Policy Research Working Paper | Poverty_Reduction | World Bank

Does gender inequality hinder development and economic growth ? evidence and policy implications

2013-02-21T05:00:00.000Z

Does the existing evidence support policies that foster growth by reducing gender inequality? The authors argue that the evidence based on differences across countries is of limited use for policy design because it does not identify the causal link from inequality to growth. This, however does not imply that inequality-reducing policies are ineffective. In other words, the lack of evidence of a causal link is not in itself evidence that the causal link does not exist. Detailed micro studies that shed light on the mechanisms through which gender inequality affects development and growth are needed to inform the design of effective policies.

Weight calculations for panel surveys with sub-sampling and split-off tracking

2013-02-22T05:00:00.000Z

The Living Standards Measurement Study -- Integrated Surveys on Agriculture project collects agricultural and livelihood data in seven countries in Sub-Saharan Africa. In order to maintain representativeness as much as possible over multiple rounds of data collection, a sub-sample of households are selected to have members that have left the household tracked and interviewed in their new location with their new household members. Since the sub-sampling occurs at the level of the household but tracking occurs at the level of the individual, a number of issues arise with the correct calculation for the sub-sampling and attrition corrections. This paper is based on the panel weight calculations for the initial rounds of the Integrated Surveys on Agriculture surveys in Uganda and Tanzania, and describes the methodology used for calculating the weight components related to sub-sampling, tracking, and attrition, as well as the criteria used for trimming and post-stratification. It also addresses complications resulting from members previously classified as having attrited from the sample returning in later rounds.

Social spending, taxes and income redistribution in Uruguay

2013-03-04T05:00:00.000Z

How much redistribution does Uruguay accomplish through social spending and taxes? How progressive are revenue collection and social spending? A standard fiscal incidence analysis shows that Uruguay achieves a nontrivial reduction in inequality and poverty when all taxes and transfers are combined. In comparison with five other countries in Latin America, it ranks first (poverty reduction) and second (inequality reduction), and first in terms of poverty reduction effectiveness and third in terms of overall (including transfers in-kind) inequality reduction effectiveness. Direct taxes are progressive and indirect taxes are regressive. Social spending on direct transfers, contributory pensions, education and health is quite progressive in absolute terms except for tertiary education, which is almost neutral in relative terms.

Fifteen years of inequality in Latin America : how have labor markets helped ?

2013-03-13T04:00:00.000Z

Household income inequality has declined in Latin America in the past decades, contributing significantly to poverty reduction in the region. Although available evidence shows that changes in the labor income are among the main factors behind these inequality trends, few studies have analyzed more closely the labor market dynamics that have led to a decline in total income inequality in some countries, but also to an increase in others. Using household survey data for a sample of 15 countries in Latin America from 1995 to 2010, this paper uses an extension of the Juhn-Murphy-Pierce methodology to decompose changes in labor income inequality (hourly wages) into a quantity effect (capturing changes in the distribution of workers' skills), price effect (reflecting returns to skills), and unobservables effect (other components, within skill groups, affecting labor income). The results show that falling returns to skills for both education and experience is, on average, driving the decline in labor income inequality in Latin America. The quantity effect, in turn, has contributed little to inequality reduction, mostly attributable to a larger dispersion in years of experience, possibly linked to the region's demographic transition and to significant increases in female labor force participation. Additional findings show that wage inequality, still high in the region, is coupled with inequality in terms of hours worked. The paper complements the existing literature by presenting separate results for males and females, as well as formal and informal sector workers as an attempt to control for secular shifts in these characteristics.

Demand versus returns ? pro-poor targeting of business grants and vocational skills training

2013-03-25T04:00:00.000Z

Interventions aimed at increasing the income generating capacity of the poor, such as vocational training, micro-finance or business grants, are widespread in the developing world. How to target such interventions is an open question. Many programs are self-targeted, but if perceived returns differ from actual returns, those self-selecting to participate may not be those for whom the program is the most effective. The authors analyze an unusual experiment with very high take-up of business grants and vocational skills training, randomly assigned among nearly all households in selected poor rural communities in Nicaragua. On average, the interventions resulted in increased participation in non-agricultural employment and higher income from related activities. The paper investigates whether targeting could have resulted in higher returns by analyzing heterogeneity in impacts by stated baseline demand, prior participation in non-agricultural activities, and a wide range of complementary asset endowments. The results reveal little heterogeneity along observed baseline characteristics. However, the poorest households are more likely to enter and have higher profits in non-agricultural self-employment, while less poor households assigned to the training have higher non-agricultural wages. This heterogeneity appears related to unobserved characteristics that are not revealed by stated baseline demand, and more difficult to target. In this context, self-targeting may reduce the poverty-reduction potential of income generating interventions, possibly because low aspirations limit the poor's ex-ante demand for productive interventions while the interventions have the potential to increase those aspirations. Overall, targeting productive interventions to poor households would not have come at the cost of reducing their effectiveness. By contrast, self-targeting would have limited poverty reduction by excluding the poorest.

Closing rural-urban MDG gaps in low-income countries : a general equilibrium perspective

2013-03-26T04:00:00.000Z

This paper addresses policies aimed at closing the rural-urban gap for one of the Millennium Development Goals (MDGs), the under-five mortality rate (U5MR). The paper relies on the Maquette for MDG Simulations (MAMS), a computable general equilibrium model, applied to the database of an archetypical low-income country. The scenarios, which focus on the period 2013-2030, include a "business-as-usual" base scenario and policy scenarios that analyze efforts to raise the rural population up to the urban level in terms of health services or the under-five mortality rate. The policy scenarios are implemented with alternative sources of fiscal space. The results indicate that, if current trends continue, considerable progress for MDGs should be expected by 2030. If the government raises rural health services, then the decline in the rural U5MR would accelerate. If most additional resources come from foreign grants or government efficiency gains, then the repercussions for other development indicators, including poverty reduction, would be positive. However, if most additional resources are from domestic taxes or borrowing, then progress for the rural U5MR would come at the expense of less progress for other indicators. Sensitivity analysis shows that these qualitative findings are robust to different values for two parameters related to initial rural-urban cost and service gaps. However, quantitatively, the results depend on the values of these two parameters, implying that individual country characteristics strongly influence the fiscal-space requirements for and consequences of equalizing rural-urban MDG services and outcomes.

Are microcredit participants in Bangladesh trapped in poverty and debt ?

2013-04-08T04:00:00.000Z

This paper addresses whether microcredit participants in Bangladesh are trapped in poverty and debt, as many critics have argued in recent years. Analysis of data from a long panel survey over a 20-year period confirms this is not the case, although numerous participants have been with microcredit programs for many years. The results of the analysis suggest that participants derive a variety of benefits from microcredit: It helps them to earn income and consume more, accumulate assets, invest in children's schooling, and be lifted out of poverty. This is not to say that non-participants have failed to progress over the same period. Both participants and non-participants have gained as the economy has grown; however, the rates of poverty reduction have been higher for participants. Testing the net effect of microcredit programs requires applying an econometric method that controls for why some households participated and others did not, conditional on their initial characteristics. In addition, the method must control for time-varying, unobserved heterogeneity that affects everyone over time, albeit in possibly different ways. The paper's econometric estimates show significant welfare gains resulting from microcredit participation, especially for women. They also show that the accrued benefits of borrowing outweigh accumulated debt. As a result, households' net worth has increased, and both poverty and the debt-asset ratio have declined.

Entrepreneurship programs in developing countries : a meta regression analysis

2013-04-08T04:00:00.000Z

This paper provides a synthetic and systematic review on the effectiveness of various entrepreneurship programs in developing countries. It adopts a meta-regression analysis using 37 impact evaluation studies that were in the public domain by March 2012, and draws out several lessons on the design of the programs. The paper observes wide variation in program effectiveness across different interventions depending on outcomes, types of beneficiaries, and country context. Overall, entrepreneurship programs have a positive and large impact for youth and on business knowledge and practice, but no immediate translation into business set-up and expansion or increased income. At a disaggregate level by outcome groups, providing a package of training and financing is more effective for labor activities. In addition, financing support appears more effective for women and business training for existing entrepreneurs than other interventions to improve business performance.

Is labor income responsible for poverty reduction ? a decomposition approach

2013-04-18T04:00:00.000Z

Demographics, labor income, public transfers, or remittances: Which factor contributes the most to observed reductions in poverty? Using counterfactual simulations, this paper accounts for the contribution labor income has made to the observed changes in poverty over the past decade for a set of 16 countries that have experienced substantial declines in poverty. In contrast to methods that focus on aggregate summary statistics, the analysis generates entire counterfactual distributions that allow assessing the contributions of different factors to observed distributional changes. Decompositions across all possible paths are calculated so the estimates are not subject to path-dependence. The analysis shows that for most countries in the sample, labor income is the most important contributor to changes in poverty. In ten of the countries, labor income explains more than half of the change in moderate poverty; in another four, it accounts for more than 40 percent of the reduction in poverty. Although public and private transfers were relatively more important in explaining the reduction in extreme poverty, more and better-paying jobs were the key factors behind poverty reduction over the past decade.

Schooling, violent conflict, and gender in Burundi

2013-04-22T04:00:00.000Z

This paper investigates the effect of exposure to violent conflict on human capital accumulation in Burundi. It combines a nationwide household survey with secondary sources on the location and timing of the conflict. Only 20 percent of the birth cohorts studied (1971-1986) completed primary education. Depending on the specification, the probability of completing primary schooling for a boy exposed to violent conflict declines by 7 to 17 percentage points compared to a nonexposed boy, with a decline of 11 percentage points in the preferred specification. In addition, exposure to violent conflict reduces the gender gap in schooling, but only for girls from nonpoor households. Forced displacement is one of the channels through which conflict affects schooling. The results are robust to various specifications and estimation methods.

Building or bypassing recipient country systems : are donors defying the Paris declaration ?

2013-04-23T04:00:00.000Z

The 2005 Paris Declaration on Aid Effectiveness sets targets for increased use by donors of recipient country systems for managing aid. It also calls for donors to be more responsive to the quality of recipient country systems: the optimal level of their use, in terms of maximizing the development effectiveness of aid, is believed to vary with their quality. This study investigates the degree to which donors' use of country systems is in fact positively related to their quality, using indicators explicitly endorsed for this purpose by the Paris Declaration and covering the 2005-2010 period. The results of these tests strongly confirm a positive and significant relationship, and show it is robust to corrections for potential sample selection, omitted variables, or endogeneity bias. The result holds even when estimates are informed only by variation over time within each donor-recipient pair in use and quality of country systems. Moreover, donor-specific tests show that use of country systems varies positively with their quality for the vast majority of donors. These findings contradict several other studies that claim there is no relation and imply that donors in this respect are failing to live up to their commitments under the Paris Declaration. The author's interpretation of the available evidence on use of country systems is more favorable: donors' behavior over the measurement period is largely consistent with their commitments in this area. In this respect, at least, donors appear to have modified their aid practices in ways that build rather than undermine administrative capacity and accountability in recipient country governments.

Urbanization and poverty reduction -- the role of rural diversification and secondary towns

2013-04-23T04:00:00.000Z

A rather unique panel tracking more than 3,300 individuals from households in rural Kagera, Tanzania during 1991/4-2010 shows that about one in two individuals/households who exited poverty did so by transitioning from agriculture into the rural nonfarm economy or secondary towns. Only one in seven exited poverty by migrating to a large city, although those moving to a city experienced on average faster consumption growth. Further analysis of a much larger cross-country panel of 51 developing countries cannot reject that rural diversification and secondary town development lead to more inclusive growth patterns than metropolitization. Indications are that this follows because more of the poor find their way to the rural nonfarm economy and secondary towns, than to distant cities. The development discourse would benefit from shifting beyond the rural-urban dichotomy and focusing instead more on how best to urbanize and develop the rural nonfarm economy and secondary towns.

Risk sharing and internal migration

2013-04-30T04:00:00.000Z

Over the past two decades, more than half the population in rural Tanzania migrated within the country, profoundly changing the nature of traditional institutions such as informal risk sharing. Mass internal migration has created geographically disperse networks, on which the authors collected detailed panel data. By quantifying how shocks and consumption co-vary across linked households, they show how migrants unilaterally insure their extended family members at home. This finding contradicts risk-sharing models based on reciprocity, but is consistent with assistance driven by social norms. Migrants sacrifice 3 to 7 percent of their very substantial consumption growth to provide this insurance, which seems too trivial to have any stifling effect on their growth through migration.

Different dreams, same bed : collecting, using, and interpreting employment statistics in Sub-Saharan Africa -- the case of Uganda

2013-05-07T04:00:00.000Z

Employment and earnings statistics are the key link between the size and structure of economic growth and the welfare of households, which is the ultimate goal of development policy, so it is important to monitor employment outcomes consistently. A cursory review of employment data for low-income Sub-Saharan African countries shows both large gaps and improbable variation within countries over time and among countries, suggesting that low quality data are routinely reported by national statistics offices. Unfortunately, policies are formed and projects developed and implemented on the basis of these statistics. Therefore, errors of measurement could be having profound implications on the strategic priorities and policies of a country. This paper explains the improbable results observed by using data from Uganda, where the labor module contains variation both within and across surveys, to show the sensitivity of employment outcomes to survey methodology. It finds that estimates of employment outcomes are unreliable if the questionnaire did not use screening questions, as labor force participation will be underestimated. Likewise, surveys that use a seven-day recall period underestimate or potentially misrepresent employment outcomes, owing to seasonality and multiple jobs. Common multivariate analysis applied on household survey data will be affected, as the errors in measurement in the dependent and independent variables will be correlated. Corrections to reduce measurement bias in existing data are tested with the survey data; none are found to be completely satisfactory. The paper concludes that there is a knowledge gap about employment outcomes in Sub-Saharan Africa that will continue unless collection techniques improve.

How can safety nets contribute to economic growth ?

2013-05-07T04:00:00.000Z

The paper provides an up-to date and selective review of the literature on how social safety nets contribute to growth. The evidence is carefully chosen to show how safety nets have the potential to overcome constraints on growth linked to market failures, and is organized into 4 distinct pathways: i) encouraging asset accumulation by changing incentives and by addressing imperfections in financial markets caused by constraints in obtaining credit, and from information asymmetries; overcoming such failures helps households to invest into their human capital or productive assets; ii) failures in insurance markets especially in low income setting; safety nets are assisting in managing risk both ex post and ex ante; iii) safety nets are overcoming failure to create assets and other local economy complementary factors to household-level investments; iv) safety nets are shown to relax political constraints on policy. Safety nets have a dual objective of directly alleviating poverty through transfers to the poor and of triggering higher growth for the poor. However, the trade-off between the dual objectives of equity and growth is not eliminated by the potential for productive safety nets; this remains critical for designing social policies.

Poverty reduction during the rural-urban transformation : the role of the missing middle

2013-05-15T04:00:00.000Z

As countries develop, they restructure away from agriculture and urbanize. But structural transformation and urbanization patterns differ substantially, with some countries fostering migration out of agriculture into rural off farm activities and secondary towns, and others undergoing rapid agglomeration in mega cities. Using cross-country panel data for developing countries spanning 1980-2004, the analysis in this paper finds that migration out of agriculture into the missing middle (the rural nonfarm economy and secondary towns) yields more inclusive growth patterns and faster poverty reduction than agglomeration in mega cities. This suggests that patterns of urbanization deserve much more attention when striving for faster poverty reduction.

Jobs, wellbeing, and social cohesion : evidence from value and perception surveys

2013-05-16T04:00:00.000Z

Recent events, including the Arab Revolutions and protest movement of unemployed youths in OECD countries, have contributed to the popular sentiment that access to good jobs is an important driver of social cohesion. While economic dimensions of labor market outcomes are relatively well documented, evidence on the link between social cohesion and employment conditions is still surprisingly scarce. This paper, a background report for the WDR 2013 on Jobs, presents descriptive evidence that illustrates possible linkages between labor market outcomes and social cohesion. The findings suggest that, once one passes the threshold from low to lower middle income countries, formal employment emerges as a determinant of a range of outcomes relating to social cohesion, such as membership in social associations or levels of political activism. There are also indications of an increasing association between work and life satisfaction across higher and lower middle income countries. The paper concludes with a discussion of the study's implications for emerging economies whose labor market and social institutions are still in transition.

The inequality possibility frontier : extensions and new applications

2013-05-17T04:00:00.000Z

This paper extends the Inequality Possibility Frontier approach in two methodological directions. It allows the social minimum to increase with the average income of a society, and it derives all the Inequality Possibility Frontier statistics for two other inequality measures besides the Gini. Finally, it applies the framework to contemporary data, showing that the inequality extraction ratio can be used in the empirical analysis of post-1960 civil conflict around the world. The duration of conflict and the casualty rate are positively associated with the inequality extraction ratio, that is, with the extent to which elite pushes the actual inequality closer to its maximum level. Inequality, albeit slightly reformulated, is thus shown to play a role in explaining civil conflict.

Non-farm diversification, poverty, economic mobility and income inequality : a case study in village India

2013-05-20T04:00:00.000Z

This paper assembles data at the all-India level and for the village of Palanpur, Uttar Pradesh, to document the growing importance, and influence, of the non-farm sector in the rural economy between the early 1980s and late 2000s. The suggestion from the combined National Sample Survey and Palanpur data is of a slow process of non-farm diversification, whose distributional incidence, on the margin, is increasingly pro-poor. The village-level analysis documents that the non-farm sector is not only increasing incomes and reducing poverty, but appears as well to be breaking down long-standing barriers to mobility among the poorest segments of rural society. Efforts by the government of India to accelerate the process of diversification could thus yield significant returns in terms of declining poverty and increased income mobility. The evidence from Palanpur also shows, however, that at the village-level a significant increase in income inequality has accompanied diversification away from the farm. A growing literature argues that such a rise in inequality could affect the fabric of village society, the way in which village institutions function and evolve, and the scope for collective action at the village level. Failure to keep such inequalities in check could thus undermine the pro-poor impacts from the process of structural transformation currently underway in rural India.

Structural change, dualism and economic development : the role of the vulnerable poor on marginal lands

2013-05-22T04:00:00.000Z

Empirical evidence indicates that in many developing regions, the extreme poor in more marginal land areas form a "residual" pool of rural labor. Structural transformation in such developing economies depends crucially on labor and land use decisions of these most-vulnerable populations located on abundant but marginal agricultural land. Although the modern sector may be the source of dynamic growth through learning-by-doing and knowledge spillovers, patterns of labor, land and other natural resources use in the rural economy matter in the overall dynamics of structural change. The concentration of the rural poor on marginal lands is essentially a barometer of economy-wide development. As long as there are abundant marginal lands for cultivation, they serve to absorb rural migrants, increased population, and displaced unskilled labor from elsewhere in the economy. Moreover, the economy is vulnerable to the "Dutch disease" effects of a booming primary products sector. As a consequence, productivity increases and expansion in the commercial primary production sector will cause manufacturing employment and output to contract, until complete specialization occurs. Avoiding such an outcome and combating the inherent dualism of the economy requires both targeted polices for the modern sector and traditional agriculture on marginal lands.