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Research Highlights December 2013

Research Highlights December 2013

Research Highlights December 2013

What do we know about the life-cycle of firms in developing countries?

Existing research suggests that manufacturing establishments in developing countries do not grow over time, most likely due to market imperfections and regulations. To the contrary, new research using survey data from 120 developing countries finds that the average plant in in the formal sector that is over 40 years old employs almost five times as many workers as the average plant five years or younger. The evidence is consistent within a large country, India, using detailed manufacturing census data over 23 years. The differences in financial development across Indian states, while substantial, have a minor effect on firm growth, consistent with inefficiency of state-owned financial systems. These results hold controlling for differences in labor regulations across states, capital intensity, labor regulations, and for firms born before and after the major reforms.

Meghana Ayyagari, Asli Demirguc-Kunt, and Vojislav Maksimovic. 2013. “Size and Age of Establishments: Evidence from Developing Countries.” World Bank Policy Research Working Paper 6718, November.

Enhancing the two-way flow of people will help realize the full benefits of globalization

The current focus on permanent migration from poorer to richer countries and on immigration policies in industrial countries overlooks the fact that international mobility of people is no longer a one-time event or a one-way flow from South to North. The economic crisis has accentuated the longer-term shift in location incentives for people in industrial countries. As consumers, they could obtain better and cheaper access in developing countries to key services—care for the elderly, health, and education—whose costs at home are projected to increase, and threaten living standards. As workers, they could benefit from new opportunities created by the shift in economic dynamism from industrial to emerging countries. But subtle incentives which inhibit North to South mobility need to be addressed, such as lack of portability of health insurance and non-recognition of qualifications obtained abroad. Furthermore, if beneficiaries of movement abroad exert countervailing power against those who support immigration barriers at home, that could lead to greater inflows of people, boosting innovation and growth in the North. Eventually, growing two-way flows of people could reduce impediments to the movement of people at every stage in all countries and help realize the full benefits of globalization.

Aaditya Matoo and Arvind Subramanian. 2013. “Criss-Crossing Migration.” World Bank Policy Research Working Paper 6539, July. 

If estimating the foreign wage differential, evaluating the wage effect for informal workers matters

Following the dramatic rise of export opportunities of labor-intensive goods resulting from the U.S.-Vietnam Bilateral Trade Agreement (2001), employment in foreign firms in Vietnam increased from 0.4 million workers in 2000 to 1.7 million in 2007. The expansion of employment was faster among female workers. This study investigates the differential impacts of foreign ownership on wages for different types of workers (in terms of educational background and gender) using the Vietnam Household Living Standards Surveys of 2002 and 2004. While most previous studies used firm-level data (thus excluding the informal sector) in estimating foreign wage differential, household data make it possible to extend wage comparison to the informal wage sector. A series of Mincerian earnings equations as well as worker-specific fixed effects models are estimated. The results confirm the existence of foreign wage premium. The wage premium rises on average as workers’ educational achievement increases. Longer hours of work in foreign firm jobs are an important component of the wage premium. Finally, unskilled women experience a larger foreign wage premium than unskilled men, reflecting the low earning opportunities for women and a higher gender gap in the informal wage sector.

Emiko Fukase. 2013. “Foreign Wage Premium, Gender and Education: Insights from Vietnam Household Surveys.” World Bank Policy Research Working Paper 6421, April.

Demand collapse hurt Eastern European firms the most during the global financial crisis

Contrary to the conventional focus on credit as the main impact of the crisis, demand collapse was found to play a more important role in Eastern Europe during the global financial crisis. A unique firm survey conducted by the World Bank in six Eastern European countries during the 2008-09 financial crisis was used to show that the drop in demand for products and services was overwhelmingly reported as the most damaging adverse effect of the crisis on firms. Other “usual suspects,” such as rising debt or reduced access to credit, was reported as minor. Furthermore, the changes in firms’ sales and installed capacity are significantly and robustly correlated with the demand sensitivity of the sector in which the firms operate. However, they are not robustly correlated with various measures of firms’ credit needs.

Ha Nguyen and Rong Qian. 2013. “Demand Collapse or Credit Crunch to Firms? Evidence from the World Bank’s Financial Crisis Survey in Eastern Europe.” World Bank Policy Research Working Paper 6651, October.

How the lending behavior of foreign-owned banks changed during the recent global crisis

Foreign banks—across regions and independently of whether they were regional or global—curtailed credit more than domestic banks at the height of the financial crisis in 2009, but there were some interesting nuances. U.S. banks in particular seem to have retrenched their lending less than other foreign banks, perhaps because the crisis that started in the United States in 2007 was subsiding by 2009, and because U.S. banks received liquidity and capital support from regulators during the crisis years. The funding structure of foreign affiliates appears to have some influence on the behavior of foreign banks. Foreign affiliates with higher deposit base, and, hence, lower reliance on wholesale funding, curtailed credit less than other foreign banks. Similarly, foreign bank affiliates with well-capitalized parents contracted credit by less than other foreign banks.

Moon Jung Choi, Eva Gutierrez, and Maria Soledad Martinez Peria. 2013. “Dissecting Foreign Bank Lending Behavior During the 2008-2009 Crisis.” World Bank Policy Research Working Paper 6674, October.

Paying hospitals for insured patients via capitation instead of fee-for-service raised efficiency, did not affect quality, but reduced services

With the movement toward universal health coverage gaining momentum, the global health research community has made significant efforts to advance knowledge about the impact of various schemes to expand population coverage. The impacts on efficiency, quality, and gaps in service utilization of reforms to provider payment methods are less well studied and understood. This research contributes to this limited knowledge by evaluating the impact of a shift by Vietnam’s social health insurance agency from reimbursing hospitals on a fee-for-service basis to making a capitation payment to the district hospital where the enrollee lives. The analysis uses panel data on hospitals over the period 2005-11 and multiple cross-section data sets from the Vietnam Household Living Standards Surveys to estimate impacts on efficiency, quality, and equity. The findings show that capitation increases hospitals’ efficiency, as measured by recurrent expenditure and drug expenditure per case, but has no effect on surgery complication rates or in-hospital deaths. In response to the shift to capitation, hospitals scaled down service provision to the insured and increased provision to the uninsured (who continue to pay out-of-pocket on a fee-for-service basis).

Ha Thi Hong Nguyen, Sarah Bales, Adam Wagstaff, and Huyen Dao. 2013. “Getting Incentives Right : An Impact Evaluation of District Hospital Capitation Payment in Vietnam.” World Bank Policy Research Working Paper 6709, November.

Decentralized farm input subsidy targeting in Malawi is missing the intended beneficiaries

The decentralized beneficiary targeting performance of the large-scale Malawi Farm Input Subsidy Program is examined using nationally-representative household survey data. The analysis focuses on the 2009/10 agricultural season and begins with a standard targeting assessment based on the rates of program participation and the benefit amounts among the eligible and non-eligible populations. The study provides decompositions of the national targeting performance into inter-district, intra-district inter-community, and intra-district intra-community components. The results show that the program is not poverty targeted and that the national government, districts, and communities are nearly uniform in their failure to target the poor. The findings are robust to the choice of the eligibility indicator and the decomposition method. The multivariate analysis of household program participation reinforces these results and reveals that the relatively well-off and the locally well-connected have a higher likelihood of program participation and, on average, receive a greater number of input coupons. Since a key program objective is to increase food security and income among resource-poor farmers, the lack of targeting is a concern, and should underlie considerations of alternative targeting approaches that, in part or completely, rely on proxy means tests at the local level.

Talip Kilic, Edward Whitney, and Paul Winters. 2013. “Decentralized Beneficiary Targeting in Large-Scale Development Programs: Insights from the Malawi Farm Input Subsidy Program.” World Bank Policy Research Working Paper 6713, November.

Delphi studies might be a valuable tool for assessing global benefit transfers

Over 15 percent of the original Amazon forest area has been lost. More of this forest is likely to be lost in coming years if no plan for protecting it is implemented. This research looks at how households outside the Amazon area might value the Amazon as a global public good, in the sense of being willing to pay to avoid additional losses. To examine this preference a Delphi stated-preference technique was used to query 48 European environmental valuation experts on their “best guesses” on possible outcomes of valuation surveys of populations in their countries and Europe as a whole. The findings suggest a willingness to pay in Europe for preserving the current Amazon Rainforest up to 2050, of about 28 Euros per household per year on average. A slightly lower value is inferred for a plan that allows a 10 percent future reduction from the current rainforest area. These expert opinions are higher for experts from higher-income countries, although less than proportionately so. This implies that the share of European countries’ per-capita incomes that can be paid for Amazon forest protection programs is somewhat reduced with income.

Ståle Navrud and Jon Strand 2013. “Valuing Global Public Goods: A European Delphi Stated Preference Survey of Population Willingness to Pay for Amazon Rainforest Preservation.” World Bank Policy Research Working Paper 6637, October.


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