Themes | Highlights | Team | Notes | 2008 PublicationsResearch in the Director’s Office comprises the research of the Director.
The Director’s Office conducted research on poverty and inequality, focusing particularly on monitoring the developing world’s progress against poverty, including the impacts of the global financial crisis, and evaluating anti-poverty policies. Special projects this year included a review of the last 30 years of World Development Reports, aiming to draw lessons for future reports.
Policies needed to protect the world’s poorest from the global financial crisis
Compared to pre-crisis expectations, lower growth rates in 2009 are expected to entail that 53 million fewer people will escape poverty in the developing world when judged by the international poverty line of $1.25 a day; using the $2 a day line instead the number rises to 65 million.
Underlying these large aggregate impacts, the crisis is likely to have diverse welfare impacts within the developing world, with some countries and some people more vulnerable than others. There are also potentially serious longer-term implications through the nutrition and schooling of children in poor families.
It will be a tough balance to ensure that social policies can deliver rapid income support to those in most need, while also preserving key physical and human assets of poor people and their communities. Mistakes have been made in past crisis responses, but research has helped identify some key design features for safety net programs that can help compensate for the likely welfare losses in the short-term while also promoting longer-term recovery.
It is possible to protect a significant share of the poor in a crisis, without damaging longer-term prospects of escaping poverty. This will require a combination of well-designed relief work schemes with conditional transfers (in cash or food) targeted to specific groups who either cannot work (due to physical incapacity, including poor nutritional status) or should not be taken out of other activities (notably school).1
Market-oriented agrarian reforms have helped reduce poverty in Vietnam
The most important non-labor asset in any developing rural economy is land. The institutions determining how land is used are thus at the core of efforts to fight poverty. In the 1980s and 1990s, Vietnam undertook truly major reforms to the laws and regulations governing agricultural land. The central government faced a potentially major threat to the reform process. It had to rely heavily on decentralized implementation of these reforms, raising concerns about capture by local commune elites whose interests were not well served by the center’s aims.
The evidence is not consistent with an unjust land allocation stemming from the power of local cadres to capture the process. However, the observed allocation differed significantly to what one would have expected from a competitive privatization at market-clearing prices. Vietnam’s reform to privatize land-use rights achieved a more equitable outcome than would be expected from a fully efficient allocation, as would have been achieved by free markets. This came at a cost to aggregate efficiency.
After the legal reforms, land was reallocated in a way that helped attenuate the inefficiencies of the initial administrative assignment of land. Households who started with an inefficiently low (high) amount of annual land tended to increase (decrease) their holdings over time. The adjustment was not rapid; in the aggregate, only one-third of the initial proportionate gap between the actual and the efficient allocation was eliminated within five years. Some local governments continued to intervene but it seems that the market mechanism did start to take hold.
There is little sign that rising landlessness has undermined the gains to the poor from de-collectivization’s relatively equitable assignment of land-use rights. On the whole, rising rural landlessness in the wake of the reforms appears to have been a positive factor in Vietnam’s process of poverty reduction, as farm households take up new opportunities, notably in the labor market.
Starting from a relatively equitable allocation of land, introducing free exchange did not end in peril and poverty for the rural population, though (as in any major policy reform) there are both losers and gainers. This has important implications for China, which has not yet embarked on Vietnam’s course of liberalizing land markets. Vietnam’s experience also reminds us that the gains from such reforms do not happen overnight, and may well take many years to be realized. But gains can be expected, including for the poor.2
Lessons and unmet challenges from 30 years of World Development Reports
With the global economy mired in the most severe recession in recent memory, the search has intensified for policies to revive growth, reduce poverty, redefine the role of the state and to assess the contribution of aid flows. After 30 years of World Development Reports, it was time to take stock of the lessons from thirty WDRs and the recent economic literature.
Considerable advances have been made in knowledge on a wide range of development issues. However, the limits of policy interventions and the continuing uncertainties that bedevil decision makers remain clear. For example, although research on growth is now focusing on factor productivity, there are few reliable measures for raising and sustaining productivity.
The conventional fiscal, monetary, and exchange rate policies exert limited leverage, the findings on the impact of human capital are mixed, and new growth theories explain only a small share of the variation in per capita income growth. And while countries are eager for guidance on promoting industrialization and building innovation systems, the WDRs and the published research offers limited insights on how the state can respond to these challenges if it relies primarily on market signals. There is also an urgent need to enhance the effectiveness of aid; for example, progress in using aid to raise investment and growth has been modest. The utility of future WDRs to the Bank and to its audience could be increased and the report itself could be more user friendly.
The review of 30 WDRs is supplemented by five distinguished commentators, who take up some of the issues raised in the review and variously reflect on the contribution of the WDR, on the worth of growth promoting policies, on how the East Asian experience has been woven into the Bank's thinking, and on what should become of the WDR.3
1. Development Research Group. 2008. “Lessons from World Bank Research on Financial Crises.” Policy Research Working Paper 4779, World Bank, Washington, DC.
Ravallion, Martin. 2009. “Bailing Out the World’s Poorest.” Challenge 52(2): 55–80.
Ravallion, Martin. 2009. “The Expected Impact of the Global Financial Crisis on the World’s Poorest.” Development Research Group, World Bank, Washington, DC. Processed.
Fiszbein, Ariel, and Norbert Schady. 2009. Conditional Cash Transfers for Attacking Present and Future Poverty. Policy Research Report. Washington, DC: World Bank.
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2. Ravallion, Martin, and Dominique van de Walle. 2008. Land in Transition: Reform and Poverty in Rural Vietnam. Washington, DC and New York: World Bank and Palgrave Macmillan. Order book
3. Yusuf, Shahid. 2008. Development Economics through the Decades: A Critical Look at 30 Years of the World Development Report. Includes commentaries by Angus Deaton, Kemal Dervis, William Easterly, Takatoshi Ito, and Joseph E. Stiglitz. Washington, DC: World Bank.
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