Policy Research Working Paper (PRWP) series publication roundup from December 7 to January 15

This blog is a biweekly feature that highlights recent working papers from around the World Bank Group that were published in the World Bank's Policy Research Working Paper Series. This entry introduces 10 papers published during the holiday season, from December 7 to January 15. During this period, more papers were published on various impacts of the COVID-19 pandemic crisis as well as policy responses.

Three papers contribute to the growing body of literature on the impact of COVID-19 on labor market outcomes and the business environment. The Early Labor Market Impacts of COVID-19 in Developing Countries is one of the first studies to explore the crisis’s impacts on labor markets in developing countries using the high-frequency phone survey. Focusing on immigrant workers, Do Immigrants Push Natives Towards Safer Jobs? explores the influence of immigration on natives' occupational exposure to COVID-19 in Western Europe. Finally, Policies to Support Businesses Through the COVID-19 Shock provides the first comprehensive assessment of COVID-19 business support policies, focusing on developing economies.

• The Early Labor Market Impacts of COVID-19 in Developing Countries presents the early impact of the crisis on labor markets in 39 countries using the World Bank's High Frequency Phone Surveys, which were collected between April and July 2020. The first finding is that work stoppages were common. With a simple average taken across countries, 34% of the respondents reported stopping work, 20% of wage workers reported a lack of payment for work performed, 9% reported job changes due to the pandemic, and 62% reported income loss in their households. Stopping work was more prevalent in the industrial and service sectors than in agriculture. Further analysis shows that measures of work stoppage and income loss in such a high-frequency phone survey (HFPS) differ from macroeconomic projections. Work stoppage in HFPS data are generally negatively correlated with GDP growth projections This is the case for the LAC regions. However, in Sub-Saharan Africa, work stoppage is weakly and positively correlated with GDP growth projections. This suggests that HFPS data provide important additional insights into the impacts of COVID-19.      
• Do Immigrants Push Natives Towards Safer Jobs? assesses immigration’s impact on the exposure of natives to COVID-19–related risks in Western Europe. The results show that immigrant workers, especially those coming from lower-income member countries of the EU or from outside of the EU, are more exposed to negative income shocks compared with natives. Figure 1 highlights the heterogeneity in exposure to labor market risks between natives and immigrants from different regions of origin. For instance, for telework jobs, although the share of immigrant workers from EU15 countries is even higher than natives’ share is, it is significantly lower among migrants from new member states and non-EU countries (Figure 1, Panel A). The regression results suggest that immigration to Western Europe reduced the economic exposure of natives to COVID-19–related labor market shocks by pushing them toward occupations that are more amenable to working from home. A one percent increase in the share of immigrants in the labor force leads to an almost 0.5 percentage point increase in the share of health-safe jobs among natives. 

         Figure 1: Share of workers by region of origin and risk type 

• Policies to Support Businesses Through the COVID-19 Shock presents a set of novel stylized facts on COVID-19 business support policies from a firm-level perspective by assessing a unique harmonized data set of the Business Pulse Surveys, and the COVID-19 follow-up Enterprise Surveys of the World Bank. The data set covers more than 120,000 firms across 60 countries. The main findings are four-fold. First, it shows that policy support has especially been limited to the most vulnerable firms and countries: micro firms are about half as likely to access support as large firms, and firms in high-income countries are about five times more likely to receive public support than firms in low-income countries are. Second, it identifies some mismatches between the policies that are reported as most needed among firms and policies that are provided. Third, it indicates some evidence of the mistargeting of policies: 20% of firms that did not experience any shock received public support. Fourth, it supports the effectiveness of such business support packages in addressing liquidity constraints and preventing layoffs.

Two papers have been published on the relation between trade and COVID-19. Pandemic Trade: Covid-19, Remote Work and Global Value Chains (GVCs) is one of the first empirical studies to estimate the crisis’s impact on international trade and GVCs using monthly bilateral trade data. Trade Policy Responses to the COVID-19 Pandemic Crisis introduces a new high-frequency data set on trade policy interventions for medical supplies as well as agricultural and food products. To provide timely information on trade policy measures, the Global Trade Alert (GTA), in partnership with the European University Institute and the World Bank, has spearheaded an open data initiative since January 2020. The GTA data recode trade policy changes on a weekly basis in two sectors: medical goods and agricultural and food products. 

• Pandemic Trade: COVID-19, Remote Work and Global Value Chains investigates the short-term trade effects of the pandemic crisis using monthly bilateral trade data for 28 countries between January/February and June 2020—the first phase of the pandemic. The baseline results confirm that the pandemic’s impact on trade varies across sectors. Sectors that are more amenable to remote work contracted less throughout the pandemic. For example, in Hungary's manufacturing of pulp, paper, and paperboard, where only less than one-third of occupations can be performed remotely, the negative effect of the pandemic crisis through decreased work mobility is 19 percentage points higher than for the manufacturing of electric motors, generators, and transformers in Japan. In Japan, more than two-thirds of production can be done remotely. Moreover, the results suggest that participation in GVCs increased traders' vulnerability to shocks suffered by trading partners, but it also reduced their vulnerability to domestic shocks.
• The Trade Policy Responses to the COVID-19 Pandemic Crisis assesses the GTA data collected between January to mid-October 2020. It shows several stylized facts on trade policy changes over the first nine months of the pandemic. First, a big jump in trade policy activism began in February and accelerated in March, with the initial increase occurring in tandem with the rise in the number of COVID-19 cases. Measures targeting medical products dominate, accounting for two-thirds of all trade measures taken. The paper also uncovers extensive heterogeneity across countries in their use of trade policy and in the types of measures used. Some countries acted to restrict exports and to facilitate imports, others targeted only one of these margins, and many did not use trade policy at all.

Two papers explore increased integration of the global financial market. Since the early 1990s, the economic weight of the South (countries outside the G7 and Western Europe) in global finance has risen sharply. Bilateral International Investments documents a set of novel stylized facts on the rise of the South using rich bilateral data sets. In response to economic integration and the rise of global capital markets, Dynamics and Synchronization of Global Equilibrium Interest Rates assesses the synchronization of equilibrium interest rates over time both in advanced economies and in emerging market and developing economies (EMDEs).  

• Using country-to-country data on international investments, the authors of Bilateral International Investments classify four cross-border investment types: South-to-South, South-to-North, North-to-South, and North-to-North investment. Their findings strongly support the idea that global financial integration with and especially within the South has grown faster than within the North. By 2018, the South accounted for 24 to 40 percent of international loans and deposits, portfolio investment, and FDI—an increase of roughly 10 percentage points since 2001. In particular, South-to-South investment increased the fastest over this period by an intensive and extensive margin. The South invested increasing amounts of money in countries that were already connected and also established new connections with countries in the North and South.
• Dynamics and Synchronization of Global Equilibrium Interest Rates estimates equilibrium interest rates for 50 countries from 1970 until 2019, and it also compares the rates across advanced economies and EMDEs. The results illustrate the fact that equilibrium interest rates were lower in EMDEs than in advanced economies in the 1980s, and the same was true in the 1990s. However, they have been higher since 2000. During the global financial crisis, equilibrium rates in EMDEs dropped to below zero only briefly and began to recover quickly and more strongly than those in advanced economies did. The results also indicate the increasing synchronization of equilibrium rates over time both in advanced economies and in EMDEs, in line with economic integration and rising global capital markets.

Finally, three papers investigate various questions, including business management, financial technology, and tax compliance, using field experiments. With a randomized experiment in Nigeria, Improving Business Practices and the Boundary of the Entrepreneur navigates effective approaches for small firms to develop finance and marketing skills for growth. In light of the rise of the development of new financial technologies, Learning to Navigate a New Financial Technology is aimed at fostering an understanding of how inexperienced consumers learn to use new financial technology. Finally, Trickle Down Tax Morale focuses on what others are doing (a descriptive norm) and explores how a descriptive norm encourages tax compliance. 

• With a randomized experiment in Nigeria, Improving Business Practices and the Boundary of the Entrepreneur tests the relative effectiveness of four approaches to improving business practices and firm growth. A common approach is to train entrepreneurs to be jacks-of-all-trades. Meanwhile, an alternative is to move beyond the boundary of the entrepreneur and to link firms to these skills in a marketplace. This can be done through insourcing workers with functional expertise or outsourcing tasks to professional specialists. The results indicate that insourcing and outsourcing both dominate business training, and they do at least as well as business consulting does—and at one-half of the cost. The findings thus highlight the benefit of moving beyond the boundary of the entrepreneur to help firms to hire skilled specialists in an open market.
• Learning to Navigate a New Financial Technology tests consumer learning in the context of payroll accounts, a simple financial technology that is currently being rolled out to millions of workers worldwide. Authors conducted a field experiment with a population of salaried factory workers in Bangladesh who, prior to our study, received their wages entirely in cash. In the experiment, workers were randomly assigned to either continue receiving wages in cash or to begin receiving wage payments in bank or mobile money payroll accounts. The results show that financially inexperienced consumers can benefit substantially from payroll accounts. Exposure to payroll accounts leads to increased account use and consumer learning. Those receiving accounts with automatic wage payments learn to use the accounts without assistance, begin to use a wider set of account features, and learn to avoid illicit fees, which are common in emerging markets for consumer finance.
• For Trickle Down Tax Morale, descriptive norm tax experiments were implemented through telling citizens that other citizens were paying taxes at high rates, then measuring whether citizens who received this treatment were more willing to pay taxes or actually pay higher taxes. The paper compares three social norm treatments, focusing on the taxpaying behavior of general people, rich people, and companies. If descriptive norms are the relevant mechanism, only the general people treatment should be effective because it changes most people’s descriptive norms. However, if the free-rider mechanism is the important one, all treatments could be effective—but especially the rich people and company treatments. The authors conducted online experiments in Kenya, Australia, the United States, the Philippines, and South Africa. The findings show that the descriptive norm treatment is ineffective, whereas the rich people treatment significantly increases tax morale. The findings suggest that tax agencies may increase tax compliance by visibly tackling tax avoidance among groups believed to avoid taxes, such as rich citizens. Thus, it implies a trickle-down tax morale mechanism, where efforts to curb the elite misuse of the tax system may have beneficial spillovers for the rest of the population's tax compliance.

 
The PRWP series encourages the exchange of ideas on development and quickly disseminates the findings of the research that is in progress.