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Research Highlights August 2014

Research Highlights August 2014

Research Highlights August 2014

Vulnerability lines can be calculated in most settings with few data requirements

A vulnerability line distinguishes the poor population from the population that is not poor but is vulnerable to falling back into poverty. It can be identified according to two separate income thresholds: one is the poverty line and the other a higher-income line, the vulnerability line, below which non-poor households can be regarded as facing a heightened risk of falling back into poverty. These vulnerability lines can be estimated in a straightforward manner with panel or cross-sectional household survey data in both rich- and poor-country settings, as demonstrated in this analysis. The availability of vulnerability lines can broaden traditional poverty analysis and assist with the identification of the middle class and policies to target the poor, which may be quite different from policies for the vulnerable. Estimates based on panel data from the United States (Panel Study of Income Dynamics) and Vietnam (Vietnam Household Living Standards Survey) for the period 2004-2008 and cross-sectional data from India (National Sample Survey) for the period 2004-2009 indicate that in Vietnam and India the population living in poverty has been falling and the middle class has been expanding. In the United States it is the opposite.

Welfare Dynamics Measurement: Two Definitions of a Vulnerability Line and Their Empirical Application, Hai-Anh H. Dang and Peter F. Lanjouw, World Bank Policy Research Working Paper 6944, June 2014.

Subsidized voluntary health insurance unlikely to be the answer to universal health coverage

One of the biggest challenges facing developing countries seeking to achieve universal health coverage is how to extend coverage to informal-sector workers. A cluster randomized controlled trial tested two sets of interventions to encourage voluntary enrollment in the Philippines’ Individual Payer Program. Of 243 municipalities, 179 were randomly assigned as intervention sites and 64 as controls. In early 2011, 2,950 families were interviewed; unenrolled Individual Payer Program-eligible families in intervention sites were given an information kit and a 50 percent premium subsidy until the end of 2011. In February 2012, the “non-compliers” had their voucher extended, were re-sent the enrollment kit, and received Short Message Service (SMS) reminders. Half were told that in the upcoming end-line interview the enumerator could help complete the enrollment form, deliver it to the insurer, and have identification cards mailed. The control and intervention sites were balanced at baseline. In the control sites, 9.9 percent (32/323) of eligible individuals had enrolled by January 2012, compared with 14.9 percent (119/801) in intervention sites. In the sub-experiment, enrollment was 3.4 percent (10/290) among eligible non-compliers and who did not receive assistance but 39.7 percent (124/312) among those who did. A premium subsidy combined with information can increase voluntary enrollment in a social health insurance program, but less than an intervention that reduces the enrollment burden; even that leaves enrollment below 50 percent.

Effects of Interventions to Raise Voluntary Enrollment in a Social Health Insurance Scheme: A Cluster Randomized Trial, Joseph J. Capuno, Aleli D. Kraft, Stella Quimbo, Carlos R. Tan, Jr., and Adam Wagstaff, World Bank Policy Research Working Paper 6893, May 2014.

Small price incentives in land titling encourages the inclusion of women

During the 1990s and 2000s, nearly two dozen African countries proposed de jure land reforms extending access to formal, freehold land tenure to millions of poor households, but many of these reforms stalled. Titled land remains the preserve of wealthy households and, within households, men. A randomized field experiment of price incentives is used to address economic and gender inequality in land tenure formalization. Beginning in 2010, the experiment tested whether price instruments alone can generate greater inclusion by offering formal titles to residents of a low-income, unplanned settlement in Dar es Salaam at a range of subsidized prices, as well as additional price incentives to include women as owners or co-owners of household land. Estimated price elasticities of demand (the responsiveness of a change in quantity demanded to a change in price) confirms that prices—rather than other implementation failures or features of the titling regime—prevent broader inclusion in the land registry, and that some degree of pro-poor price discrimination is justified even from a narrow budgetary perspective. In terms of gender inequality, even small price incentives for female co-titling achieve almost complete gender parity in land ownership with no reduction in demand.

The Price of Empowerment: Experimental Evidence on Land Titling in Tanzania, Daniel Ayalew Ali, Matthew Collin, Klaus Deininger, Stefan Dercon, Justin Sandefur, and Andrew Zeitlin, World Bank Policy Research Working Paper 6908, June 2014.

Energy efficiency strategy not straightforward in Ukraine: Analyzing the energy efficiency gap

Energy consumption has remained inefficient in Ukraine due to ageing infrastructure and prolonged subsidies. The government enacted several policies to promote the adoption of clean and energy-efficient technologies, but adoption remains slow. This research assesses several interrelated constraints, including financial, technical, information, behavioral, and institutional barriers to the adoption of energy efficient technologies in the commercial and industrial sectors. Survey results from 500 industrial and commercial firms show the key barriers to be high upfront costs of energy efficient technologies, high costs of finance, and high opportunity costs of energy efficiency investment. Lack of effective implementation of government policies, and some existing regulations such as government permits required for the adoption of energy efficient technologies are other key barriers. Given that factors influencing energy consumption varies by sector, with industrial firms being more energy intensive, a one-size-fits all policy approach may not create the necessary incentives to increase energy efficiency.

Why Has Energy Efficiency Not Scaled-up in the Industrial and Commercial Sectors in Ukraine? An Empirical Analysis, Gal Hochman and Govinda R. Timilsina, World Bank Policy Research Working Paper 6920, June 2014. | Blog | Data

How benchmark indexes affect asset allocations and capital flows across countries

The benchmark effect refers to the channels through which prominent international equity and bond market indexes (such as, the MSCI Emerging Markets Index or the MSCI World Index) affect asset allocations and capital flows across countries. How big is the effect and how does it work? Using unique monthly micro-level data of benchmark compositions and mutual fund investments during 1996-2012, the data show that benchmarks have important effects on international equity and bond mutual fund portfolios across funds with different degrees of activism. For example, benchmarks explain, on average, around 70 percent of country allocations and have significant impacts even on active funds. Benchmark effects are important after controlling for industry, macroeconomic, and country-specific, time-varying effects. Reverse causality does not drive the results. Exogenous, pre-announced changes in benchmarks (driven by methodological changes in how these benchmarks are constructed and adjusted) result in asset allocation movements mostly when these changes are implemented (not when announced). By impacting country allocations, benchmarks affect capital flows across countries through direct and indirect channels, including contagion. They explain apparently counterintuitive movements in capital flows, generating outflows from countries when upgraded and with countries with large market capitalization and better relative performance.

International Asset Allocations and Capital Flows: The Benchmark Effect, Claudio Raddatz, Sergio L. Schmukler, and Tomás Williams, World Bank Policy Research Working Paper 6866, May 2014.

The role of capital in system-wide bank fragility

One of the important lessons of the 2008 financial crisis was that financial institutions need to implement more effective capital requirements. This analysis examines the role of capital and the individual bank’s contribution to the risk of the financial system as a whole. Findings include the following: higher quality forms of capital reduce the systemic risk contribution of banks, whereas lower quality forms can have a destabilizing impact, particularly during crisis periods. The impact of capital on systemic risk is less pronounced for smaller banks, for banks located in countries with more generous safety nets, and in countries with institutions that allow for better public and private monitoring of financial institutions. Whereas regulatory capital is effective in reducing systemic risk and regulatory risk weights are correlated with higher future asset volatility, this relationship is significantly weaker for larger banks. Moreover, increased regulatory risk-weights not correlated with future asset volatility increase systemic fragility. Overall, these results are consistent with the theoretical literature that emphasizes capital as a potential buffer in absorbing liquidity, information, and economic shocks, thus reducing contagious defaults.

Bank Capital and Systemic Stability, Deniz Anginer and Asli Demirguc-Kunt, World Bank Policy Research Working Paper 6948, June 2014.

Peer-based underperformance penalty generates herding behavior among pension fund managers

In financial markets, institutional investors manage a significant portion of total assets and comprise a greater portion of trading volume. Given the size of the portfolio management industry, managerial incentives and agency issues of delegated portfolio management are likely to affect asset prices. This research studies the portfolio choices of fund managers in the presence of a peer-based underperformance penalty. Evidence comes from the Colombian pension fund management industry, where six asset managers are in charge of portfolio allocations for the mandatory contributions of the working population. These managers are subject to a peer-based underperformance penalty known as the Minimum Return Guarantee. The trading behavior by the managers is studied before and after a change in the strictness of the guarantee in June 2007. The evidence suggests that a tighter minimum return guarantee results in more trading in the direction of peers, a behavior that is more pronounced for underperforming managers. These managers rebalance their portfolios by buying securities in which they are underexposed relative to their peers, as opposed to selling assets in which they are overexposed. Overall, the results suggest that incentives for managers to be close to industry benchmarks play an important role in the portfolio allocation of these funds.

Strategic Interactions and Portfolio Choice in Money Management: Evidence from Colombian Pension Funds, Alvaro Pedraza Morales, World Bank Policy Research Working Paper 6994, July 2014.

Exporting to high-income nations leads to quality upgrading

The extent to which the destination of exports matters for the input prices paid by firms is examined using detailed customs and firm-product-level data from Portugal. When exchange rate movements are used as a source of variation in export destinations, firms that export to richer countries charge more for outputs and pay higher prices for inputs, other things equal. The results are supportive of the hypothesis that an external increase in average destination income leads firms to raise the average quality of goods they produce and to purchase higher-quality inputs. These findings have implications for our understanding of the upgrading process in developing countries. In particular, they indicate that raising the quality of outputs requires raising the quality of inputs, which in turn suggests that increasing exports to high-income destinations may require the upgrading of entire complexes of suppliers and downstream producers, not just of exporters.

Export Destinations and Input Prices, Paulo Bastos, Joana Silva, and Eric Verhoogen, World Bank Policy Research Working Paper 6914, June 2014.

Last updated: 2014-08-19

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