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South Asia

Informality – a Blessing or a Curse?

Megha Mukim's picture

IN134S06 World Bank Governments (and donors alike) don’t like dealing with informality. It’s messy, dirty, essentially unmeasurable, and its character varies dramatically. From one industry to the next. From one city to the next. It’s also beset with fiendishly difficult problems – informal firms are often household enterprises (employing mainly family labour, and not hired labour). Thus, they have to make impossible trade-offs between production and consumption.
 
And yet – the size and the importance of the informal sector in most countries shows no signs of abating. On average the informal share of employment ranges from 24 per cent in transition economies, to 50 per cent in Latin America and over 70 per cent in sub-Saharan Africa. In India, employment within the informal sector is growing, while that in the formal sector remains stagnant. Yet - very little is known about the relationship, whether symbiotic or competitive, between the two sectors.
 
In a new paper, I notice that in India formal firms tend to cluster with informal firms – especially in industries like apparel, furniture and meal-making. The firms coagglomerate not only so that they can buy from and sell to one another – but importantly, also because formal firms tend to share equipment with and transfer technical knowledge to their informal counterparts. Such technical and production spillovers are found in clusters of domestic-foreign, exporter-non-exporter and high-tech-low-tech firms. It is no surprise then that formal and informal activity could be complementary. Informal can also be an outlet for entrepreneurial activity, especially in places with high levels of corruption, or where formal firms are often mired in complex regulations.

Improving Service Delivery in Pakistan, One Text Message at a Time

Mabruk Kabir's picture

After visiting a government office, residents in Punjab may be surprised to find a familiar voice on the phone – their Chief Minister. “You have recently registered property,” the voice of Shahbaz Sharif booms, “Did you face any difficulties? Did you have to pay a bribe?” (Hear the robo-call here!)
 
It is an uncomfortable question – but one that tackles a stubborn social issue in Pakistan. In a country of 180 million, a culture of bribery and pretty corruption plagues public service delivery.
 
When visiting a land services official, a staggering 75 percent of households reported paying a bribe, according to Transparency International. Over half of households said they bribed the public utilities or a police officer in the last year. Endemic corruption is not just a drag on economic activity and poverty reduction efforts – it erodes trust between citizens and the state. 

Rishikesh Kumar: Best Grassroot Innovator

Onno Ruhl's picture

Rishikesh, Best Grassroot Innovator has made a hearing aid out of electronic waste“What is that, on this side?” the Chief Minister asked.  “It is the earphone connector of an old cellphone Sir” Rishikesh said. “What do you use it for?” the Chief Minister asked. “It is like the ear Sir”, Rishikesh said, “It is where the sound enters”.

I was standing behind the Chief Minister, Nitish Kumar of Bihar, and I was amazed as he seemed to be. This young man from a village in Bihar had actually made a functioning hearing aid using electronic waste. He even designed his own Styrofoam cutter to quicken the production process. And the cost of the hearing aid is only 75 rupees ($1.20)! The cutter costs a few dollars only.

Nitish Kumar was making a tour of the Innovation Expo at the Bihar Innovation Forum (BIF). For me, Rishikesh was clearly the most amazing talent, but there were good innovations in many, many areas. Recycling groundwater for irrigation, thus slowing the depletion of scarce groundwater resources; using rice husks to generate electricity in the village; an Internet platform that allows small investors to contribute to grassroots loans; a platform to harness traditional culture to create jobs; I could go on.

The BIF is organized by Jeevika, Bihar’s flagship livelihoods program, which has empowered over a million women already and connected them to banks. I am proud to say that the World Bank is a long term supporter of both Jeevika and BIF.


Many people associate innovation in India with big cities like Bangalore and Chennai. Bihar decided seven years ago to see what innovation can come from its villages. This year they looked again, not only within Bihar but across India and found innovative rural solutions from 16 states. And it does not stop at a forum. The Chief Minister announced the same day that Jeevika will create an Innovation Center to support the grassroots innovators with handholding and technical assistance and to make sure that what works gets scaled up in many villages. This could transform the rural landscape!

Clogged Metropolitan Arteries

Otaviano Canuto's picture

Bad conditions of mobility and accessibility to jobs and services in most metropolitan regions in developing countries are a key development issue. Besides the negative effects on the wellbeing of their populations associated with traffic congestion and time spent on transportation, the latter mean economic losses in terms of waste of human and material resources.

What are the Sources of Corruption?

Augusto Lopez-Claros's picture

In a previous blog we discussed the factors that have pushed issues of corruption to the centre of policy debates about sound economic management. A related question deals with the sources of corruption: where does it come from, what are the factors that have nourished it and turned it into such a powerful impediment to sustainable economic development? Economists seem to agree that an important source of corruption stems from the distributional attributes of the state. For better or for worse, the role of the state in the economy has expanded in a major way over the past century. In 1913 the 13 largest economies in the world, accounting for the bulk of global economic output, had an average expenditure ratio in relation to GDP of around 12%. This ratio had risen to 43% by 1990, with many countries’ ratios well in excess of 50%.  This rise was associated with the proliferation of benefits under state control and also in the various ways in which the state imposes costs on society. While a larger state need not necessarily be associated with higher levels of corruption—the Nordic countries illustrate this—it is the case that the larger the number of interactions between officials and private citizens, the larger the number of opportunities in which the latter may wish to illegally pay for benefits to which they are not entitled, or avoid responsibilities or costs for which they bear an obligation.

How Fair is “Fair Compensation” Under India’s New Land Acquisition Act?

I.U.B Reddy's picture

The much anticipated Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (“the Act”) has just come into force in India on January 1st, 2014. Unlike the replaced 1894 legislation, this act addresses the rehabilitation and resettlement of those who depend on land, in addition to land owners. As emphasized in its title the new act places a greater emphasis on transparent processes at various stages: for example, through its mandatory social impact assessments, public hearings, and dispute resolution mechanisms.  
 
The other key emphasis in the act’s title refers to a new compensatory mechanism. The new act now provides for up to two times market value, against one time in the previous act and this figure is then doubled by applying a one hundred percent “solatium” against 30% in the previous act (additional compensation). Though people get more compensation under new  act, an increase in multiplier does not address the fundamental question of determining “market value”  in a country where registered values under-represent land purchase price to evade high stamp duties.  The challenge is exacerbated in rural areas where there are fewer land transfers, and therefore fewer registered sales deeds to use as reference points. In such situations, a valuation that is perceived to be more “fair” can be found only through consultations and dialogue, as demonstrated by two case studies from World Bank financed projects in India:

Can Businesses Help Create Political Stability?

Zahid Hussain's picture

 © Simone D. McCourtie/World BankBusinesses generally stand little chance of doing well when politics is not stable. Political stability is a necessary condition for an enabling business environment. What can the business community do to help achieve sustained political stability? Experience shows more often than not they fail to do so. What keeps the private sector divided even when both their collective and personal interests are directly at stake? Such an apparent puzzle can be explained by the soft budget constraint syndrome interacting with cronyism.
 
The term “soft budget constraint” (SBC) was originally conceived by the economist, Janos Kornai. The concept has since been regularly invoked in the literature on economic transition from socialism to capitalism. Now the concept is increasingly acknowledged to be pertinent well beyond the realm of socialist and transition economies. A host of capitalist phenomena, ranging from the collapse of the banking sector of East Asian economies in the 1990s and the business rescue packages seen in the midst of the recent global financial crises can be usefully analyzed in SBC terms.
 
The syndrome is at work only when organizations can expect to be rescued from trouble, and those expectations in turn affect their behavior. The more frequently financial problems elicit support in any part of the economy, the more organizations will count on getting support themselves. The government may from time to time announce they will break with past practice and refrain henceforth from bailouts. But such announcements have little effect unless combined with some institutional change that lends credibility to their claims.
 
SBC syndrome alone cannot explain why business groups do not react collectively to political adversities. The divisive force in this process comes from cronyism.
 
Cronyism normally means some of those close to political authorities receive large economic favors. The most visible ones usually entail ownership of a business or its operation, such as the privatization of state-owned enterprises (SOEs). More frequently, however, economic entitlements are provided through privileged access to governmental favors. The most valuable are the provision of monopoly or quasi-monopoly positions and the extension of domestic credit at highly subsidized terms. Favoritism in awarding government contracts is also important and may be as significant as the others. 

Bollywood Karaoke and Same Language Subtitling to Promote Literacy

Michael Trucano's picture

I'd like to teach the world to read, in perfect harmony ...While I have not seen any research evidence to support this particular contention, I have been in a number of presentations over the years about the 'Finnish success in education' in which the fact that Finnish children watch cartoons with subtitles is mentioned as a contributing factor to their literacy development. Even if there are no peer-reviewed journal articles about the impact of this practice in Finland (if anyone knows of any, please do feel free to send them along!) or many other places (subtitling on television has of course been a common practice in many countries of the world for quite some time), there is some pretty compelling evidence from a little initiative in India that has been reaching big audiences for over a decade that this sort of thing can make a small but meaningful difference in the lives of many illiterate and low literate people. Sometimes innovation is the result of doing something 'old' in a 'new' place (often with a slight twist).

Back in November, PlanetRead was awarded the first-ever 'International Prize' as part of the new U.S. Library of Congress Literacy Awards [disclosure: I am a member of the advisory board for these awards] in recognition of its pioneering work in the practice of Same Language Subtitling (SLS), "the idea of subtitling the lyrics of existing film songs (or music videos) on TV, in the ‘same’ language that they are sung in. Call it Karaoke on Bollywood for mass reading!  A deceptively simple innovation, SLS is already delivering regular and inescapable reading practice to 150 million weak-readers in India."

One notable characteristic of each of the three inaugural winners of the Library of Congress Literacy Awards is that they largely work outside of traditional 'educational' institutions as part of their efforts to promote reading. In the case of Reach Out and Read, this means connecting with parents and young children in pediatric exam rooms. 826 National supports store front writing and tutoring centers in local communities. PlanetRead focuses its outreach on a place where, like or not, many people spend a lot of their free time: watching television. Brij Kothari, the founder of PlanetRead, joked during the awards ceremonies at the Library of Congress, some people might say that TV is the enemy of reading, to which we reply: embrace the enemy!

Jishnu and Shanta Talk Transfers

Shanta Devarajan's picture

Shanta:  Jishnu, your blog post and mine on cash transfers generated a lot of comments.  Some people argued that giving poor people cash will not “work” because they will spend it on consumption rather than on their children’s education, which is something we care about.  What do you have to say to that?

Jishnu:  I don’t think the question “does giving cash to poor people work?” is well-defined.  It can only be answered in the negative if we (the donors who give the cash) impose our preferences and judge what poor people spend on relative to those preferences.  But if we give poor people cash so they will be better off, then—by definition—they are better off, regardless of how they choose to spend the extra money.

Using Video to Promote Successful Trade Facilitation in Laos

Miles McKenna's picture


The World Bank has been working with the government of Lao PDR to better integrate the country into the regional and global economy since 2006. As the only landlocked country in Southeast Asia, Lao PDR faces a number of barriers to trade. Since beginning to implement reforms in 2008, the country has seen marked improvements in a number of key areas -- culminating in Lao PDR's formal ascension to the WTO last year. The Trade Post spoke with Richard Record, a senior economist based in the Lao PDR country office, about the video. Here's what he had to say...  
 


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