agriculture and development...determine their income in various occupations and in their grew faster...

I Go~ r- I OW O R L D B A N K P O L I C Y A N D R E S E A R C H

January--March 1997

Volume 8 Number 1

5 New Research

11 Publications and Data

16 Order Form

Agriculture and development

echnological change in agriculture has two important agriculture has traditionally served asthe laboratory for testing the validity of

effects on an economy. It increases the food supply while economic propositions, induding thoseX ~~~~~~~~~~~~~~~~~~~applying to other aspects of growth.

_1.. prices decline, thus improving consumer welfare. And itSupply and demand

makes it possible to produce more with relatively less labor, thus freeing Underlying much of the concern with

agricultural development is the fear oflabor for the development of the rest of the economy. future supply shortages. True, some

(mostly developing) countries have suf-

The share of agriculture in the total labor force has declined fered food shortages for long periods, and there have been

worldwide. The share varies widely among countries but is many incidents of hunger in affluent economies. But

high in less developed economies. Even so, it has declined in although traumatic, these cases do not give a true global

all countries, with the median share down from 70 percent picture.

in 1950 to 33 percent in 1990. Few indicators are better Agricultural production growth can be expressed as sim-

able to show the role of agriculture and agrotechnology in ple growth rates, with an equal weight for each country, or

economic development (box 1). adjusted for the relative size of agricultural production in

That some of the long-run benefits of technological each country. When growth rates for 1967-92 for 130

change in agriculture-more output at lower prices and countries are plotted using equal weights, there is a wide

more labor for other activities-are not captured by agricul- spread in performance, but most countries show positive

ture but by the rest of the economy has important policy growth and the median rate is 1.92 percent a year (figure 1).

implications for the finance of agricultural research: the cost Because some low-growth countries are small agricultural

should be carried by the public at large, not by agriculture producers, however, this calculation does not provide a real-

alone. And because the fruits of research are eventually istic view of changes in global supply: better to take into

spread to all countries, research financing should be account the relative size of a country's agricultural produc-

international. tion. Countries with negative agricultural production

growth carry little weight in their contribution to world

The issues food production. The median average growth of the

Much of the interest in agrotechnology and research is due weighted distribution is 2.25 percent. That means that

to agriculture's unique role as a supplier of food, its impor- countries in which growth exceeded 2.25 percent accounted

tance to the welfare of farmers and others in the rural popu- for half of all food production; countries with lower (but

lation, and its role in economic development. Moreover, usually positive) growth accounted for the rest. And in most

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countries per capita agricultural production grew, so thatBOX 1 food became more plentiful (figure 2).Shifts in agricultural labor: Has supply lagged demand? If that were so, agricultural

Economic development, structural change, and economic prices would have risen. They didn't (figure 3). The median

reforms require changes in resource allocation. The pace- growth of the unweighted distribution of domestic farm pricesand often the success-of these processes depend crucially (deflated by domestic consumer price indices) is -0.45 percenton the speed of that adjustment. A fundamental resource a year. When countries are weighted by their importance inadjustment is the allocation of the labor force between agri- world production, the median rises to -0.61 percent. The ver-culture and the rest of the economy. As economies develop, tical line at zero growth in figure 3 cuts the weighted distribu-the share of agricultural labor in total labor falls to 2 to 3 tion at 0.71, indicating that 71 percent of world production inpercent. In that way off-farm migration helps the develop- 1967-92 came from countries in which real prices fell.ment of the rest of the economy. What determines the pace Because the prices are for aggregate output, their rates ofof this process? Is it due mainly to market imperfections oris it a fundamental outcome of a dynamic equilibrium? change tend to be biased upward. As income increases, there

An underlying premise in the study of migration is that is a shift in consumption and production to higher-valuepeople compare the benefits of shifting to off-farm employ- products, which causes the aggregate price to rise. So ament against the costs. Because people differ in the skills that decline in prices despite an upward bias suggests that supplydetermine their income in various occupations and in their grew faster than demand.cost of migration, some will find it to their advantage tomove off the farm while others will not. When income dif- Demand and agricultural growthferences between occupations increase, more people migrate. What are the sources of the spread in agricultural growth

This general assertion is supported empirically in a study rates? Most agricultural products are tradable, and so thereof off-farm migration that finds the rate of migrationbetween 1950 and 1990 to be positively related to the is no need for a country to increase production to meet itSincome differential between agriculture and nonagricul- domestic demand. Some countries can benefit from com-ture.1 The labor supply of agriculture to nonagriculture parative advantage and reduce agricultural production in anslopes upward. Factors that increase income in agriculture environment of growth and fewer trade restrictions. Suchrelative to nonagriculture slow the supply of labor to non- behavior may explain some of the spread in growth rates.agriculture. Contrary to some arguments, the results do not For example, Singapore's agricultural production more thansuggest a permanent wedge between agricultural and non- doubled between 1967 and 1979, but declined thereafter soagricultural income-implying instead that migration stops that production in 1992 was below that in 1967. Otherwhen income is equal across sectors. The measure ofincomenused is averuag labror prdctivity. whih ilu d countries have not fully realized their potential in agricul-income used iS average labor productivityv, which includeswage income and returns to human and physical capital F I G U R E 1

because the choice of sectors affects not only wages but Total agricultural productionother opportunities as well.

As more people leave agriculture, the economic base of Cumulative frequency (1967-92, 130 countries)

nonagriculture increases, boosting migration rates. But as 1.0labor leaves agriculture, labor productivity in agriculture 0.98 - -- - -

increases, income differentials fall, and migration declines. 0.7 _- ------------ -----------------------

So off-farm migration leads simultaneously to an increase 0.6 _ -

of income in the rural sector and to development of nona- 0.5

griculture. This process takes a long time to complete, how- 0.4 -- Production shares

ever. 0.2 Equal weights-

1. Donald Larson and Yair Mundlak, "On the Intersectoral 0

Migration of Agricultural Labor," Policy Research Working Paper -2.6 -1.3 0 1.3 2.6 3.9 5.2 6.5

1425, World Bank, International Economics Department, Annual growth rate (percent)

Washington, DC, 1995. Source: Yair Mundlak, Donald Larson, and Al Crego, "Agricultural Development:

Issues, Evidence, and Consequences," World Bank, International EconomicsDepartment, Washington, DC, 1996.

2 World Bank Policy and Research Bulletin January-March 1997

tural production, choosing instead to protect farm income growth was faster in tree crops, at 1.48 percent a year, thanthrough policies to reduce domestic production and restrict in annual crops, at 0.52 percent. So despite lower prices, itimports, indicating that there have been excess supplies. was still profitable to expand the area of agricultural land.Moreover, import barriers further restrict the expansion of Growth of land was smaller, however, than growth ofproduction in exporting countries. output, reflecting an increase in land productivity. True,for

The role of demand can be seen by comparing the 11 of 87 countries (13 percent) average productivitygrowth of per capita agricultural output with that of total declined, but these countries carry small production weightsper capita output. Ignoring trade for a moment and assum- (less than 2 percent of production). The weighted distri-ing constant prices, this ratio is roughly the income elastic- bution shows a concentration of positive growth, andity for food-roughly, because agriculture includes indus- increased land productivity accounts for most of the growthtrial (or nonedible) crops for which demand is not the same in world production. The median growth rate for land pro-as that for food. The distribution of this growth ratio for 91 ductivity is 1.8 percent for the unweighted distribution andcountries in 1960-92 shows a median real value of 0.82 for 1.92 percent for the weighted.the weighted distribution and 0.86 for the unweighted dis-tribution. Since prices were not constant, but declined, Laborthese values serve as upper bounds for the income elasticity Changes in the agricultural labor force show a different pat-for food. Consequently, with fewer policy interventions, tern. In 40 percent of the countries, agricultural laborproductivity gains could have been even greater. declined. Technological factors affected labor demand. Labor

requirements, particularly during harvest, increase with out-Input and productivity changes put and yields. Similarly, when production patterns change,On the supply side, productivity growth appears to have say from cereals to fruits and vegetables or to livestock, labormore than offset the effect of declining prices on profitabil- requirements increase as well. Increases in cultivated landity. Changes in land and labor should explain most of the also add to labor demand. In the opposite direction, mecha-growth in productivity. nization of agriculture reduces labor requirements.

The ratio of labor to land shows the net effect of mecha-Land nization on agricultural labor. In about half the countries thisIt is often thought that agricultural land is a fixed quantity. ratio declined, and the rate of decline was stronger than theBut in fact, in 65 percent of the countries examined, culti- increase in the other half. Poorer countries, with lower ratiosvated area increased in 1967-92, with a median annual of wages to rents, rely more on labor than on machines. Ingrowth of 0.4 percent. Globally, average annual growth was those countries data on labor leaving agriculture was insuffi-0.58 percent-about 15.7 percent for the period. Land cient to show a decline in the labor input in agriculture.

FI GU RE 2 FI GU RE 3

Per capita agricultural production Agricultural prices

Cumulative density (1967-92, 130 countries) Cumulative frequency (1967-92, 112 countries)

1.0- 1.0

0 .8 -- - - - - - - - - - - - - - - - -- - - - - - 0 .8 ------------------- ..;_z.. ............... ..... .Equal weights Production shares

O0.6 . -}-------------------------------- -- --- - - - - 0 r.6.......

0 .4 -- - - - - - - - - - - -- - - - - - - - - - - -- - - -- - - - 0 ..4 - -.. ........... ....... ... .. ......

Production shares Equ al weights

0 0 _

-5.2 -2.6 0 2.6 5.2 -10 -5 0 5 10

Annual growth rate (percent) Annual growth rate (percent)

Source: Yair Mundlak, Donald Larson, and Al Crego, "Agricultural Development: Source: Yair Mundlak, Donald Larson, and Al Crego, "Agricultural Development:Issues, Evidence, and Consequences," World Bank. International Economics Issues, Evidence, and Consequences," World Bank, International EconomicsDepartment, Washington, DC, 1996. Department, Washington, DC, 1996.

January-March 1997 World Bank Policy and Research Bulletin 3

When output per unit of land increases while labor per

unit is constant, productivity has increased. The distribu-tion of growth in average labor productivity in 87 countries Ninth Annualis greater than that of growth in average land productivity. World Bank Conference onThe median growth rate is 2.0 percent for the unweighted Development Economics (ABCDE)distribution and 2.6 percent for the weighted.

April 30 and May 1, 1997

Research implicationsIThe underlying process of agricultural growth is universal,

but its pace varies over time and across countries. The basic Keynote address by Joseph E Stiglitz

question is how to account for the variability. There is no

simple answer. For most countries the limiting factor for Corruption: Catalysts and Constraints

growth is not the available technology, because they are far Michael Johnstonfrom the technology frontier. The pressing issue is to iden- Susan Rose-Ackerman

tify constraints that prevent a country from taking full

advantage of that technology. Incentives and PerformanceThe key to understanding performance in agriculture is in Public Organizations

understanding the impact of the economic environment on Sherwin Rosen and Bruce Weinbergthe decisions of producers. There are some important blocks Dilip Mookherjee

in this process. First is to understand how the economic* rr * * * * 1 n I * 1 l~~~overty and Environmentenvironment affects incentives in agriculture. Second is the Pvrty an Envir

impact that these incentives have on factor demand and Karl-G6ran Maler

supply. Third is the dependence of the technology on incen-

tives and on resource and other constraints. In this explo-

ration explicit account should be taken of the fact that deci- leaders

sions have dynamic consequences. The dependence of factor Alberto Alesina

demand on incentives is obvious. A good example of the Takatoshi Ito

dependence of factor supply on incentives is that of labor:

movement out of agriculture is affected by sectoral differ- The conference will be held at the World Bank,

ences in income. On the whole, more advanced techniques Washington, DC. Participation by non-Bank and non-IMF

are more capital (human and physical) intensive. So capital staff by invitation only. Questions about the conference

scarcity determines the pace at which new techniques are should be directed to Boris Pleskovic or Gregory Ingram,

implemented. Since decisions on technology are made Research Advisory Staff, World Bank, fax 202-522-0304.

jointly with decisions on input demand, the same con-

straints that affect the implemented technology affect input

demand-with important implications for research.

Drawn from Yair Mundlak, Donald Larson, and Al Crego,

'Agricultural Development: Issues, Evidence, and

Consequences, "World Bank, International Economics

Department, Washington, DC, 1996.


prices on five types of land use: virgin and growth. It will examine the effects

XNew Re s e a r c h forest, regrowth forest, tree crops, of different policies on saving cising apaddy rice (subsistence), and upland cross-country comparative approach,

The research projects described here (cash) crops. and draw lessons from policy experi-are directed by World Bank staff and The analysis will help answer such ence by assessing the savings perfor-funded by the Bank' central Research questions as these: How would mance of different countries. Finally,Support Budget (RSB). Research pro- changes in rice and other commodity it will produce a policy-oriented syn-posals being prepared with RSB fund- prices affect land use? What prices thesis of the main results and lessonsing are listed on page 10. For infor- would induce farmers to convert land from the research.mation about the research projects to agriculture or to shift from subsis- RSB support: $506,580described here, contact the researchers tence to cash crops-and at what loca- Staff weeks: 128at the Bank's main address (see back tions would this occur? And howpage). would improving or extending rural Comparative Analysis of Growth

roads affect cropping patterns? Moshe SyrquinR E S E A R C H S T A R T S RSB support. $206,533 Research Advisory Staff

Staff weeks: 92 Ref no. 681-37Spatial Environmental Processes This study starts from the premiseMaureen Cropper Saving in the World: that although the recent cross-countryPolicy Research Department, Puzzles and Policies comparative studies of growth haveEnvironment, Infrastructure, Luis Serven and Norman Loayza produced results suggesting broadand Agriculture Division Policy Research Department, associations, most of these studies areRef no. 681-35 Macroeconomics and Growth Division of limited value for informing devel-Forests are being rapidly cleared for Ref no. 681-36 opment policy. Many have conceptualagriculture in the montane watersheds Savings rates have diverged dramati- problems, are misspecified (ignoringof many developing countries. This cally in the past three decades in the such factors as structural change), andraises serious concerns, especially developing world-doubling in East are dependent on the sample composi-when farmers use slash and burn tech- Asia, stagnating in Latin America, and tion and time period.niques. Shifting cultivation can sustain collapsing in Sub-Saharan Africa. This This study will attempt to establishhigh yields only if burning occurs no disparity is closely reflected in growth the claim that much of the recentmore often than every 10 years or so. performance: with higher savings rates research on growth has little relevanceBut population growth creates pres- has come higher income growth. for development policy and that itsure to shorten the fallow period, This study will address three broad may even suggest misleading general-often to only two or three years. questions: Why do savings rates differ izations. And it will seek to correct theFalling yields, soil erosion, and sedi- so much across countries and periods? shortcomings by introducing method-mentation of rivers are likely to result. How much do higher savings rates ological improvements-accounting

Developing good policy solutions contribute to growth? And what pol- for initial conditions, interactionsrequires understanding how land use icy measures are most effective in rais- between initial conditions and theis affected by population change, road ing national savings rates? core set of explanatory variables, anddevelopment, and agricultural prices. The study will begin by construct- the effects of structural change.This study will examine land use pat- ing an international macroeconomic The study will draw on Worldterns and associated changes in water- database on saving and related vari- Bank databases on growth, industrial-sheds in Thailand-in the provinces ables. Using new information from ization, and human and physical capi-of Chiang Mai and Chiang Rai-from national accounts and household sur- tal stock in a large number of develop-1973 to the present. The study aims veys, it will then try to explain differ- ing and industrial countries during theto quantify the effect of changes in ences in saving across countries and past three to four decades. Unlikepopulation, roads, and agricultural periods and the link between saving many recent studies, this study will


Managing Natural Disasters The Determinants of igri-Food and less disruptive ways to liberalizein the Caribbean Region Market Integration in the and privatize the sector.through Mitigation and Transition Economies, Phase 2 RSB support: $198,400

Financial Risk Sharing Richard Burcroff Staff weeks: 21John Pollner Agriculture and Natural Resources

Latin America and the Caribbean, Department, Sector Policy and Water Public Involvement in IndustrialCountry Department III, Public Sector Resources Division Pollution Control in Argentina

Modernization and Private Sector Ref no. 681-45 and Brazil

Division Hungary and Poland have moved Shelton Davis, Sergio Margulis,

Ref no. 681-44 fairly quickly and decisively in liberal- and David Hanrahan

The Caribbean region is repeatedly izing their agri-food sectors since the Environment Department, Social Policy

subject to natural disasters. In the past beginning of the market transition. and Resettlement Division and Pollution

the donor community has been quick Romania and Ukraine have moved and Environmental Economics Division

to respond with aid for reconstruc- more hesitantly, liberalizing prices but Ref no. 681-46

tion. But with tightening national imposing margin and profit controls Although most developing countries

budgets in donor countries, new at different marketing levels and have adopted environmental protec-

financing solutions involving the retaining subsidies, state procurement, tion laws, many lack the financial

private sector are needed. and trade restrictions. This slower resources and institutional capacity to

This study is aimed at identifying approach may be explained in part by enforce them. In some places citizens

financial mechanisms for funding both policy concerns-that price changes have stepped in to help fill this gap,

preventive efforts to mitigate the effects would favor processors and traders at through "informal regulation"-

of natural disasters and reconstruction the expense of farmers and consumers, protests, media pressure, complaints

following such disasters. It will focus on that abolishing state procurement to local authorities, lawsuits. Why are

developing a regional risk sharing would disrupt the flow of food to con- some communities more likely than

approach that involves the regional sumers, and that liberalizing trade others to engage in such activities?

insurance industry and international would threaten food security. And how effective and sustainable are

capital market players and does not To test the validity of these con- the tactics they use?

assume donor grants or financing. cerns, this study will examine the This research project will study citi-

To aid the design of risk sharing effects of reforms already implemented zen and community involvement in

arrangements, the study will assess and those of possible future reforms. It industrial pollution control through

the regionwide risk exposure using a will also assess whether policies pur- observation and surveys in three com-

range of engineering, actuarial, under- sued in Hungary and Poland could be munities in the state of Rio de Janeiro,

writing, and property valuation applied in Romania and Ukraine. Brazil, and through surveys in a sam-

approaches. It will assess whether nat- The study will use econometric ple of communities in the state of Sao

ural disaster funds developed in the modeling to explain price behavior Paulo, Brazil, and the province of

United States are applicable in the during liberalization and to project the Buenos Aires, Argentina. It will inves-

Caribbean and whether insurance and costs and benefits of liberalizing trade. tigate how informal regulation works;

reinsurance pooling mechanisms in It will use case studies to examine how industries, municipal govern-

the Caribbean offer the potential for market structure, the response of ments, and state agencies respond to

linking sufficient risk sharing to capi- farms and enterprises with different citizens' concerns and pressures; and

tal market backing. Based on these ownership structures to broad liberal- what effect socioeconomic differences

assessments, the study will propose a ization, and policy options for moving have on the voicing and resolution of

range of feasible risk sharing arrange- toward a modern, commercial market- complaints. It will assess the costs to

ments for the region. ing network. Finally, the study will public institutions of integrating com-

RSB support: $40, 000 synthesize the experiences of the four munity and citizens groups into pollu-

Staff weeks: 14 countries to identify more efficient tion control and monitoring efforts.


And it will suggest ways in which plot and land rights, farm inputs and lio investment in Asia? Will addressinggreater cooperation among citizens output, and sales and credit transac- investor concerns-such as high trans-groups, state agencies, and industrial tions. To track information flows actions costs and risks arising fromfirms might improve environmental related to social learning, it will also inefficient market infrastructure-performance. collect verifiable information on help reduce market volatility? CanRSB support: $164,395 respondents' knowledge of neighbors' capital market infrastructure be devel-Staff weeks: 18 farming practices. The study will use oped faster in emerging markets than

simple tests to monitor soil fertility. it was in industrial countries? And isGender, Property Rights, and RSB support: $33, 000 self-regulation appropriate for emerg-Resource Management in Ghana Staff weeks: 16 ing markets, or do institutional weak-Shahid Khandker nesses and other characteristics arguePoverty and Social Policy Department Implications of Financial for a larger state role?Ref no. 681-47 Integration for Capital Market RSB support: $20, 000In the area around Nsawam, in eastern Reform: The Asian ExperienceGhana, farmers have recently shifted Pedro Alba andAmar Bhattacharya World Price Signals, Policyfrom an intercropping system based International Economics Department, Reforms, and Domestic Commodityon maize and cassava to intensive pro- Office of the Director Price Behaviorduction of onions, tomatoes, and Ref no. 681-48 John Baffes and Panos Varangispineapple for export to Accra and Developing country policymakers are International Economics Department,abroad. The shift to more intensive grappling with questions of how to Commodity Policy and Analysis Unitcultivation brings with it the challenge reform their capital markets so as to Ref no. 681-49of maintaining soil fertility. attract private capital flows while In the past many developing countries

This situation raises three central avoiding undue market volatility. isolated domestic agricultural priceseconomic issues. First, the develop- They would benefit from knowing from world price changes throughment of innovative methods for main- about the institutional structures of import restrictions or tax and subsidytaining soil fertility involves social the Asian capital markets that enjoyed policies. These policies shiftedlearning (farmers learning through the early gains from international capital resources into or out of agriculture,experiments of others). Second, there flows and from the ambitious reforms depending on whether they implicitlyis a close association between property in many of these markets during the subsidized or implicitly taxed therights and incentives to apply tech- 1990s. But there has been no system- sector.niques for maintaining soil fertility. atic evaluation of these capital markets Beginning in the mid- I 980s manyAnd third, decisionmaking related to and of the content and sequencing of of these countries undertook reformsmaintaining soil fertility is influenced their reforms. that, among other things, sought toby the characteristics of the markets- To fill this gap, this study will end these distortionary price policies.particularly capital markets-available develop a systematic information base By allowing world price signals to beto farmers. Each of these issues repre- on the attributes of major capital mar- transmitted to domestic markets, thesents a pathway through which a culti- kets in key Asian economies and on reforms were expected to lead to morevator's gender may affect decisions on recent and planned reforms in these efficient allocation of resources notfarming practices. This study will markets. Information will be collected only in agriculture but also in theundertake fieldwork near Nsawam to through a survey of representatives of overall economy.investigate those pathways. Asian securities exchanges and regula- Did domestic prices move closer to

Over the course of a year the study tory agencies and a workshop for senior world prices following the reforms?will conduct monthly interviews with representatives of these institutions. This study will use a simple method to25 households in each of eight vil- Among the questions the study will detect structural breaks in the trendslages. It will gather detailed informa- address are these: What are the most of domestic and world price differen-tion on each household-on its assets, important obstacles to foreign portfo- tials for selected commodities in devel-


oping countries that have undertaken water charges and collections. The ment-whether formal (the legal andsignificant sectoral or trade policy study will draw on published sources, regulatory system) or informal (suchreforms since 1980. And it will mea- observation, and interviews with peo- as reputation and personal trustsure the size and speed of price ple involved at all levels of projects- within social groups). It will draw onchanges to see whether the reforms led from head engineers to canal operators an International Finance Corporationto fuller and more rapid transmission to farmers. Through descriptive and database that documents venture capi-of world prices. The study's results inferential analysis of the projects, the tal fund structure and governance andshould shed light on the effectiveness study will then identify institutional, the results of a survey it will conductof different trade and price policies. physical, and economic factors that on the composition of fund portfolios.RSB support: $18,500 affect service quality. The study will also examineStaff weeks: 6 The study is being carried out in col- whether the monitoring, voting, board

laboration with the International Program representation, and residual controlWater Management in Irrigation for Technology Research in Irrigation rights given to venture capital fundsHerve Plusquellec and Drainage and the International can be effective instruments for man-Agriculture and Natural Resources Irrigation Management Institute. aging risk in economies that, becauseDepartment, Sector Policy and Water RSB support: $179,045 they lack deep financial markets, pre-Resources Division Staff weeks: 12 clude the standard risk managementRef no. 681-50 approach of portfolio diversification.Rapid growth in income, population, The Financial Structures and RSB support: $20,000and urban areas in developing coun- Governance of Venturre Capitaltries is putting tremendous pressure Funds in Developing Countries R E S E A R C H P R O P O S A L S

on water supplies. With agriculture Guy Pfeffermann U N D E R P R E P A R A T I 0 Nalready claiming 80 to 90 percent of International Finance Corporation,the water used in these countries, they Economics Department Motorization: Research Issues;need to find ways to grow more food Ref no. 681-51 and Policy Optionswith less water. There are three main In developing countries venture capi- Zmarak Shaliziways to do this: increasing the effi- tal funds have become an important Policy Research Department,ciency of water use, reducing the source of financing for small and Environment, Infrastructure, anddegradation of water quality, and medium-size enterprises, which often Agriculture Divisionreducing return flows into saline sinks have difficulty raising long-term Ref no. 681-53(which render water unusable for agri- financing because of underdeveloped RSB support: $12, 000culture). All three options require bet- capital markets. But developing coun-ter on-farm management. But that tries can pose special challenges for Damage Costs of Acid Rain in Asiadepends on reliable irrigation service, venture capital funds if institutions Herman Cesarwithout which farmers cannot adopt and legal and regulatory frameworks Asia Technical Department,more efficient irrigation methods. do not adequately support enforce- Environment and Natural Resources

To provide baseline information on ment of contracts with the enterprises Divisionservice levels, this study will collect in which they invest. Ref no. 681-55information on 15 developing country What types of venture capital fund RSB support: $10,000irrigation projects representative of a structure and governance are mostvariety of climatological and crop con- effective in dealing with such regula-ditions and geographical and cultural tory environments? To find out, thissettings. To evaluate overall perfor- study will look at funds active inmance, information will be gathered developing countries, focusing on howon a wide range of variables-includ- their structure varies with the predom-ing crop yields, system efficiency, and inant mechanism of contract enforce-


1b 11* . J O U R N A L S the wage gap between skilled andPu blicatlons unskilled workers in developing coun-The articles summarized below tries. But in Latin America since the

anid Data appear in the January issue of the mid-1980s increased openness hasWorld Bank Economic Review, widened the gap. This conflict of evi-

For information on how to order the vol. 11, no. 1. dence probably reflects differencesWorld Bank publications reviewed in between the 1960s and the 1980s-this issue, seepage 16 How International Exchange, China's entry into the world market

Technology, and Institutions Affect and, perhaps, new technology biasedB 0 0 K S Workers: An Introduction against unskilled workers.

Ishac Diwan and Michael WaltonAnnual World Bank Conference In a world of deepening trade links, Technology and Firm Size-Wageon Development Economics 1996 rapid technological change, and weak- Differentials in Colombia, Mexico,Michael Bruno and Boris Pleskovic, ening institutions, workers in rich and and Taiwan {China}

editors poor countries alike are concerned Hong Tan and Geeta BatraThe artides in this volume were ini- about their incomes and the security In many economies studies havetially presented as papers at the Eighth of their work. Although much analysis found large wage differentials notAnnual World Bank Conference on has been done on these issues in rich accounted for by workforce character-Development Economics, held in countries, relatively little careful work istics, collective bargaining, or marketWashington, DC, in April 1996. They has been done in developing coun- power. Using firm-level data fromfocus on four themes: banking failures tries. This article and the others in this three countries, this article finds evi-as crises or opportunities for reform, symposium issue take up that task. dence that these differentials resultpoverty reduction through targeted from firms' technology-generatingprograms and rural finance, legal sys- Learning by Trading and the activities-such as research and devel-tems and economic development, and Returns to Human Capital opment and worker training.labor and environmental standards in in Developing Countriesinternational trade. Though varied, Christopher A. Pissarides The Effects of Public Sector lHiringthe articles illuminate the conference's Recent evidence shows that the and Compensation Policies on thetwo overarching themes: that the returns to labor and the skill premium Egyptian Labor Marketappropriate role of government in eco- both increase in developing countries Ragui Assadnomic development is changing and after trade liberalization, despite the This article examines the combinedthat there is a central role for govern- low skill content of their exports. This impact of the employment guaranteement policy in each area addressed article explains this apparent puzzle by for graduates and public sector com-that is critical to development. The arguing that trade increases technol- pensation policies on the Egyptianarticles also explore the role of institu- ogy transfers to developing countries labor market. Besides contributing totions, of political and economic com- and that the transfer technology is an unsustainable rate of growth in thepetition, and of law and political orga- biased in favor of skilled labor. government labor force, these policiesnization from a variety of perspectives. have led to queuing for government jobs

Authors include Joseph E. Stiglitz Openness and Wage Inequality and high graduate unemployment rates.on the role of government in eco- in Developing Countries: The Latinnomic development, Frederic S. American Challenge to East Asian The Impact of Labor rylarketMishkin on understanding financial Conventional Wisdom Regulationscrises, Gerard Caprio Jr. and Daniela Adrian Wood Lyn Squire and Sethaput Suthiwart-Klingebiel on bank insolvency, and The East Asian experience in the NarueputTimothy Besley on the political econ- 1 960s and 1 970s supports the theory This article examines the impact ofomy of alleviating poverty. that greater openness to trade narrows labor market regulations in a setting

Janzuary-March 1997 World Bank Policy and Research Bulletinr

with incomplete compliance and The articles summarized below enable families to enroll their childrenargues that there may be natural appear in the February issue of the in the public or private school of theirlimits to the efficiency losses they World Bank Research Observer, choice. The article surveys voucherengender. It reviews some stylized facts vol. 12, no. 1. systems operating in 20 countries,on labor market behavior, presents an provinces, and states.analytical model that may explain Beyond Rate of Return:such behavior, and provides a checklist Reorienting Project Alppraisal Is Privatization through Educaltionfor assessing the distortionary impact Shantayanan Devarajan, Lyn Squire, Vouchers Reaily the Answer?of regulations. and Sethaput Suthiwart-Narueput A Comment on West

This article argues for a shift in Martin CarnoyEconomic Reform and Labor emphasis in project evaluation away This comment on Edwin G. West'sUnions: A General-Equilibrium from precise rate of return calculations article starts from the premise that hisAnalysis Applied to Bangladesh and toward broader sectoral analyses case for vouchers is based primarily onand Indonesia and public expenditure reviews. It claims that privatizing educationShantayanan Devarajan, Hafez cites two issues in support of the argu- would increase its effectiveness andGhanem, and Karen Thierfelder ment: If the government undertakes a cost-effectiveness at minimal socialThis article shows that "passive" project that would otherwise have cost. Carnoy argues that, though thisunions-ones that choose a labor con- been undertaken by the private sector, case may appeal at an abstract level,tract given the firm's cost-minimizing the project's net contribution could be the supporting evidence is at beststrategy-increase welfare gains from low. If financial resources are fungible, mixed and possibly negative.trade liberalization, because trade a project might well be undertakenreform lowers the unionized sector's without external financing, and donor Producer Turnover andwage premium, reducing labor market funds are actually financing some Productivity Growth indistortion. These gains are amplified other, unappraised project. Developing Countrieswith "active" unions-ones that nego- Markj Roberts andJames R. Tybouttiate a contract that is off the firm's Economic Analysis for Health Through microeconomic data onlabor demand curve-because trade Projects manufacturing in Chile, Colombia,reform reduces the featherbedding Jeffiey S. Hammer and Morocco, this article documents(paying workers more than their mar- This article applies to the health sector resource shifts as producers enter,ginal product) that results from such a the method of project evaluation expand, contract, and exit operation.contract. advocated by Devarajan, Squire, and It finds that in the short run the pro-

Suthiwart-Narueput. This evaluation ductivity effects of this turnover areDoes the Type of Political Regime method is aimed at establishing a firm modest. But in the longer run theMatter for Trade and Labor Market justification for public involvement; effects can be large, because new firmsPolicies? establishing the counterfactual-what that survive record large productivityArup Baneri and Hafez Ghanem would happen with and without the gains in their early years-and exitingThis article uses cross-country data project; and determining the project's firms tend to be on a downward spiral.to examine the link between a coun- fiscal effect.try's type of political regime and its Housing and Income Distributiondegree of openness and labor market Education Vouchers in Principle in Russia: Zhivago's Legacydistortion. It finds that more authori- and Practice: A Survey Robert M. Buckley and Eugene Ntarian regimes are associated with Edwin G. West Gurenkohigher trade protection and greater This article examines the recent emer- Presenting comprehensive data, thislabor market distortions. gence of voucher systems-systems in article shows that the allocation of

which governments make payments to housing under a socialist scherne hasschools or directly to families that had a progressive effect on income dis-

12 World Bank Policy and Research Bulletin January-Mlarch 1997

tribution in Russia. Adding the P O L I C Y R E S E A R C H Tradable Water Rights: A Propertyimputed value of housing to house- W o R K I N G P A P E R S Rights Approach to Resolving Waterhold income significantly reduces the Shortages and Promoting Investmentincrease in inequality that occurred in Working Papers disseminate the find- Paul Holden and Mateen Thobanirecent years. ings of work in progress and encour- WPS 1627 * Contact Patricia Mendez,

age the exchange of ideas among room 18-451, tel. 202-473-8893.D I S C U S S I 0 N, Bank staff and all others interested in Globalization: A New Role forT EC H N ICA L, AND development issues.R E L A T E D P A P E R S Working Papers are not available Develoing Corin

Integrating Worldthrough the Publications Sales Unit. Shigeru Otsubo

The Role of Government and the Please address requests for papers to °Private Sector in Fighting Poverty the contact person indicated at the WPS 162 tact 2acq47yn3 ueenGeorge Psacharopoulos and Nguyen Banks main address. rXuan Nguyen Form of Ownership and FinancialTechnical Paper 346 Capital Control Liberalization ConstraintsThis paper examines the relative roles and Stock Market Development Fabio Schiantarelli and Alessandroof the private and public sectors in Ross Levine and Sara Zervos Sembenelliimplementing a two-track strategy for WIPS 1622 * Contact Paulina Sintim- WPS 1629 * Contact Paulina Sintim-poverty reduction. The first track Aboagye, room N9-030, tel 202-473-8526 Aboagye, room N9-030, tel. 202-473-8526requires sustained, broadly basedreconmie growthined, thoatly makesef Environmental Degradation and the Water Pollution Abatement by

Demand for Children: Searching Chinese Industry: Cost Estimatesuse of labor, the main asset of the for the Vicious Circle and Policy Implications

poor. The second promotes invest- Deon Filmer and Lant Pritchett Susmita Dasgupta, Mainul Huq,ment in people by ensuring basic WPS 1623 * Contact Sheila Fallon, David Wheeler, and Chonghua Zhang

social services that are accessible to room N8-030, tel. 202-473-8009. WPS 1630 * Contact Susmitathe poor. Dasgupta, room NIO-035, tel.

Structural Adjustment, Ownership 2024732679.How Does Schooling of Mothers Transformation, and Size in PolishImprove Child Health? Evidence Industry Bank Regulation and the Networkfrom Morocco Luca Barbone, Domenico Ma rchettijr., Paradigm: Policy Implications forPaul Glewwe and Stefano Paternostro Developing and Transition EconomiesLiving Standards Measuirement Study WPS 1624 * Contact Cielito Pelegrin, Patrick Honohan andDimitri tVsWorking Paper 128 room H11- 123, tel. 202-458-5067. WPS 1631 * Contact Priscilla Infante,Women's education contributes to . room G8-115, tel. 202-453-7642.economic development in severalRetuurnadTxtinnways,mincdeveluding nthr thve relao Transition Economies Evaluating Bolivia's Choices for Trade

ship between mother's educationa Simon Commander andAndrei Integrationchild health-btther-seducatedimothers Tolstopiatenko Sarath Rajapatirana

rWPS 1625 * Contact Latifah Alsegaf V WPS 1632 * Contact Luis Schunk,rend to have healthier children. UJsing

room M3-105, tel. 202-473-6442. room MCI 0-360, tel. 202-473-1779.data from the 1991 Morocco LivingStandards Measurement Study house- Partners or Predators? The Impact Essentials for Sustainable Urbanhold survey, this paper shows how of Regional Trade Liberalization Transport in Brazil's Largeeducation increases health knowledge. on Indonesia Metropolitan AreasIt also shows how detailed household Jeffrey D. Lewis and Sherman Robinson JorgeM Rebelosurvey data can be used in policy WITS 1626 * Contact Nancy Mensah, WPS 1633 * Contact Allison Turner,formulation. room Q4-058, tel. 202-458-0546. room I7-109, tel. 202-473-0933.


Japanese Multinationals in Asia: Poverty and Inequality during The Lender of Last Resort

Capabilities and Motivations Structural Adjustment in Rural Function under a Currency Board:

Susmita Dasgupta, Ashoka Mody, Tanzania The Case of Argentina

and Sarbajit Sinha M. Luisa Ferreira Gerard Caprio Jr., Michael Dooley,

WPS 1634 * Contact Susmita WPS 1641 * Contact Helen Taddese, Danny Leipziger, and Carl Walsh

Dasgupta, room NI0-007, tel. 202- room J4-200, tel. 202-473-1068. WPS 1648 * Contact Bill Moore, room

473-2679. Banking Reform in Transition N9-038, tel. 202-473-8526.

Restructuring of Enterprise Social Countries Economic Regulation of Water

Assets in Russia: Trends, Problems, Stijn Claessens Companies

Possible Solutions W/PS 1642 * Contact Rommel Michael Klein

Lev M. Freinkman and Irina Velasquez, room El 0-029, tel. WPS 1649 * Contact Sandra Vivas,

Starodubrovskaya 202-473-9290. room G4-031, tel. 202-458-2809.

WPS 1635 * Contact Larisa Markes, The Consequences of Doubling Bank-Led Restructuring in Poland:

room H2-021, tel 202-473-6578. the Minimum Wage: The Case An Empirical Look at the Bank

Open Economies Work Better! Did of Indonesia Conciliation Process

Africa's Protectionist Policies Cause Martin Rama Cheryl W Gray and Arnold Holle

Its Marginalization in World Trade? V/PS 1643 * Contact Sheila Fallon, WPS 1650 * Contact Bill Moore, room

Francis Ng andAlexander Yeats room N8-030, tel. 202-473-8009. N9-038, tel. 202-473-8526

WPS 1636 - Contact Sarah Lipscomb, Pricing Industrial Pollution in China: Bank-Led Restructuring in Poland:

room N5-056, tel. 202-473-3718. An Econometric Analysis of the Levy Bankruptcy and Its Alternatives

The Benefits of Growth for System Cheryl W Gray and Arnold Holle

Indonesian Workers Hua Wang and David Wheeler WPS 1651 * Contact Bill Moore, room

NishaAgrawal WIPS 1644 * Contact Hua Wang, room N9-038, tel. 202-473-8526

WPS 1637 * Contact Joseph Israel, N]0-039, tel. 202-473-3255. Intra-Industry Trade, Foreign Direct

room MC9-378, tel. 202-458-5117.r How Prices and Macroeconomic Investment, and the Reorientation

Private Pension Funds in Hungary: Policies Affect Agricultural Supply of Eastern European Exports

Early Performance and Regulatory and the Environment Bernard Hoekman and Simeon D3jankov

Issues Nlandu Mamingi WPS 1652 * Contact Faten Hatab,

Dimitri Vittas WPS 1645 * Contact Angela room H8-087, tel. 202-473-5853.

VWPS 1638 * Contact Priscilla Infante, Williams, room Ni0-023, tel. Grants and Debt Forgiveness i Africa

room G8-115, tel. 202-473-7642. 202-473-7176 Leonardo Hernbndez andSaoriN N Kaalca

Income Insecurity and Budgetary Institutions and W/PS 1653 * Contact Rose Vo, room

Underemployment in Indonesia's Expenditure Outcomes: Binding N3-068, tel. 202-473-1047.

Informal Sector Governments to Fiscal Performance Indonesias Palm Oil Subsector

Franck Wiebe Ed Campos and Sanjay Pradhan Donald F Larson

WVPS 1639 * Contact Joseph Israel, WPS 1646 - Contact Cynthia V/PS 1654 L Contact Pauline Kokila,

room MC9-378, tel. 202-458-5117. Bernardo, room NIO-053, tel.' ' ~~~~~~room N5-030, tel. 202-473-3716.

Labor Regulations and Industrial 202-473-1148.Uncertainty and the Price for Crude

Relations in Indonesia The Baltics-Banking Crises Observed OlRerves

Alejandra Cox Edwards Alex Fleming, Lily Chu, OlReservesV/PS 1640 * Contact Maureen and Marie-Renee Bakker Timothy I'onsidine and Donald E

McIntosh-Alberts, room S10-025, tel. WPS 1647 * Contact Suzanne Coffey, Larson202-473-3750. room H6-305, tel. 202-473-2635. V/PS 1655 o Contact Pauline Kokila,

room N5-030, tel. 202-473-3716


The Investment Decision: E L E C T R 0 N I C and dummies for debt reschedulingA Re-examination of Competing I N F 0 R M A T I 0 N A N D D A T A and war. Covers 1960-94 for 136Theories Using Panel Data countries.Cherian Samuel Much of the World Bank's empiricalWPS 1656 * Contact Cherian Samuel, research is based on information col- Measuring Income Inequalityroom MCI0-362, tel. 202-473-0802. lected in the Banks client countries. Gini coefficients and cumulative quin-

These data are often of incomparable tile shares, with explanations of thedepth and quality and can be used for computation, population covered, and

Decentralized Provision of Roads? broader purposes. Many Bank data sources. Earliest data are from theand researchers make the data sets they 1940s, latest for 1995, with varyingDecentralized Structures for Providing have constructed for research available coverage for 98 countries. (For a com-Roads: A Cross-Country ComparisonFrannie Humplick and Azadch Moini- through the Internet. prehensive description see World BankAraghi An important source of data on Economic Review 10[3]:565-9 1.)

WAPS 1657 and W/PS 1658 * Contact factors influencing growth and devel-Jack W'illiams, room T7-058, tel. 202- opment is the Bank's Economic Public Sector DeficitsJack4 Williams, room2T7-058,5tel.7202- Growth Research Website. This site Annual public deficits (1970-90),

provides reports from many studies seignorage and interest ratesUnemployment Insurance in Algeria: and a host of data files in compressed, (1965-89), inflation (1965-90), andImplications for a Labor Market in self-extracting archives. The topics are taxes from financial repressionTransition broad, reflecting the range of factors (1980-89). Covers a varying sampleElizabeth Ruppert that affect growth and development. of OECD and developing countries.W/PS 1659 * Contact Huguette Osselyn, Two of the databases are devoted to aroom H4-135, tel. 202-473-6039. particular region: one to Africa, the Capital Stock and Capital-Output

other to the transition economies. RatiosMind Your Ps and Qs: The Cost

of PubicInvstentIsNotthVaThe following list is only indicative Data on levels and growth of capitalof Public Investment Is Not the Value of what is available: each data set con- stocks, capital-output ratios, andofnt Publitchita rtains a wealth of comprehensive infor- GDP. Coverage extends up toWRPSan660t Picontat Sheila Fallon, mation, the Website includes many 1950-88 for 136 countries.WPS 1660 * Contact Sheila Fallon, ote'aaae,admr otnet

room 8-03, te. 202473-009. other databases, and more continue tobe added. To judge the usefulness of Africa's Growth Tragedy:

Determinants of Public Expenditure the site, take a few minutes to browse Policies and Ethnic Divisionson Infrastructure: Transportation at http.//www. worldbank.org/html/ More than 30 indicators of racial,and Communication prdmg/grthweb/datasets. htm. ethnic, and linguistic diversity, institu-Susan Randolph, Zeljko Bogetic, tional or government performance andand Dennis HeJley International Measures crises, and macroeconomic stabilityW/PS 1661 * Contact Zeljko Bogetic, of Schooling Years and Quality and growth. Covers 160 African androom IS3-574, tel. 202-623-7292. Estimates of educational attainment, comparator countries.

From Learning to Pa-rtnership: female and male, by two age cate-Multinational Research and gories. Covers 1960-90 (every five Soviet Economic DeclineDevelopment Cooperation in years) for 126 countries. Estimates of capital stock, labor force,

Developing Countries value added, and net material productGiorgio Barba Navaretti and Inflation Crises and Long-Run for the Soviet Union for 1927-87;Carlo Carraro Growth employment, net material product,

W/PS 1662 * Contact Minerva Patefia, Inflation rates and determinants: and capital stock in five sectors for 16WrSo1662 N508 Contact Miner73a5 public sector deficit and surplus, countries of the former Soviet Unionroom N5-048, tel. 202-473-9515.

investment, growth, terms of trade, for 1970-90.


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agriculture and development...determine their income in various occupations and in their grew faster...

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