Government leaders often fail to adopt and implement policies that they know are necessary for sustained economic development. Political constraints can prevent leaders from following sound technical advice, even when they have the best intentions. In a recent Policy Research Talk, Senior Economist Stuti Khemani highlighted the key findings of the recently launched report Making Politics Work for Development: Harnessing Transparency and Citizen Engagement. Khemani argued that solving these government failures can best be achieved by fostering healthy political engagement rather than circumventing or suppressing it. Two forces—citizen engagement and transparency—hold the key to solving government failures by shaping how political markets function. Reflecting on the presentation, Deborah Wetzel, Senior Director of the Governance Global Practice, asked “how do we take these lessons and findings and apply them to our work on a day-to-day basis?” She outlined areas where the World Bank and other development partners can foster more inclusive citizen engagement.

Report | Video | Presentation
Also stay tuned for our World Development Report on Governance and the Law, coming this fall.

Some people argue that increasing education system performance in low-income countries requires more inputs (hiring more teachers). Others believe that similar gains can accrue by increasing efficiency (getting teachers to show up for work). A new nationally representative data set of schools across 1,297 villages in India shows large investments over the past decade in the education sector have led to significant increases in inputs but little change in teacher absence. According to these data, the fiscal cost of 23.6 percent of teachers absent during unannounced visits is roughly $1.5 billion/year. School monitoring is strongly correlated with lower teacher absence, but hiring more teachers is correlated with increases in absence. Simulations based on these results imply that investing in better governance by increasing the frequency of monitoring could be over ten times more cost effective at increasing teacher-student contact time (net of teacher absence) than hiring more teachers. Thus, policies that decrease the inefficiency of public spending in India and other low-income countries where absence rates are high, are likely to yield substantially higher returns than those that increase inputs. 

World Bank Policy Research Paper 7579 by Karthik Muralidharan, Jishnu Das, Alaka Holla, and Aakash Mohpal, February 2016.

An analysis of data from 469 politically connected firms under the Mubarak regime in Egypt explores the economic effects of close state-business relations. Connected firms received favorable treatment in the form of trade protection, energy subsidies, access to land, and lax regulatory enforcement. They were also more profitable, and energy subsidies and trade protection alone can account for their higher profits. These privileges adversely affected growth. This can be seen by looking at the sample of four digit sectors that in 1996 exhibited no politically connected firms. Some of these sectors, including those that were most technologically advanced and modern, subsequently experienced entry by connected firms, and some did not. Through 2006, the sectors that experienced entry by connected firms exhibited slower aggregate employment growth and a shift in the distribution of employment towards less productive, smaller firms.

World Bank Policy Research Working Paper 7354 by Ishac Diwan, Philip Keefer, and Marc Schiffbauer, July 2015.

A new study estimates that in Tunisia, firms owned by former President Ben Ali and his family and confiscated in the aftermath of the Jasmin Revolution evaded at least 1.2 billion USD on account of their connections between 2002 and 2009. Evasion gaps, defined as the difference between the value of exports to Tunisia reported by partner countries and the value of imports reported at Tunisian customs, were correlated with the import share of these connected firms. This association was especially strong for goods subject to high tariffs, and driven by underreporting of unit prices, which diminished after the revolution. Consistent with these product-level patterns, unit prices reported by firms connected to the family were lower than those reported by other firms, and declined faster with tariffs than those of other firms. Moreover, privatization of firms to the Ben Ali family was associated with a reduction in reported unit prices, whereas privatization per se was not. Although evasion gaps diminished by 16 percent following the revolution in product lines where firms connected to the Ben Ali family had been dominant, such gaps increased by 5.7 percent in other product lines. 

World Bank Policy Research Working Paper 7336 by Bob Rijkers, Leila Baghdadi, and Gael Raballand, June 2015 | Blog | Economist article | New York Times article | Video.

The high market share of unqualified private healthcare providers in rural India raises questions about how healthcare markets function in low-income settings. Direct evidence on the quality of health care in low-income settings was collected in the state of Madhya Pradesh using a unique set of audit studies, in which standardized patients were presented to a broadly representative sample of rural public and private primary care providers. Three main findings emerge. First, private providers are mostly unqualified, but they spent more time with patients and completed more items on a checklist of essential history and examination items than public providers, while being no different in their diagnostic and treatment accuracy. Second, the private practices of qualified public sector doctors were identified and the same doctors exerted higher effort and were more likely to provide correct treatment in their private practices. Third, there is a strong positive correlation between provider effort and prices charged in the private sector, whereas there is no correlation between effort and wages in the public sector. These results suggest that market-based accountability in the unregulated private sector may be providing better incentives for provider effort than administrative accountability in the public sector in this setting. The overall quality of care is low in both sectors, but the differences in provider effort may partly explain the dominant market share of fee-charging private providers even in the presence of free public healthcare.

World Bank Policy Working Paper 7334 by Jishnu Das, Alaka Holla, Aakash Mohpal, and Karthik Muralidharan, June 2015.

Since 1980 the World Bank has provided conditional financing to recipient governments for specific policy and institutional reforms. Providing such policy support has become an important component in financing development operations. This study assesses the effectiveness of donor support on a recipient country’s public sector using data from the World Bank’s Country Policy and Institutional Assessments (CPIA). Cumulative conditions related to public sector governance show a significant and inverse U-shaped effect on the quality of public sector governance. For most observed values beyond 80 conditions the impact is negative. However, in most cases the value is below 80, so the estimated effect of more conditions is generally positive. Another important feature that emerges is that conditions related to public financial management and tax reforms are more effective than conditions related to anti-corruption or civil service and administrative reform, presumably because behavior changes among a larger set of less-centralized actors is difficult to achieve. A number of innovative ideas to improve the effectiveness of Bank-supported public sector governance reform is included in the new public sector management strategy.

World Bank Policy Research Working Paper 7267 by Lodewijk Smets and Stephen Knack, May 2015 | Country Policy and Institutional Assessment | The World Bank’s Approach to Public Sector Management 2011–2020: Better Results from Public Sector Institutions.

Empowering citizens as a way to improve the quality of local government is a popular development idea. This idea is tested by combining a randomized control trial of a citizenship training and facilitation program combined with an ethnographic analysis to better understand the outcomes. The project attempted to transfer the successful “People’s Campaign” from the Indian state of Kerala to the feudal, highly unequal, and far less literate region of Northern Karnataka. The quantitative data from two rounds of surveys show no impact from the intervention. Household and village survey data from 100 treatment and 100 control villages across a wide variety of governance and participation indicators over time show considerable improvement, but no measureable differences between treatment and control villages. Detailed qualitative data from a 10 percent subsample shows the intervention “failed” because of variations in the quality of facilitation, lack of top-down support, and difficulties confronting the stubborn challenge of persistent inequality. The qualitative investigation also uncovered subtle treatment effects that structured surveys miss. The “thick description” explains not just the behavior, but its context, in such a way that the behavior becomes meaningful to an observer.

World Bank Policy Research Working Paper 6958 by Kripa Ananthpur, Kabir Malik, and Vijayendra Rao, June 2014.

Citizen support for leaders who make populist or patronage promises is a concern around the world. One policy option to improve outcomes is to broadcast public interest programs to persuade citizens to shift away from candidates who offer private benefits at the expense of public services. Benin is an ideal laboratory to examine this issue. Previous research demonstrated strong electoral appeal in the country of clientelist platforms, emphasizing jobs targeted to political supporters. Moreover, a popular form of media in Benin, as in large parts of Africa, are community radio stations that carry public interest programs. Consistent with prior evidence on the electoral appeal of clientelism and public sector jobs, 4,000 households in Benin responded to novel survey vignettes by indicating widespread support for candidates who would fund government jobs for a few at the expense of health and education for all. However, greater exposure to community radio reduced this support: households with greater access to community radio were less likely to prefer jobs candidates. This is the first rigorous evidence that community radio, a type of media used in developing countries to influence the behavior of poor citizens, enables more public interest-oriented politics.

World Bank Policy Research Working Paper 6932 by Philip Keefer and Stuti Khemani, June 2014.

• September 26, 2016: Policy Research Talk: Trade, FDI, and Global Value Chains
• October 2016: Policy Research Talk: Nutrition, Stunting, and Early Childhood Development
• October 20–21, 2016: Conference on Equity and Development: Ten Years On

All upcoming events

Should cash transfers be systematically paid to mothers (Let’s Talk Development, July 6, 2016)  

When I was a high school student in Belgium, our history textbook included a reproduction of a painting entitled “The Drunkard” by Eugène Laermans. The painting was included in the section describing the history of the labor movement in the country and its achievements in passing legislation aimed at improving the situation of the working class. In particular, the painting was meant to illustrate why the Belgian law introducing child benefits—monthly transfers to all families raising children until age 18 (or until age 25 as long as they are still students)—stipulates that these benefits are paid to the mother. The law still holds today, even if it allows for exceptions when the mother is not present in the household.

I still remember that painting vividly, many years after graduating from high school. And who knows, it might explain why in my recent research I have been interested in the role played by fathers and mothers in investing in their children’s education, health, and overall welfare.

Read the blog by Damien de Walque.

Uncertainty in groundwater supply may limit the adoption of water-saving technology in India (Let’s Talk Development, June 26, 2016)

During the dry season, N. S. Reddy, a farmer in Kadapa district of Andhra Pradesh, cultivates groundnut on two acres using water from his own borewell, which he runs for the six hours every day that his village gets electricity. His neighbor, J. R. Prasad, owning a borewell of similar capacity, fully cultivates his single acre of land, but also sells water to A. R. Murthy to grow sunflower. At the end of the season, Mr. Murthy gives Mr. Prasad 3000 Rupees as payment on his contract for irrigating this half acre. In a different village, a similar scenario plays out, but here the borewell owner, K. Chandra, sells M. S. Krishna five irrigations, one-at-a-time throughout the season, at 1000 Rupees apiece.

Read the blog by Hanan Jacoby.

Informed trading in business groups, ownership concentration, and market liquidity (All About Finance, June 28, 2016)

Institutional investors have become the majority owners of most large corporations and are expected to play a key role for financial development by providing funding for firms, enhancing market liquidity through more active trading, and by promoting better corporate governance in the companies in which they invest.

For developing countries, while most of the literature has focused on the impact of foreign institutional investors on capital markets, little is known about the relation between domestic institutional investors and trading activity, transactions costs, and governance practices. Understanding the role of domestic investors is particularly important since in many of these countries, business groups, which are typically collections of publicly traded companies with significant amount of common ownership, dominate private sector activity. In such context, money management institutions which belong to these business groups are prone to conflicts of interest between their fiduciary responsibilities and the objectives of their own management. For example, business groups’ relations can be used by controlling managers as a mechanism to enhance the entrenchment of corporate control. Alternatively, an institutional investor which belongs to a business group might have access to private information in affiliated firms. Ownership concentration and business group ties potentially exacerbates information asymmetries, discouraging investment.

Read the blog by Alvaro Pedraza Morales and Miguel Leaño.

Pathways to Prosperity: An e-Symposium (End Poverty in South Asia, June 22, 2016)

Real wages have risen across India in the past two decades, but the increase was especially marked among rural unskilled workers. Three drivers—falling rural female labor force participation, a construction boom, and favorable agricultural terms of trade—help explain why unskilled rural workers fared better than their urban counterparts or workers with more education. Going forward, in light of lower agricultural prices and slower growth in the construction sector, some of the factors that contributed to the increase in relative wages for unskilled labor during this period may not be sustained over time. 

Over the last two decades, India’s workers have seen their wages rise substantially relative to the cost of living. Although real wages have risen across all of India and for all demographic groups (educated/uneducated, old/young, male/female), the rise has been especially marked among the rural unskilled workers—those with less than full secondary education. This was particularly so between 2004/05 and 2011/12.  While this phenomenon helps explain the fall in rural poverty during this period, it begs the question: what were the economic forces that drove the rise in real wages during this time? 

Read the blog by Hanan Jacoby and Basab Dasgupta.

• 7735. Impacts of Carbon Pricing in Reducing the Carbon Intensity of China’s GDP by Jing Cao, Mun Ho, and Govinda R. Timilsina
• 7736. Impact of Climate Change and Aquatic Salinization on Mangrove Species and Poor Communities in the Bangladesh Sundarbans by Susmita Dasgupta, Istiak Sobhan, and David Wheeler
• 7737. Sectoral Productivity Gaps and Aggregate Productivity by Rishabh Sinha
• 7738. Euro Currency Risk and the Geography of Debt Flows to Peripheral European Monetary Union Members by Eylem Ersal-Kizilera, and Ha Nguyen
• 7739. Inherited Wealth and Demographic Aging by Harun Onder and Pierre Pestiea
• 7740. Aging, Trade, and Migration by Richard Chisik, Harun Onder, and Dhimitri Qirjo
• 7741. Spatial Development and Agglomeration Economies in Services—Lessons from India by Ejaz Ghani, Arti Grover Goswami, and William R. Kerr
• 7742. Technology Strategies for Low-Carbon Economic Growth: A General Equilibrium Assessment by Ian Sue Wing and Govinda Timilsina
• 7743. Structural Transformation in Africa: A Historical View by Maria Enache, Ejaz Ghani, and Stephen O’Connell
• 7744. How to Measure Whether Index Insurance Provides Reliable Protection by Karlijn Morsink, Daniel Jonathan Clarke, and Shadreck Mapfumo
• 7745. Do Consumers Benefit from Supply Chain Intermediaries? Evidence from a Policy Experiment in the Edible Oils Market in Bangladesh by M. Shahe Emran, Dilip Mookherjee, Forhad Shilpi, and M. Helal Uddin
• 7746. On Minimizing the Risk of Bias in Randomized Controlled Trials in Economics by Alex Eble, Peter Boone, and Diana Elbourne
• 7747. Do Returns to Education Depend on How and Who You Ask? by Pieter Serneels, Kathleen Beegle, and Andrew Dillon
• 7748. Russian Federation, the World Trade Organization, and the Eurasian Customs Union: Tariff and Non-tariff Policy Challenges by Michael J. Ferrantino, Ian Gillson, and Gabriela Schmidt
• 7749. Does the 2015 Peace Accord in Mali Reflect the Priorities of Households and Local Leaders? by Julia Lendorfer and Johannes Hoogeveen
• 7750. Financial (Dis-)Information: Evidence from a Multi-Country Audit Study by Xavier Giné and Rafael Keenan Mazer
• 7751. Effects of Multilateral Support on Infrastructure PPP Contract Cancellation by Darwin Marcelo and Schuyler House