Policy Research Working Paper (PRWP) series publication roundup from the weeks of November 16th, 23rd, and 30th

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 highlights 12 papers published in the weeks of November 16th, 23rd, and 30th. During this time, there were several notable publications related to the COVID-19 response policies, firm productivity analysis, and health-related issues. Here are highlights of select findings.

The second wave of the COVID-19 pandemic is once again affecting the world. Two studies have provided important policy implications for countries going into the second round of quarantines and reopening processes. A first paper on the opening-up trajectories under the first wave of COVID-19 in European and Central Asian countries provides very timely recommendations to better design reopening policies for European countries, which have now reinstated their lockdowns. A paper on World War II’s COVID legacy examines a cross-country difference in the government’s abilities to cope with the pandemic based on a country’s history, particularly past exposure to big shocks, with the  authors finding that countries that have experienced a big shock tend to invest more in adaptation and protection against future shocks, and thus become less vulnerable to such shocks.

• The paper on the opening-up trajectories under the first wave of COVID-19 estimates the impact of different reopening trajectories on the path of economic recovery after the first wave of the pandemic in European and Central Asian countries. The results show that countries that adopted a gradual and staged reopening experienced stronger economic recovery compared to the countries that rushed into lifting the restrictive measures. Opening before the peak of the pandemic hinders economic recovery, whereas delaying the opening past the peak leads to faster recovery. Governance also matters: a higher level of trust in government is associated with a faster recovery among countries that carried out a gradual reopening process. 
• In the paper on World War II’s COVID legacy, authors tested whether countries with greater exposure to World War II (WWII)—as reflected in death rates—experienced different COVID-19 outcomes, using  data from European and Central Asian countries. Figure 1 provides a scatterplot of the cumulative deaths from COVID-19 per million people against total loss of life in WWIIas a proportion of the prewar population. Consistent with the authors’ hypothesis, it shows that countries with the highest death rates during WWII tended to have lower COVID-19 mortality rates. The regression results also support their hypothesis. The result is robust to a number of model specifications.   

 Figure 1: Cumulative deaths related to COVID-19 as of August 31, 2020 by total losses in WW2 as percentage of population in 1939

Three papers present interesting findings in the area of firm productivity analysis and industrial policy. As rigorous empirical studies on firm productivity in a developing country context are still thin, new findings are welcome contributions to the literature. A first paper on productivity loss and misallocation of resources evaluates resource misallocation across firms in Indonesia, Malaysia, and Vietnam. A second paper on place-based policy analyzes the impact of a long-debated, place-based policy for a case of “the New Industrial Policy” in Uttarakhand, India. Thirdly, a paper on technology within and across firms provides a comprehensive analysis of technology within a firm. Technology still remains a black box in a firm analysis; technology is characterized by a single firm-specific parameter in the literature; however, in reality, a firm uses various technologies to perform multiple business functions. To fill this gap, authors collected a new dataset that includes more granular information on technology at the functional business level, not the firm level.   

• In a competitive market, factors of production (labor, capital, and intermediate inputs) are allocated toward more productive firms. However, market distortions though inadequate regulations, taxes, subsidies, or tariffs could undermine efficient resource allocation across firms and hamper overall productivity. The paper on productivity loss and misallocation of resources shows that, albeit declining over time, resource misallocation is prevalent in Indonesia, Malaysia, and Vietnam, even after correcting for measurement error. The potential productivity gains after removing market distortions are estimated at over 80 percent for Indonesia and around 20 to 30 percent for Malaysia and Vietnam. The results also indicate that more productive firms face higher distortions (or higher “taxes”) that prevent them from expanding. In contrast, foreign firms in Indonesia and Vietnam, as well as state-owned enterprises in Vietnam, face lower “taxes”—that is, they enjoy a more privileged status that makes them larger than they should be. 
• The paper on place-based policy in India reveals a significant, abrupt increase in employment in Uttarakhand under the New Industrial Policy. The increase in employment is driven by both investments in new sectors and growth in firm size. A main component of the New Industrial Policy was excise tax incentives for certain industries. The paper shows that the increase in employment is higher for sectors receiving excise tax incentives than other incentives. Additionally, results confirm the agglomeration effects of the New Industrial Policy. 
• In the paper on technology within and across firms, authors collected detailed information on technology in a firm by business functions in Senegal, Vietnam, and the Brazilian state of Ceara. In total, the data cover 3,996 establishments. The analysis denies a standard claim that technology is uniform within firms. It reveals that elasticity to technology sophistication varies significantly across business functions within a firm rather than across firms. Moreover, firm productivity is positively associated with the within-firm variance and the average level of technology sophistication. 

Last, two papers addressed health-related issues: the health care service delivery and the effect of maternal health to children. There are two opposing challenges in health care deliveries, undertreatment and overtreatment. Doctors act as a gatekeeper to defend against patients’ overtreatment pressure; however, they are often imperfect. A paper on the overuse of prescription drugs investigates the factors limiting doctors’ ability to provide the right treatments. Maternal depression is widely prevalent, especially in developing countries, and a paper on maternal depression examines the causal relationship of the effect of maternal mental health on children’s cognitive development in Peru. 

• Using a randomized control trial on malaria treatment in Mali, a paper on the overuse of prescription drugs tests whether patients’ preferences drive overtreatment—that is, the doctor is willing to overprescribe in order to avoid the “gatekeeping costs” of dealing with an unhappy or distrustful patient. The study shows evidence of patient-driven demand: informing patients about the discount on Malaria treatment increased overall malaria treatment by 10 percent. Patients with the lowest levels of malaria risk receive more prescriptions and buy more treatments. The results suggest that gatekeeping costs are empirically important.
• The results of the paper on maternal depression indicate that maternal depression is detrimental to the child’s vocabulary at age 5, but the effects fade out by age 8. The results also suggest that maternal mental illness may contribute to the intergenerational transmission of poverty, given the high rates of depression among low-income mothers. Moreover, the presence of heavy-drinking partners appears to worsen the effect of maternal depression. 

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