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Research Highlights 2007: Director's Office

Themes
Highlights
Dancing with Giants: China, India and the Global Economy
Trade policy reform in rich countries could help reduce global poverty
Rapidly urbanizing areas in China need to provide services for migrants, ensure soundness of city finances, and contain energy and water consumption
Are there lessons for Africa from China’s success against poverty?
Team
Notes

In addition to the Director’s research, the front office includes a continuing program on
East Asia’s Economic Prospects.

Themes

The Director’s Office conducted research on trade liberalization and migration (Alan Winters) and poverty and inequality (Martin Ravallion). The former included research on the global impacts of the rapid growth of China and India, and the implications of trade reform for poverty in the world. The latter included work on the distributional impacts of economywide policy reforms and the evaluation of targeted development programs. 

Research associated with the East Asia’s economic prospects focused mainly on the growth impetus imparted by urban development, as well as on the scope for enhancing innovation by promoting research in universities and on transferring usable knowledge to firms through a variety of linkages.



Highlights

Dancing with Giants: China, India and the Global Economy


China and India account for 7 percent of global GDP and have averaged growth rates of 9 percent and 6 percent, respectively, over the past decade. Can the two countries sustain the pace of growth in the face of a number of challenges, and what are the implications for their trading partners, energy prices, and the global commons?

Dancing with Giants comes to broadly positive conclusions: the two countries are building the capabilities to continue growing at a rapid pace and their trading partners will need to adjust their industrial structures; however on balance, they stand to gain if they are able to do so. China’s and India’s demand for commodities and energy will place upward pressure on prices but is unlikely to be the principal cause of higher oil prices; and by exploiting the window of opportunity which exists, the two countries can substantially moderate increases in their CO2 emissions.

Continuing challenges remain in a number of areas, including high and rising inequalities of opportunity and environmental pressures.[1]



Trade policy reform in rich countries could help reduce global poverty

The agricultural trade policies of rich countries have been much debated in the World Trade Organization’s troubled Doha Round. One of their most common defenses of the agricultural trade policies of rich countries is that they protect poor farmers. Research findings reject this claim. The analysis used detailed data on farm incomes to show that major commodity programs are highly regressive in the United States, and that the only serious losses under trade reform are among large farms and wealthy farmers in a few heavily protected subsectors.

In contrast, analysis using household data from 15 developing countries indicates that reforming rich countries’ agricultural trade policies would lift large numbers of people out of poverty. In the majority of cases, these gains are not outweighed by the poverty-increasing effects of higher food prices among other households.

Agricultural reforms that appear feasible, even under an ambitious Doha Round, achieve only a fraction of the benefits for developing countries that full liberalization promises but protect the wealthiest U.S. farms from most of the rigors of adjustment. The analysis also indicates that maximal trade-led poverty reductions occur when developing countries participate more fully in agricultural trade liberalization.[2]

Poverty is urbanizing, and this has helped reduce overall poverty in most (but not all) regions
While there is a seemingly widely held perception that poverty is urbanizing rapidly in the developing world, the data to support this view has been weak. The paper reports results from a new dataset, drawing on over 200 household surveys for about 90 countries.

The authors find that three-quarters of the world’s poor still live in rural areas, although the proportion has been falling over time. Over 1993-2002, the count of the “$1 a day” poor fell by 150 million in rural areas but rose by 50 million in urban areas. The poor have been urbanizing even more rapidly than the population as a whole.

By fostering economic growth, urbanization helped reduce absolute poverty in the aggregate. However, there are marked regional differences: Latin America has the most urbanized poverty problem; East Asia has the least; there has been a “ruralization” of poverty in Eastern Europe and Central Asia; and in marked contrast to other regions, Africa’s urbanization process has not been associated with falling overall poverty.[3]



Rapidly urbanizing areas in China need to provide services for migrants, ensure soundness of city finances, and contain energy and water consumption

China provides a unique vantage point for observing the gains to be derived from urban development and also to examine the pressures that it is generating—both because of the scale and the speed at which China is urbanizing, as well as the heterogeneity of the changes under way.

The research has delineated strategies for facilitating sustainable urbanization in China. It examines ways of efficaciously managing the flow of migration, providing urban residents with adequate social services and a safety net for the poor. The research assesses how financial markets are responding to new demands. It reviews the trends in energy intensity, energy pricing, and the trend toward motorization. Lastly, the research examines the management of water resources and pollution prevention, which will influence the evolution of China’s urban geography and the quality of the urban environment.[4]



Are there lessons for Africa from China’s success against poverty?

At the outset of China’s reform period, around 1980, the country had a far higher poverty rate than for Sub-Saharan Africa as a whole. Within five years that was no longer true. One should be cautious in drawing policy lessons for Africa from China’s success, which depended on a number of country-specific factors. Nonetheless, there appear to be two lessons for Africa that stand out.

The first is the initial importance of productivity growth in smallholder agriculture, which will require both market-based incentives and public support. While the policies needed will be specific to the African setting, rapid agricultural growth was a crucial first step for China in the fight against poverty, and arguably a prior condition for later success in labor-intensive manufacturing sector growth. The second lesson is the role played by strong leadership and a capable public administration at all levels of government. China’s experience points to the importance of combining pragmatic, evidence-based, policy making with capable public institutions and a strong leadership that is committed to poverty reduction.[5]

Team

Notes

 1. Winters, L. Alan, and Shahid Yusuf, eds. 2007. Dancing with Giants: China, India and the Global Economy. Washington, DC: The World Bank; Singapore: The Institute of Policy Studies. (This volume was the best seller in the World Bank’s "academic" category for its publications in 2007, and the sixth best seller in all categories.) Download | Order book

2. Winters, L. Alan, Thomas W. Hertel, Roman Keeney, and Maros Ivanic. 2007. "Distributional Effects of WTO Agricultural Reforms in Rich and Poor Countries." Economic Policy 22(50): 289–337.

 3. Ravallion, Martin, Shaohua Chen and Prem Sangraula. 2007. "New Evidence on the Urbanization of Global Poverty." Population and Development Review 33(4): 667–702.

 4. Yusuf, Shahid, and Tony Saich, eds. 2008. China Urbanizes. Washington, DC: World Bank.
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5. Ravallion, Martin. 2007. "Are There Lessons for Africa from China’s Success against Poverty?" Policy Research Working Paper 4463, World Bank, Washington DC.




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