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This blog is maintained by the Growth and Crisis (GC ) Program of the World Bank Institute.

We bring you timely news, resources, tools, ideas and commentaries on issues related to the global economic crisis and growth.

March 2009

Ask the World Bank President

Tomorrow Tuesday Robert Zoellick will be speaking and taking questions about the financial crisis and its effects on the poor, ahead of the G20 summit in London. You can send your questions using the comments section of Reuters’ blog The Great Debate, or using the #askwb tag on Twitter.

Update
You can now watch the video of Robert Zoellick’s speech and access related information, including his answers to some of the blogger’s questions.

Fridays Academy: Urbanization and Growth

From Raj Nallari and Indira Iyer's lecture notes.

 

Urbanization and Poverty

Currently an estimated one third of all urban residents are poor, which represents one quarter of the world’s total poor. Many of these are in small cities and towns where the incidence of poverty tends to be higher than in big cities. With continued urbanization, however, the numbers of the urban poor are predicted to rise and poverty will increasingly be more an urban phenomenon.

The incidence of urban poverty, or the share of poor as a proportion of the urban population, is highest for South Asia (35 percent) and Sub Saharan Africa (40 percent) as shown in the table below. Latin America and the Caribbean (LAC) and ECA have the greatest proportion of urban poor relative to the total poor, as a result of the high urbanization rates in these regions. The urban poor account for 66 percent and 50 percent of the total poor in these two regions. Overall, MENA has the lowest incidence and share of urban poverty. Urban poverty incidence is notably lower in East Asia and the Pacific (EAP), Eastern Europe and Central Asia (ECA) and Middle East and North Africa (MENA) than the other regions reflecting initial conditions.

 

Urban Poverty Estimates 2002

(using $1.08/day and $2.15/day poverty lines in 1993 PPP values)

Source: Ravallion, Chen and Sangraula. 2007.

Note: The headcount index represents the proportion of the urban population below the poverty line. The urban share of the poor represents the proportion of the urban poor of the total poor.

 

On mortgages (and II)

Transmission of crisis from home mortgages to US credit freeze and global oil-price hike

By early-2007, it became clear as housing prices began to decline, losses on sub-primate mortgages originated in 2003-2006 were rising more rapidly than the assumptions used and risk-model predictions.  The deterioration in borrowing quality and other shortcomings mentioned yesterday gave little comfort to investors.  The losses were hard to estimate, especially in an environment of house-price busts, and given that the sub-prime MBS had been re-packaged into complex CDOs and CDO-conduits were financed by commercial paper and various notes.

The bursting of the housing bubbles in the United States (as reflected in a surge in defaults and foreclosures since mid-2006 in US, resulted in a plunge in the prices of mortgage-backed securities — assets whose value ultimately comes from mortgage payments.  These financial losses have left many financial institutions with too little capital — too few assets compared with their debt (US financial firms lost over $1 trillion by Dec 2008). This problem is especially severe because households, corporations, and government took on so much debt during the bubble years (that debt cumulated to over 400% of US GDP in U.S. and about 450% of UK GDP).

Because financial institutions have too little capital relative to their debt, they haven’t been able or willing to provide the credit the economy needs. (US and European banks have been raising capital of about $400 billion from oil-producing countries and China but there is still a large gap as banks continue to write-down bad loans).

On mortgages (I)

Why did the U.S. Housing go bust in 2006-07?

 

The exact time when the home mortgage problems surfaced can now be pin-pointed as mid-2006 even though the housing problem was not fully acknowledged by the government and market players until almost summer of 2007.  By mid-2006, there is now enough evidence that housing prices began to decrease significantly and default rates increased in some states such as California, Arizona etc.
 
There are essentially five theoretical models or frameworks that are used by economists to explain credit booms and busts.  These are (1) changes in fundamentals over time; (2) irrational myopia as reflected in euphoric greed followed by fear or depressive panic; (3) implicit or explicit government subsidies and guarantees; (4) multiple equilibria or knife-edge problem; and (5) agency problems in assets management.  Each of these frameworks is used to analyze the current housing problems, which triggered a U.S. financial meltdown and impacted a global economic crisis.

 

The ‘fundamentals’ framework emphasizes that credit cycles depend on evolving news and asymmetric information.  Credit cycles reflect exogenous events which change rational expectations of future cash flows and risks among other things.   There was no exogenous shock that triggered a credit crisis in 2007.  There is no evidence that 9/11 attack on New York negatively impacted on credit for private investors and bankers continued to under-price risk and continue lending even larger amounts of money for mortgages during 2002-07.

 

Moving Out of Poverty: Success from the Bottom Up

The World Bank has launched its new study on Poverty “Moving Out of Poverty: Success from the Bottom Up”, which continues the work started with the excellent “Voices of the Poor”, published in 2000.

This new study, based on data from 60,000 interviews in 15 countries, looks at how and why some people manage to escape poverty.

You can access the overview on-line, and order the book here.

Duncan Green has posted a nice summary in his blog, From Poverty to Power.

Fridays Academy: Urbanization and Growth

From Raj Nallari and Indira Iyer's lecture notes.

 

Urbanization and Growth

The world urban population is expected to nearly double by 2050, increasing from 3.3 billion in 2007 to 6.4 billion in 2050. By mid-century the world urban population will likely be the same size as the world’s total population in 2004. Virtually all of the world’s population growth will be absorbed by the urban areas of the less developed regions, whose population is projected to increase from 2.4 billion in 2007 to 5.3 billion in 2050. The urban population of the more developed regions is projected to increase modestly, from 0.9 billion in 2007 to 1.1 billion in 2050.

The urban growth rate of less developed regions reached a high at 3.0 per cent per year in 1995-2000 compared to 0.5 per cent in more developed regions. The urban growth rate is estimated to be particularly rapid in the urban areas of less developed regions, averaging 2.4 per cent per year during 2000-2030.

Graduate Scholarship Program

If you have been admitted to a development-related master’s degree program, are looking for funding and are from a World Bank member country eligible to borrow, the Joint Japan/World Bank Graduate Scholarship Program might interest you.

Only a few days left to apply. Next deadline is March 31, 2009.

Eligibility Criteria

Application Guidelines

If you have any questions, please contact the program directly.

Good luck.

DFID on the Future of International Development

UK's Department for International Development (DFID) recently published a background paper for their Conference on the Future of International Development: Eliminating World Poverty. It aims to provoke thought on the emerging challenges faced by developing countries and the rest of the world, and sets out a series of questions to address the priority issues.

In their website, DFID has also opened a consultation website where the public can participate in the debate on how to eliminate world poverty. The results will be included in a new paper to be published this summer. An interesting way of giving voice to the public opinion.

Development Podcasts

I find podcasts an interesting addition to Development blogs. We have already mentioned here the Development Drums, and the World Bank has its own series.

Any others out there?

Fridays Academy: Urbanization and Growth

Based on Raj Nallari and Indira Iyer's lecture notes.

 

Trends in Urbanization (II)

The process of rapid urbanization started first in today’s more developed regions. In 1920, just under 30 per cent of their population was urban and by 1950, more than half of their population was living in urban areas. In 2007, high levels of urbanization, surpassing 80 per cent, characterized Australia, New Zealand and Northern America. Among the less developed regions, Latin America and the Caribbean has an exceptionally high level of urbanization (78 per cent in 2007), higher than that of Europe. Africa and Asia, in contrast, remain mostly rural, with 38 per cent and 41 per cent, respectively, of their populations living in urban areas. Over the coming decades, the level of urbanization is expected to increase in all major areas of the developing world, with Africa and Asia urbanizing more rapidly than the rest. Nevertheless, by mid-century, Africa and Asia are still expected to have lowest level of urbanization in comparison to other regions of the world.

 

Region Wise Levels of Urbanization, 2007