Barriers remaining to open and unify the regional economic space in East Africa
The East African Community has long recognized that regional economic integration can yield significant welfare gains to its member states. To that end, the community has been making steady progress toward the removal of tariffs and quantitative restrictions to trade. In recent years there has been an increasing recognition that: (a) even greater welfare gains could be realized through deeper forms of regional integration which entail harmonization of legal, regulatory, and institutional frameworks; and (b) reforms that reduce cross-border transaction costs and improve the performance of “backbone” infrastructure services are arguably even more important for the creation of an open, unified regional economic space than trade policy reforms narrowly defined. Disparities of regulatory treatment across borders can introduce distortions that hinder both cross-border trade and the aggregate flows of investment on a regional basis. Regulatory harmonization and infrastructure regionalization could make a significant contribution to the region’s economic development by promoting a more efficient utilization of its human and physical resources, enhancing connectivity, reducing the costs of trade, and facilitating the integration of the continent with the global economy.
Kessides, Ioannis N., and Nancy C. Benjamin. 2012. “Regionalizing Infrastructure for Deepening Market Integration: The Case of East Africa.” World Bank Policy Research Working Paper 6113, June.
Effective and efficient water policies need to achieve multiple objectives
Water is becoming a limiting factor for sustainable economic development in many countries. The availability of water and the way in which it is allocated across different sectors and groups has significant implications for economic growth, vulnerability of populations facing water supply variability, and geopolitical relationships among neighbors sharing water bodies. Assessments of the challenges faced in Morocco, South Africa, Turkey, and Mexico reveal difficult country-specific but common tradeoffs among various policy objectives, including the priority accorded to water availability for different sectors and regions, and the emphasis policy makers put on overall economic efficiency gains and growth versus distributional and other social impacts. A ubiquitous challenge is balancing the economic benefits from water allocation to agriculture and non-agricultural uses, and the role of water pricing versus direct quantity reallocation for distributing burdens of water scarcity equitably as well as efficiently. However, indirect effects on the water sector of other policies—notably trade liberalization—can loom just as large. The framework used for comparing policy impacts demonstrates the usefulness of combining micro-level water sector analysis with calculations of economy-wide implications of changes in water availability and use.
Dinar, Ariel. 2012. “Economy-Wide Implications of Direct and Indirect Policy Interventions in the Water Sector: Lessons from Recent Work and Future Research Needs.” World Bank Policy Research Working Paper 6068, May.
Widespread goals for future increases in biofuels production will affect both land use and food supply
More than 40 countries around the world have announced goals for increasing biofuels production and use. Achievement of these goals would more than triple the global market share of biofuels by 2020. Such a prospective global expansion in biofuels would cause declines in global GDP, given likely technology costs. While the global GDP decline is limited, country-level impacts could range from quite positive (Brazil, Argentina, Indonesia, and Thailand) to quite negative in others (China and India). The global expansion of biofuels also would cause drops in food supply. Although the global impacts looking into the future again may be relatively moderate, they could be quite significant in particular developing areas such as India and Sub-Saharan Africa. Price increases would be especially large for sugar, corn, and oil seeds that serve as primary feedstocks for biofuels. The global expansion of biofuels also could cause notable decreases in forest and pasture lands in some countries.
Timilsina, Govinda R., John C. Beghin, Dominique van der Mensbrugghe, and Simon Mevel. 2010. “The Impacts of Biofuels Targets on Land-Use Change and Food Supply: A Global CGE Assessment.” World Bank Policy Research Working Paper 5513, December.
Electricity reform also can mitigate unsustainable groundwater use in agriculture
Excessive groundwater extraction occurs when water is pumped out by a large number of farmers who have limited incentives to act independently to conserve the resource. Electricity reform can reduce this problem as well as mitigate inefficient electricity use. When farmers pay less than the full cost of electricity supplied, they are in effect receiving an indirect subsidy for excessive groundwater pumping. Unreliable electricity supply could limit total groundwater extraction, but it also stimulates pumping whenever the power is available as well as damaging pump sets. The research provides an analytical framework for ascertaining economically efficient groundwater extraction, and how policies related to electricity as well as water use can improve efficiency. The framework describes how electricity pricing also can help curb excessive groundwater pumping by including a charge related to inefficient depletion of the water supply, in addition to the full economic cost of reliably supplying electricity. The charge for inefficient groundwater depletion can be calculated on the basis of just a few pieces of data, making the implementation of this electricity pricing policy a practical possibility.
Strand, Jon. 2010. “The Full Economic Cost of Groundwater Extraction.” World Bank Policy Research Working Paper 5494, December.
Incentives to cooperate on bilateral water treaties depend to a larger extent on the variability of water supply
Climate change is anticipated to change the variability of water supply in internationally shared river basins, as well as its expected magnitude. Such water supply variability could have significant impacts on treaty-based cooperation among countries sharing the river basin. A new study combines unique data on annual precipitation and runoff variability with measures of economic and international relations characteristics to identify bilateral incentives for international cooperation in addressing water supply variability. The findings have implications for preparedness given potential climate change impacts on the water sector. Unlike previous work that has focused mainly on anticipated water scarcity as a trigger for potential conflict, the focus in this study is on water variability measured over the past 30 and 100 years in over 100 river basins. Smaller increases in variability actually create an impetus for stronger cooperation; larger increases in variability reduce incentives for treaty cooperation, as might have been anticipated. The key national characteristics supporting stronger cooperation are the strength of diplomatic and trade relations, while uneven economic power inhibits cooperation. One noteworthy finding is measures of the degree of democracy and governance quality appear to have different impacts on cooperation incentives across the basins considered.
Dinar, Ariel, Brian Blankespoor, Shlomi Dinar, and Pradeep Kulukurasuriya. 2010. “The Impact of Water Supply Variability on Treaty Cooperation between International Bilateral River Basin Riparian States.” World Bank Policy Research Working Paper 5307, May.
Could Africa leapfrog in increasing access to electricity?
The rapid acceleration of mobile phone access across Sub-Saharan Africa starting in the 1990s has now reached about a quarter of the African population. Could something similar happen with access to electricity? Decentralized renewable energy technologies can cost-effectively increase access to electricity in many instances, as well as help limit a country’s carbon footprint even as total power consumption rises. New research explores where stand-alone renewable energy generation can be a cost-effective alternative to centralized and often fossil-fuel-based grid supply. Scenarios for Ethiopia, Ghana, and Kenya suggest that decentralized renewable energy will play an important role in expanding rural energy access. However, renewables are likely to be the lowest cost option for a only a fraction of all households in Africa, even when accounting for potential technology cost reductions over the next 20 years and growing economic incentives for lower-carbon energy investments. Grid connected supply is likely to dominate in denser areas where the majority of households reside.
Deichmann, Uwe, Craig Meisner, Siobhan Murray, and David Wheeler. 2010. “The Economics of Renewable Energy Expansion in Rural Sub-Saharan Africa.” World Bank Policy Research Working Paper 5193, January.
Comprehensive look at climate change and agriculture shows a variety of adaptation strategies
Agricultural crops and grazing lands capture 40% of global land use, and in many developing countries agriculture provides employment and livelihood for three-quarters of the population. Bank research on the impact of, and adaptation to, climate change in agriculture under a variety of conditions is synthesized in a new book spanning more than 22 countries across four continents. Comparison of long-term adjustments across countries is used to examine the impact of climate change on agriculture and livestock, as well as to quantify how farmers adapt to climate change. The research provides a good analytical basis for evaluating adaptation measures, and solid results for policy debate concerning income distributional effects of climate change. The findings suggest that rainfed cropland is generally more sensitive than irrigated cropland, and that cropland is more sensitive than grazing land and livestock to warming. As a result farmers adjust to climate change by switching crops and livestock species, increasing irrigation, and moving between livestock and crops. Because impacts and adaptations vary a great deal across landscapes, adaptation policies must be location specific. Public policies to increase resilience through investments in knowledge diffusion and infrastructure can increase productivity across a range of future climate scenarios.
Mendelsohn, Robert, and Ariel Dinar. 2009. Climate Change and Agriculture: An Economic Analysis of Global Impacts, Adaptation and Distributional Effects. Washington, DC: World Bank, and North Hampton, Mass.: Edward Elgar.
“Regionalization” of African infrastructure can bring substantial economic gains
It is increasingly evident that regional integration of markets and infrastructure, with harmonization of associated regulatory policies, can lead to significant economic gains. Harmonization of legal, regulatory and institutional frameworks along with development of regional-scale “backbone” infrastructure can lead to reduced cross-border transaction costs, greater economies of scale, and the potential for increased competition. These improvements can be just as important as regional trade policy reforms to spur growth. Recent research illustrates these potential gains by examining regionalized telecommunications policy in West Africa. The analysis shows how regional cooperation can overcome national limits in technical expertise, enhance the capacity of nations to commit to harmonized and stable regulatory policies, facilitate regional-scale infrastructure investment, and identify other trade-distorting regulations that may inhibit opportunities for regional trade and economic development.
Kessides, Ioannis, Roger G. Noll, and Nancy C. Benjamin. 2009. “Regionalizing Telecommunications Reform in West Africa.” World Bank Policy Research Working Paper 5126, November.
Coastal areas face different risks from sea-level rise and storm surges
Ocean warming from climate change will intensify cyclone activity and heighten storm surges. Knowing where significant coastal damage may occur will help countries and the international community target efforts to soften the blow of storm-related losses. An analysis of the vulnerability of coastlines based on a variety of Geographic Information System data suggests Djibouti, El Salvador, Mozambique, Togo, and Yemen face the greater risk for the most severe total impacts. Cities most vulnerable to coastal damage are located in Bangladesh, Morocco, Mozambique, the Philippines, and Vietnam. In a number of countries, more than 50 percent of coastal urban areas lie within potential impact zones, with the most at-risk urban populations in Djibouti, El Salvador, Mozambique, Togo, and Yemen. Coastal agriculture in El Salvador, Equatorial Guinea, Ghana, Guyana, Nigeria, North Korea, and Togo also faces particular risks. The coastal areas most prone to storm damage in Djibouti, El Salvador, Ghana, Mozambique, Morocco, Philippines, Togo, and Yemen account for more than 50 percent of GDP.
Dasgupta, Susmita, Benoit Laplante, Siobhan Murray, and David Wheeler. 2009. “Sea-Level Rise and Storm Surges: A Comparative Analysis of Impacts in Developing Countries.” World Bank Policy Research Working Paper 4901, April.