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Research Highlights July 2014

Research Highlights July 2014

Research Highlights July 2014

Who will feed China in the 21st Century?

Rapid economic growth has contributed greatly to changes in Chinese diets. The demand for food calories is probably close to its peak in China, but the ongoing dietary shift to animal-based foods is likely to impose considerable pressure on agricultural resources. This research uses cereal equivalent measures for many countries to explore the relationship between income growth and the resulting pressures on agricultural resources. China’s food demands, and the growth of demand, appear consistent with global patterns. On the supply side, food output depends strongly on the productivity growth associated with income growth and on the country’s agricultural land endowment, with China appearing to be an out-performer. Analysis of income-consumption-production dynamics suggest that China is currently in an income range where consumption growth would be expected to outstrip production growth, but that the gap between production and demand is likely to narrow as China’s population growth stops and the dietary transition decelerates. Continued agricultural productivity growth through research and development, mechanization and farm growth, and sustainable resource management are vital for ensuring that it is primarily China that feeds China in the 21st century.

Who Will Feed China in the 21st Century? Income Growth and Food Demand and Supply in China, Emiko Fukase and Will Martin, World Bank Policy Research Working Paper 6926, June 2014.

Strong link between climate and urbanization in Africa

Climate variation has a significant impact on urbanization in Sub-Saharan Africa, primarily in more arid countries. By lowering farm incomes, reduced moisture availability encourages migration to nearby cities, while wetter conditions slow migration. The evidence for rural-urban income links shows that in countries with a larger industrial base, reduced moisture shrinks the agricultural sector and raises total incomes in nearby cities. However, if local cities are entirely dependent on servicing agriculture, their fortunes move with those in the rural sector—reduced moisture tends to reduce local urban incomes. Finally, climate change is likely to result in employment changes within the rural sector itself. Drier conditions induce a shift out of farm activities, especially for women, into non-farm activities, and especially out of the workforce.

50 Years of Urbanization in Africa: Examining the Role of Climate Change, J. Vernon Henderson, Adam Storeygard, and Uwe Deichmann, World Bank Policy Research Working Paper 6925, June 2014.

Is inequality of opportunity bad for growth? The cross-country evidence is inconclusive

Income differences arise from many sources. While some kinds of inequality, caused by effort differences, might be associated with faster economic growth, other kinds, arising from unequal opportunities for investment, might be detrimental to economic progress. This study uses two new metadata sets, consisting of 118 household surveys and 134 Demographic and Health Surveys, to revisit the question of whether inequality is associated with economic growth and, in particular, to examine whether inequality of opportunity—driven by circumstances at birth—has a negative effect on subsequent growth. The results are suggestive but not robust: while overall income inequality is generally negatively associated with growth in the household survey sample, there is no evidence that this is due to the component associated with unequal opportunities. In the Demographic and Health Surveys sample, both overall wealth inequality and inequality of opportunity have a negative effect on growth in some of the preferred specifications, but the results are not robust to relatively minor changes. On balance, although the results are suggestive of a negative association between inequality and growth, the data do not permit robust conclusions as to whether inequality of opportunity is bad for growth.

Inequality of Opportunity and Economic Growth: A Cross-Country Analysis, Francisco H. G. Ferreira, Christoph Lakner, Maria Ana Lugo, and Berk Özler, World Bank Policy Research Working Paper 6915, June 2014.

Tracking deposit insurance through the financial crisis

Updates to a comprehensive global database of deposit insurance (as of 2013) now includes recent adopters of deposit insurance and information on the use of government guarantees on banks’ assets and liabilities, including during the recent global financial crisis. A new Safety Net Index captures the generosity of the deposit insurance scheme and government guarantees on banks’ balance sheets. The data show that deposit insurance has become more widespread and more extensive in coverage since the global financial crisis, which also triggered a temporary increase in the government protection of non-deposit liabilities and bank assets. In most cases, these guarantees have since been formally removed but coverage of deposit insurance remains above pre-crisis levels, raising concerns about implicit coverage and moral hazard going forward.

Deposit Insurance Database, Asli Demirgüç-Kunt, Edward Kane, and Luc Laeven, World Bank Policy Research Working Paper 6934, June 2014. | Blog | Data

Transparency policies may be ineffective if they undermine the commercial interest of financial institutions

The limited success of policies promoting transparency and mandated products in the financial sector is well known. How does this affect the poor? An audit study was conducted in peri-urban cities in Mexico to understand the quality of information and products offered to potential low-income customers. Trained auditors visited multiple financial institutions seeking credit and savings products. Staff at these institutions provided enough information to allow auditors to apply for the loan or open a savings account, but they offered little to no voluntary information about avoidable fees and commissions, especially to auditors trained to appear uninformed about the market. In addition, the printed materials given to auditors of all profile types contained too little information to compare across products. Clients are almost never offered the cheapest product, most likely because staff is incentivized to offer more expensive products that are profitable to the institution. This suggests that disclosure and transparency policies may be ineffective if they undermine the commercial interest of financial institutions.

Financial (Dis-)Information: Evidence from an Audit Study in Mexico, Xavier Giné, Cristina Martínez Cuellar, and Rafael Keenan Mazer, World Bank Policy Research Working Paper 6902, June 2014.

The rapid growth of institutional investors has not lead to long-term financial markets

Many countries have tried to foster long-term lending through various measures that tackle different parts of the financial system. For example, it was thought that institutional investors would play a key role in developing long-term financial markets. But evidence on the universe of institutional investors from the leading case of Chile does not support this expectation. The investment portfolios of mutual funds, pension funds, and insurance companies show that mutual and pension funds invest mostly in short-term assets relative to insurance companies. The significant difference across maturity structures is not driven by the supply side of debt or tactical behavior. Instead, it seems to be explained by manager incentives (related to short-run monitoring and the liability structure) that, combined with risk factors, tilt portfolios toward short-term instruments, even when long-term investing yields higher returns.

Institutional Investors and Long-term Investment: Evidence from Chile, Luis Opazo, Claudio Raddatz, and Sergio L. Schmukler, World Bank Policy Research Working Paper 6922, June 2014.

Patchy progress on the health-related Millennium Developments goals among the poorest 40 percent

As the December, 31 2015 target date for the attainment of the Millennium Development Goals (MDGs) approaches, ministries of health are fervently discussing the health-related indicators. This research looks at the differential progress on the health-related MDGs between the poor and better-off within countries. The findings are based on the analysis of 235 Demographic and Health Surveys and Multiple Indicator Cluster Surveys, spanning 64 developing countries over the period 1990-2011. Five health status indicators and seven intervention indicators are tracked. They show that in most countries the poorest 40 percent have made faster progress than the richest 60 percent. On average, relative inequality in the indicators has been falling. Unfortunately, the opposite is true in a sizable minority of countries, especially on child health status indicators (40-50 percent in the cases of child malnutrition and mortality), and on some intervention indicators (almost 40 percent in the case of immunizations). Absolute inequality has been rising in a larger fraction of countries and in around one-quarter of countries, the poorest 40 percent have been slipping backward in absolute terms. Despite reductions in most countries, relative inequalities in the health indicators are still appreciable, with the poor facing higher risks of malnutrition and death in childhood and lower odds of receiving key health interventions.

Progress Toward the Health MDGs: Are the Poor Being Left Behind? Adam Wagstaff. Caryn Bredenkamp. and Leander R. Buisman, World Bank Policy Research Working Paper 6894, May 2014.

Restrictions on liner shipping raise transport costs and hurt trade

The current perception is that maritime transport costs cannot be further lowered through policy reform because the market for maritime services is largely free of distortions. But a new services trade restrictions database reveals that protection persists. This research on policy barriers in the shipping sector addresses a blind spot in the existing literature on the determinants of maritime transport costs. It examines how policy governing the liner shipping sector affects maritime transport costs and seaborne trade flows. Restrictions, particularly on foreign investment, increase maritime transport costs, strongly but unevenly. The cost-inflating effect ranges from 24 to 50 percent and trade on some routes may be inhibited altogether. Distance increases maritime transport costs, but also lessens the cost impact of policy barriers. Overall, policy restrictions may lower trade flows on specific routes by up to 46 percent and therefore deserve greater attention in national reform programs and international trade negotiations.

Restrictions on liner shipping raise transport costs and hurt trade, Fabien Bertho, Ingo Borchert, and Aaditya Mattoo, World Bank Policy Research Working Paper 6921, June 2014.

Last updated: 2014-07-22

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