In a new World Bank policy research working paper, Branko Milanovic and I assess the impact of overall inequality, as well as inequality among the poor and among the rich, on the growth rates along various percentiles of the income distribution. The analysis uses micro-census data from U.S. states covering the period from 1960 to 2010. The paper finds evidence that high levels of inequality reduce the income growth of the poor and, if anything, help the growth of the rich.
A new World Bank policy research working paper by Andrei Levchenko, Claudio Raddatz, and me analyzes theoretically and empirically the impact of comparative advantage in international trade on fertility. It builds a model in which industries differ in the extent to which they use female relative to male labor and countries are characterized by Ricardian comparative advantage in either female labor or male labor intensive goods. The main prediction of the model is that countries with comparative advantage in female labor intensive goods are characterized by lower fertility. This is because female wages and therefore the opportunity cost of children are higher in those countries.
Natural resources are being discovered in more countries, both rich and poor. Many of the new and aspiring resource exporters are low-income countries that are still receiving substantial levels of foreign aid. Resource discoveries open up enormous opportunities, but also expose producing countries to huge trade and fiscal shocks from volatile commodity markets if their exports are highly concentrated. A large literature on the "resource curse" shows that these are damaging unless countries manage to cushion the effects through countercyclical policy. It also shows that the countries least likely to do so successfully are those with weaker institutions, and these are most likely to remain as clients of the aid system. A new World Bank policy research working paper by Anton Dobronogov, Fernando Brant Saldanha, and me considers the question of how donors should respond to their clients' potential windfalls. It discusses several ways in which the focus and nature of foreign aid programs will need to change, including the level of financial assistance.
Emerging market economies (EMEs) are making important strides in developing long-term finance capital market vehicles to support investment in strategic areas such as infrastructure. However, since last year, EMEs have suffered from big shifts in terms of market sentiment. While EMEs’ prospects were clearly overhyped in the wake of the crisis, the bleak forecasts that dominated headlines in the second half of last year were similarly exaggerated. There are still a number of factors indicating that EMEs’ role in the global economy will continue to grow—just not as rapidly or dramatically as previously thought.
Temporary trade barriers have become more than an important bellwether for contemporary protectionism; with persistent tariff levels, they are now a primary obstacle to free trade. The World Bank’s newly updated Temporary Trade Barriers Database suggests that the Great Recession-era increases in import protection may be levelling off. Now policymakers begin to face the daunting task of dismantling all of those temporary barriers they imposed during the early phase of the crisis.
If you put a target in the toilet, men will miss less. That’s the intuition behind the proliferation of strategically placed fake flies in public urinals. While anyone who has had to clean up after a careless aimer might say, “It’s about time,” anyone who has studied behavioral economics might say, “It’s about games.”
Games are fun. We play them for hours on end, of our own free will, without pay, in return for a feeling of accomplishment or virtual badges or points or just the promise of seeing all the cards bounce across the screen at the end of Windows Solitaire.
Development, on the other hand, is serious. People’s health, happiness, and well-being are at stake. Super Mario Brothers? Game. Candy Crush Saga? Game. Poverty, hunger, disease: Not games.
In 2000, Port-au-Prince and San Juan accounted for 62 percent of the urban population respectively of Haiti and Puerto Rico. Though they tied for number one in the world rankings as those urban agglomerations that had the highest percentage of their countries urban populations, they were by no means exceptions. Luanda had 57 percent of the urban population of Angola, while Brazzaville had 54 percent of that of Congo. The list goes on to include many developing countries in Africa, Asia, and Latin America.
These remarkably high concentrations of urban populations in one dominant city were a long time in the making. Around 1930, when developing market economies had an average level of urbanization of 13 percent, 16 percent of their urban population lived in fourteen large cities (cities that had populations of more than half a million). Such high urban concentrations in the developed world had been attained in 1880, when its average level of urbanization stood much higher at 23 percent. The number of the large cities in the developing world as well as their share of the total urban population increased dramatically between 1930 and 1980, by which date they had 43 percent of the urban population, a number which paralleled that of the developed countries. However, the level of urbanization in the latter stood at 65 percent whereas developing market economies had an urbanization level closer to 30 percent.
On July 1, the World Bank's Data Group will update its analytical income classification of all the world's economies and, in a related move, they are reviewing their methodology and considering changes going forward. Read the Open Data blog on 'LICs, LMICs, UMICs, and HICs: classifying economies for analytical purposes.'
Martin Ravallion has a new working paper on the Luxembourg Income Study, or LIS. He ponders whether the LIS is the best model for the truly global micro database that poverty experts need to accurately track and analyze poverty and inequality.
Over the last few years, Brazil’s growth has significantly decelerated. Accompanying this slowdown, a change in commentary on Brazil’s economic future has emerged, and is reflected in a recent ratings downgrade of Brazilian sovereign paper and an overall much-bleaker growth outlook both for the near and medium term.
In a new 'Economic Premise' note, Philip Schellekens and I examine three contributing factors to this change in sentiment: macroeconomic management, the external environment, and microeconomic fundamentals. Among these, we argue that the relative lack of progress on the microeconomic reform agenda has been far more detrimental to the growth outlook than either the credibility cost of recent macroeconomic management or the negative influence of a less supportive external environment.
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. A new World Bank study by Francisco H. G. Ferreira, Christoph Lakner, Maria Ana Lugo, and Berk Özler 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, the study finds no evidence that this is due to the component associated with unequal opportunities.