods.
RSB support: $39,600
Staff weeks: 28
Despite rapid growth in recent years, private capital for infrastructure investments in developing countries still falls short of needs. Investor confidence has been shaken by the recent financial crises, and boosting private capital flows will require measures to reduce investors' perception of risk. A key part of this in almost all private infrastructure projects is designing an appropriate regulatory framework. But there is little empirical evidence on how risks associated with regulatory frameworks affect private investment and the cost of debt capital in developing country infrastructure sectors.
This research project will investigate
whether certain types of regulatory risk affected the risk premiums
(spreads) of bonds issued to finance infrastructure projects in
developing countries in 1990-98. The project will look at risk
relating to three aspects of a legal and regulatory framework:
economywide laws and regulations governing taxation and foreign
investment; sector- and project-specific regulations, including
regulatory transparency and predictability; and quasi-commercial risks
of contractual nonperformance by the government or government
entities. The analysis will also incorporate macroeconomic, bond, and
political risk characteristics. The project will identify the relative
importance of the regulatory risk factors, providing information
useful in designing regulatory reforms.
RSB support: $39,900
Staff weeks: 15
Using data on manufacturing firms in Taiwan (China), this research project will look at the behavior of firms as they make choices relating to hiring or firing workers and entering or exiting export activities, and at the implications of those choices for the firms' productivity. The goal is to identify the mechanisms linking job reallocation, export activity, and productivity growth so as to provide empirical foundation for economic policymaking.
First, the project will explore the pattern of job reallocation across firms and industries and relate this pattern to the long-run productivity growth of the firms and industries. It will investigate how the rates of job creation and job destruction vary with firm attributes of age, size, productivity growth, and investments in capital equipment and new technology. And it will investigate the role of these attributes in the rates of job creation and destruction. Second, the study will link the results on job reallocation and productivity to firms' export activity, to see how the relationship between job creation or destruction and productivity differs between exporters and nonexporters.
The
research will draw on detailed data for large, small, and medium-sized
enterprises collected in the 1981, 1986, and 1991 industrial censuses
in Taiwan (China).
RSB support: $20,000
Staff weeks: 4