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Financial Sector

Should State Banks Continue to Play a Role in the Middle East and North Africa?

Roberto Rocha's picture

In the past three decades the role of state-owned banks has been sharply reduced in most emerging economies. This reflects a general disappointment with their financial performance and contribution to financial and economic development, especially in countries where they dominated the banking system. But despite their loss of market share, state banks still play a substantial role in many regions, especially in East Asia, the Middle East and North Africa, and South Asia (figure 1).

Figure 1 Share of state banks in total assets by region, various years, 1970–2005
(percent)

 

The arguments put forward to justify the continuing presence of state banks have included market failures (resulting from asymmetric information and poor enforcement of contracts) that restrict access to credit; the provision of essential financial services in remote areas (where supply may be restricted by large fixed costs); and the provision of countercyclical finance to prevent an excessive contraction of credit during a financial crisis. These arguments may well justify policy interventions in many countries, although it does not necessarily follow that state banks are the optimal intervention. Moreover, even where the presence of state banks may be justified, policy makers still face the challenge of ensuring clear mandates and sound governance structures in order to minimize political interference and avoid large financial losses.

What will it take to confront global crises?

Vinod Thomas's picture

Three interlinked global crises—food, economic, climate—were high on the agenda of this year’s Bank-IMF Spring Meetings. At a conference organized by the Independent Evaluation Group and World Bank Institute, a panel of experts—Kristalina Georgieva, European Commissioner; Hans Herren, President, Millennium Institute; Trevor Manuel, Minister, National Planning Commission, South Africa; Ngozi Okonjo-Iweala, Managing Director, World Bank; Robert Watson, Chief Scientific Advisor, Government of UK— discussed not only the impact of each crisis, but crucially the links among them in seeking joint solutions.

Fighting Corruption: Making Development Work

Leonard McCarthy's picture

 


The World Bank has a clear vision:  A world free of poverty.  When integrity prevails, projects deliver and the poor benefit.  When they fail, development is set back and the poor suffer. That‘s why at the World Bank, we take the position that Rule of Law equals Development.  In the Bank’s pursuit of results, openness and accountability, we assert integrity in our operations, without reservation.  At the heart of our strategy is a commitment to remove the conditions that dent international security and make corruption flourish.

Dean Karlan’s new book: RCTs – this time it’s personal!

David McKenzie's picture

More than Good Intentions: How a new economics is helping to solve global poverty is a personalized helicopter tour of many recent randomized controlled trials (RCTs) in developing countries. It is written by Dean Karlan, who has been a researcher in many of these experiments, and Jacob Appel, who worked for Dean in implementing many of these experiments in Ghana.

Picking Up The Pieces

Otaviano Canuto's picture

For the 600 million people living in fragile and conflict affected economies, the threat of relapsing into violence and slipping into deeper poverty is a reality they must face every day. Believe it or not, poverty rates average 54% in fragile and postconflict economies, compared with 22% for low-income countries as a whole. Weak institutions and a lack of local capacity further undermine the delivery of core services, such as security, rule of law, and other public goods.

So what happens when the fighting stops and the reconstruction begins? What happens to local capacity in countries where qualified civil servants have either fled to escape the conflict or were killed during it? A new study on public financial management reforms, produced by the World Bank’s fragile states and public sector governance units, shows that progress is possible even in such difficult circumstances.

New Ideas in Business Growth

Miriam Bruhn's picture

My colleague Bilal Zia and I organized a conference on New Ideas in Business Growth: Financial Literacy, Firm Dynamics and Entrepreneurial Environment that took place at the World Bank last Wednesday. The conference brought together researchers and policy makers in the area of private sector development to share new findings about the types of policy interventions that are effective at promoting business growth. We decided to focus the discussion on three topics that have recently received increased attention from both a research and a policy angle: 1) business and financial literacy training 2) the business environment and 3) corporate governance and firm dynamics. The selection of these three topics also raised a larger question in my mind—should the research community spend so much of its effort on microenterprises, when larger firms may have much higher growth potential? That’s a question I’ll return to at the end of the post.

In recent years, many governments, international institutions, and NGOs around the world have been providing business and financial literacy training for entrepreneurs. However, so far, we know relatively little about the impact of this training on business performance and growth. In an effort to contribute to filling this knowledge gap, Bilal and I conducted a randomized control trial in Bosnia-Herzegovina, where we collaborated with a microfinance institution and an NGO to provide business and financial literacy training to young entrepreneurs.

Will recent events in the Middle East Affect Remittance Flows to South Asia?

Ceren Ozer's picture

For countries with substantial numbers of workers in the Middle East, recent events have not only raised concerns for the repatriation and welfare of their citizens, but have also raised fears of a possible slowdown in remittances. Will remittance flows noticeably decrease due to recent events in Egypt, Libya, and Tunisia?

For South Asian countries, remittances are among the largest and most stable sources of foreign exchange and their developmental impact have been remarkable. For example, in Nepal national poverty level has come down from 42% to 31% during 1996 to 2004, and to 21% today, largely on the account of remittances which finance household consumption as well as education and health expenditures. Nepal, Bangladesh, and Sri Lanka, were among the top 15 remittance recipients in 2009—with inflows being equivalent to 24% of the GDP in Nepal, 12% in Bangladesh, 8% in Sri Lanka, 5% in Pakistan and 4% in India.

Gulf States employ more than 11 million expatriate workers, an estimated 8 million or more from South and East Asian countries. Saudi Arabia, the U.A.E, and Qatar are top destination for South Asian migrants and are main sources of remittance inflows. The table as well as the country profiles below demonstrates the sheer magnitude of migrant workers in the Arab Gulf countries and their contributions to the labor force; sometimes greater in overall numbers and proportion than the respective labor force in the countries.

What Drives the Development of the Insurance Sector?

Erik Feyen's picture

The insurance sector can play a critical role in financial and economic development in various ways. The sector helps pool risk and reduces the impact of large losses on firms and households—with a beneficial impact on output, investment, innovation, and competition. As financial intermediaries with long investment horizons, life insurance companies can contribute to the provision of long-term finance and more effective risk management. Moreover, the insurance sector can also improve the efficiency of other segments of the financial sector, such as banking and bond markets, by enhancing the value of collateral through property insurance and reducing losses at default through credit guarantees and enhancements.

Indeed, a growing literature finds that there is a causal relationship between insurance sector development and economic growth. However, there have been few studies that conduct look at what drives the development of the insurance sector. Of the literature that does exist, most focuses on the growth of the life sector as measured by life insurance premiums.

Ladies First? Understanding Whose Job is Vulnerable in a Crisis

Mary Hallward-Driemeier's picture

In an economic crisis, whose job do employers put on the chopping block first? Many gender equality advocates and policymakers are concerned that “women are at risk of being hired last and dismissed first” during crises. This concern is fuelled by evidence showing that employers often discriminate against women even during less volatile times, that women often bear the brunt of coping with economic shocks, and that, in many countries, gender norms prioritize men’s employment over women’s. Despite a lot of rhetoric, existing studies of the labor market consequences of macroeconomic crises have yielded ambiguous conclusions about the differential impact across genders. Might claims about women’s vulnerability be exaggerated?

Most studies that look at the distributional impact of crises rely on household and labor force data. However, these data cannot distinguish between two mechanisms that could account for gender differences in employment adjustment. First, differences in vulnerability could be the result of sorting by gender into firms and occupations that differ in their vulnerability to crises. In this case, the effect of gender is indirect; women may take jobs that are relatively more or less vulnerable. Second, there could be differential treatment of men and women workers within the same firm. Faced with the need to adjust, do employers treat women differently, either by firing them first or cutting their wages more? It is this second mechanism that underpins concerns about discrimination. To distinguish between these mechanisms, we need to compare the employment prospects and wage trajectories of men and women both across and within firms—which means we need firm-level data.


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