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Research Highlights October 2013

Research Highlights October 2013

Research Highlights October 2013

Improved economic rights for women are associated with important development outcomes

An analysis using a newly compiled database of women’s legal and economic rights in 100 countries over a 50-year period demonstrates where and when women’s economic rights are improving. In the initial period, 75 countries had gender gaps in women’s ability to own property, sign legal documents in their own name or to be protected by constitutional principles of equality or non-discrimination. By 2010, 57 countries had strengthened women’s economic rights, including 28 countries that had eliminated all of the gender gaps monitored here. Over half the constraints on the books in 1960 had been removed by 2010, including in Sub-Saharan Africa where gender gaps had been the most prevalent. Progress is possible. The evidence also suggests that the strengthening of women’s legal rights is associated with important development outcomes. In the cross-section and within countries over time, the removal of gender gaps in rights is associated with greater participation of women in the labor force, greater movement out of agricultural employment, higher rates of women in wage employment, lower adolescent fertility, lower maternal and infant mortality, and higher female educational enrollment. But economic growth by itself doesn’t automatically lead to more equal rights for women. Reforms require proactive engagement. This work bolsters the economic evidence for the importance of this agenda.

Mary Hallward-Driemeier, Tazeen Hasan, and Anca Bogdana Rusu. 2013. “Women's legal rights over 50 years: What is the impact of reform?” World Bank Policy Research Working Paper 6617, September. | Story

Increased food safety standards can negatively affect agricultural exports from poor countries

Recent research using new data on maximum pesticide residues on agricultural products for 61 importing countries suggests that, on average, more restrictive standards are associated with less trade. This is likely to be because stricter standards increase the cost of entering the market and force exporting firms to make investments to comply with the new standards. In fact, once firms enter the market higher standards do not appear to have a noticeable impact on the level of exports. In cross-country comparisons, increased food safety standards in the BRICS (i.e., Brazil, Russia, India, China, and South Africa) have a greater impact on trade than increased standards in other importing countries, but current standards in BRICS also tend to be less strict than those of other nations. Finally, evidence points to the possibility that exports from low-income countries are more negatively affected by increased product standards than those from higher-income countries.

Estaban Ferro, John S. Wilson, and Tsunehiro Otsuki. 2013. “The Effect of Product Standards on Agricultural Exports from Developing Countries.” World Bank Policy Research Working Paper 6518, June. 

Bank reforms must address policies that distort risk-taking of shareholders

Bank capitalization strategies are crucial to surviving financial shocks. Even though regulations require minimum capital ratios and restrictions on pay-outs to investors to maintain healthy reserves, banks still have considerable discretion. Both corporate governance and executive compensation impact bank capitalization for an international sample of banks during the 2003-2011 period. “Good” corporate governance, favoring shareholder interests, gives rise to lower bank capitalization. Boards of intermediate size, separation of the CEO and chairman roles, and an absence of anti-takeover provisions, in particular, lead to low bank capitalization. However, executive options and stock wealth invested in the bank is associated with better capitalization except just before the crisis in 2006. In that year stock options wealth was associated with lower capitalization which suggests that potential gains from taking on more bank risk outweighed the prospect of losses. Banks’ tendency to continue pay-outs to shareholders after experiencing negative income shocks are also related to executive risk-taking incentives.

Anginer, Deniz, Asli Demirgüç-Kunt, and Kebin Ma. 2013. “How does Corporate Governance Effect Bank Capitalization Strategies?” World Bank Policy Research Working Paper 6636, October.

The pattern of consumption risk-sharing is related to the degree of financial openness

One of the major puzzles in international macroeconomics— the high sensitivity of aggregate consumption to domestic income shocks—is especially relevant now given the growing degree of financial integration of economies across the world. This research explores the varying extent to which different countries engage in risk sharing using data for a group of 50 industrial and developing economies. The analysis is based on estimation of a model of partial consumption insurance whose parameters have the natural interpretation of coefficients of partial risk sharing even when the null hypothesis of perfect risk sharing is rejected. Estimation results show that rich countries exhibit higher degrees of risk sharing than developing countries, and that the gap between both country groups appears to have widened during the period of financial globalization. Moreover, the pattern of consumption risk sharing is related to the degree of financial openness: countries with larger stocks of foreign assets or liabilities exhibit larger degrees of risk sharing. Furthermore, countries whose foreign asset stocks are more tilted towards foreign direct investment assets also show higher degrees of consumption risk sharing.

Constantino Hevia and Luis Servén. 2013. “Partial Consumption Insurance and Financial Openness Across the World. World Bank Policy Research Working Paper 6479, June.

Why microfinance competition in Bangladeshi villages is good news

Concerns about exploitative moneylenders have motivated government interventions in rural credit markets for centuries, with mostly disappointing results. Has the spread of microfinance in last three decades fared any better? Proponents claim that competition from micro-finance institutions reduces both the moneylender interest rates and households’ reliance on informal credit, while the critics argue the opposite. This work examines the impact of micro-finance institutions on the informal credit market in Bangladesh. Using econometric approaches that address selection on unobservables without imposing standard exclusion restrictions, the evidence shows that microfinance competition does not reduce moneylender interest rates, thus partially repudiating the proponents. The effects are heterogeneous; there is no perceptible effect at low levels of coverage, but when microfinance coverage is high enough, the moneylender interest rate increases significantly. In contrast, households’ dependence on informal credit tends to go down after they join a microfinance institution, which contradicts part of the critic’s argument. The evidence is consistent with a model where microfinance institutions, with high enough coverage, create effective competition for the moneylenders, but the average moneylenders’ interest rate in the village goes up as they lose better borrowers to the microfinance programs.

Claudia Berg, M. Shahe Emran, and Forhad Shilpi. 2013. “Microfinance and Moneylenders: Long-run Effects of MFIs on Informal Credit Market in Bangladesh.” World Bank Policy Research Working Paper 6619, September.

Awareness campaigns are likely to be more successful when they go hand-in-hand with supply-side changes

Public knowledge about India’s ambitious Employment Guarantee Scheme is low in one of India’s poorest states, Bihar, where participation is also unusually low. Is the solution simply to tell people their rights? Or does their lack of knowledge reflect deeper problems of poor people’s agency and an unresponsive supply side? An information campaign, designed and implemented in the form of an entertaining movie to inform people of their rights under the scheme, sheds light on these questions. In randomly assigned villages, the movie brought significant gains in knowledge and more positive perceptions about the impact of the scheme. But objectively measured employment showed no gain on average, suggesting that the movie created a “groupthink,” changing social perceptions about the scheme but not individual efficacy in accessing it. The results caution that public awareness and positive perceptions are not sufficient for positive change.

Martin Ravallion, Dominique van de Walle, Puja Dutta, and Rinku Murgai 2013. “Testing Information Constraints on India’s Largest Antipoverty Program” World Bank Policy Research Working Paper 6598, September.

Economic impacts of rising oil prices are unevenly distributed across countries and sectors

Oil is a critical input to production of goods and transportation services. An increase in its price almost immediately ripples through an economy. The economic impacts of rising oil prices are explored at the national, regional and global level using a multi-sector macroeconomic model. The model accounts for potential substitution possibilities of petroleum products with biofuels. The negative effects of increased oil prices are found unevenly distributed across countries/regions and economic sectors. The agricultural sectors of high-income countries, which are relatively energy intensive, would suffer relatively more from rising oil prices than would those in lower-income countries, whereas the reverse is true for the impacts across manufacturing sectors. The impacts are especially strong for oil importers with relatively energy-intensive manufacturing and trade, such as India and China. Although the availability of biofuels does mitigate some of the negative impacts of rising oil prices, the benefit is small because the capacity of biofuels to economically substitute for fossil fuels on a large scale remains limited.

Govinda R. Timilsina. 2013. “How Much Does an Increase in Oil Prices Affect the Global Economy? Some Insights from a General Equilibrium Analysis.” World Bank Policy Research Working Paper 6515, June.

Land measurements obtained using Global Positioning Systems gives us a much better understanding of agricultural productivity relationships

Even the most basic and essential agricultural statistic, e.g., land productivity, suffers from poor quality and low credibility in most developing countries. This research assesses the implications of using handheld GPS devices for the measurement of agricultural land in explaining the farm-size productivity relationship across several countries in Sub-Saharan Africa. The differences between the measures, the sources of the differences, and the implications of the different measures on the inverse farm-size productivity relationship is explored. The data indicate that small plot areas are systematically over-reported by farmers while larger plot areas are generally under-estimated. Self-reported land area measurements systematically differ from Global Positioning Systems land measures and this difference leads to potentially biased estimates of the relationship between land and productivity. Given that the majority of plots in Sub-Saharan Africa are small, over reporting of land area, and thus, under-reporting of yield estimates, tends to dominate. GPS information collected as a routine part of survey data collection will provide better measures and help better identify causal relationships and pathways to poverty reduction.

Calogero Carletto, Sydney Gourlay, and Paul Winters. 2013. “From Guesstimates to GPStimates: Land Area Measurement and Implications for Agricultural Analysis.” World Bank Policy Research Working Paper 6550, June.


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