Presentation to KCP Consultative Group Meeting, Stockholm , November 2011

Presentation to KCP Consultative Group Meeting, Stockholm , November 2011 Research Findings and New Directions Martin Ravallion Development Economics World Bank Photo: Cruising the Stockholm archipelago (exciting new research questions just around the bend?)

What does DEC research do? Evidence-based policy research Applied research on pressing development issues Influencing policy debates, both globally and within specific countries Connecting data producers with data users; data geared to addressing the most important development issues Robust operational tools to facilitate analysis by practitioners including in developing countries

Research products Research papers (with open access for many years) Books, including Policy Research Reports Data and software: DEC has been a pioneer on open data! Research newsletters/briefing notes/opeds/blogs/conferences • Researchers gave 600+ seminars/conference-presentations drawing on KCP-supported research in last one year • ABCDE • 2010, Stockholm, “Post-Crisis World” • 2011, Paris, “Opportunities” • 2012, Washington DC, “Accountability and Transparency” • Feeding into: World Development Reports, Regional Studies, AAA,…..

The Bank’s is a clear leader in research on development Research department alone: • 10-20 books and edited volumes per year • 100-150 journal articles • 150-200 working papers up on the web • Top ranking in development economics, ahead of all universities except Chicago However, DEC is not an academic research group. It responds to emerging new challenges and knowledge gaps (whether or not they are academically fashionable).

How we do research What we research

How we do research • Balancing “retail” and “wholesale” models • Strong partnerships

Two complementary models for research The retailing model • Identify a research question • Do the research (data, analysis) • Produce a research product • Disseminate findings • The wholesaling model • Produce the things that others need to do research • Data (household surveys, facility surveys, sub-national geographic data, country data). • Methodologies and “cookbooks” on “how to do x.” • Software products to “can” reliable and repeated methods.

The changing global research community • Expanding community of researchers outside WB • While the Bank remains a leading institution in development research, it is only one institution in the global context. • Research technology advances rapidly, but still high entry costs for users • Long lags between the introduction of new theories/methods and their application to real-world problems.

More demanding clients and public • More demanding of openness and transparency from institutions such as the World Bank • Dramatic changes in our information technology have made that openness more feasible than ever before. • Civil society groups have often been suspicious that advocacy was being dressed up as analytics, given high entry costs. • More demanding of analysis and knowledge tailored to specific country needs and cross-cutting(versus “silos”) • Expansion in countries’ own analytical capabilities means more questions are asked about the content of our work. • More demand from clients for active participation in shaping and carrying out an analytical agenda.

We are responding by strengthening our “wholesaling model” • DEC has long emphasized open data • LSMS pioneered open access to household level data in 1980s. • Open Data initiative by DEC is a huge step forward. • But Open Data is not sufficient • Greater emphasis needed on producing the complementary analytic tools for others to do the research, and providing open access to those tools • Three objectives: • Empowerment of researchers, esp., in developing countries • Expand and deepen our research collaborations • Openness, so stakeholders participate in the process and can question findings (replicate; test robustness)

Analytic tool development is a natural by-product of strong in-house research • The Bank’s researchers play a crucial role in developing the ideas and methods needed for development policy making • Useful tools for research can best be developed by researchers in the practice of solving real-world problems • Quality assurance also requires that all our research products pass critical peer review. The tools conform to best practices based on the relevant technical literatures

Three examples of open knowledge tools: Example 1: PovcalNet • Until a few years ago, users of our “$1 a day” poverty counts could not replicate the calculations, or try different assumptions, such as about purchasing power parity rates or poverty lines • PovcalNet was devised to address this problem • An interactive on-line analytical tool for poverty and inequality analysis. • Now a major source for secondary tabulations of poverty and inequality data, including the World Development Indicators. 2.8 million analytic uses in the last one year (2009/10)

Example 2: MAMS Applied to 45 countries, often by local researchers. Next steps: streamlined training modules and procedures for database construction; fine-tuning of Excel-based interface; development of a web-based version. • KCP initiated an effort to develop models for country strategy analysis linking fiscal policy, trade, aid, private sector production, and MDGs. • Separation between model code and country-specific data/assumptions makes it ideal for wholesaling. • For more, visit www.worldbank.org/mams

Example 3: An innovative software program to simplify and speed-up the Production of standardized tables and graphs in many areas of economic analysis, focusing on the Bank’s analytic work at country and regional levels. • ADePT extracts indicators from micro-level surveys and presents them in a print-ready form • The analytical reports that used to take months to produce can now be automatically generated within minutes • ADePT is a free, stand-alone program, available for download to anyone in the world

Strong partnerships are crucial to how we do research • Partnerships with: • WB Operations and networks • Outside research networks • Public at large

Our internal partnerships • Direct support to operations: All DEC’s researchers are obliged to sell one third of their time to operations; 20+ person years per year! • This is a market test of our usefulness to Bank Operations • It can also be a great source of ideas for research down the road. • Network Board representations (16 Boards) • Contributions to sector strategies (agriculture, education, social protection, HNP, finance, trade, environment)

Our external partnerships • Our researchers work with consultants from some 90 different countries • Also supporting role in key networks: Global Development Network (GDN); African Economic Research Consortium (AERC), New Economic School (NES) in Moscow, Economic Research Forum (ERF) in Cairo, and others • Bank research is supported in turn by development partners. Knowledge for Change Program financed by 14 Part I countries • Wholesaling research allows us to builds stronger working linkswith users + feedback loop • Opens new channels for partners to influence and participate in priority areas for research, and shape their own research programs. • And facilitates cross-country learning.

Broader dissemination and interactions • Dissemination: Revamped retail products to better target our findings to policymakers and the development community • Non-technical abstracts of all research papers. • Monthly report on research findings to senior management. • Monthly public newsletter on research findings to 37,000 subscribers (94% from outside WB) and 30,000 monthly views of web version. • Let’s Talk Developmentblog – forum for dissemination and exchange of views, aiming for open debate (http://blogs.worldbank.org/developmenttalk/blog ) • Development Impact blog; new forum for open interaction on evaluation issues (http://blogs.worldbank.org/impactevaluations/) • Revamped Department and Team web pages – better access to more material

What we researchPriorities outlined in Research Directions Paper and President Zoellick’s Georgetown Speech:1. Transformations 2. Opportunities 3. Risks4. Results

1. Transformations • The links between structural change and broader development goals (poverty reduction; job creation) • Roles of states, markets and private sector in transformation • Industrial policies and comparative advantage • Governance issues for industrial upgrading • Role of agriculture versus other sectors; sectoral priorities; trade-offs. Green revolution in Africa? • “Clean energy” technologies: costs, effects on the economy and on access to energy, environmental implications • “Green Growth:” is there a tradeoff, and how much?

2. Opportunities • Why do some countries and places attain faster poverty reduction and more inclusive development than others? • Does poverty self-perpetuate without intervention? • Governance challenges in assuring better education, health and social protection. Local governance • Information to strengthen provider incentives. • Policies to enhance access to finance • More inclusive global integration/regional integration; global markets; role of labor markets • Rural development and sound natural resource management • “Clean energy” technologies: effects on the economy and access to energy; speed and composition of investment matter

3. Risks • Understanding the Global Financial Crisis • Addressing financial-sector vulnerabilities in light of the Crisis • Post-crisis perspectives on macroeconomic management. • Recovering from crises • Food and energy price volatility: causes and impacts • More effective and cost-efficient social protection • Fragile and conflict-ridden states • Managing new and existing environmental risks • Dynamics of poverty; everyday “micro risks” • Mapping hazards

4. Results • Monitoring impacts of crises, including on poverty and human development • Measures of longer-term country performance, including benchmarking and identifying comparators. • Poverty and HD monitoring • Better data on poor people • More comprehensive wealth accounting • Broader approach to evaluation • Emphasizing external validity, drawing on richer economic modeling, more diverse types of data, multiple disciplines, and tailored to strategic knowledge gaps in the above areas. • Pragmatic on methods; the question drives the method, not the other way around.

How do these research priorities relate to the KCP’s windows? xx: Primary x: Secondary Results is a cross-cutting theme of KCP

Some examples from ongoing work KCP Window TORR Plus KCP annual Report

Results Window 1 Better data on poor people • Global poverty monitoring. 22 surveys in 1990; 800 today! • Living Standard Measurement Study (LSMS) • 90 integrated household surveys from 34 countries collected so far • 59 of the 90 surveys can be downloaded; 3,300 in past year • LSMS-ISA: Panel Data collection in Africa (seven countries) • Integrated surveys with strong emphasis on agriculture • Poverty mapping – combining survey with census data • 60 + countries, incl. China India • Mapping other variables, e.g., public spending • Improving data quality • Computer Assisted Personal Interviews • Experiments to refine survey collection and data quality

Opportunities Window 1 Does poverty self-perpetuate without intervention? • Without successful interventions to reduce poverty now, poverty can readily self-perpetuate. • High current poverty impedes future growth (as a distributional effect, side-by-side with neoclassical convergence in mean incomes) • and it makes the growth that does happen less poverty reducing. • This points to the importance of reducing poverty now, rather than waiting for growth to do it. • The twist is that if we don’t do this, then the growth that does occur may be disappointing for all, including poor people.

Transformations Windows 1 and 4 Urbanization and poverty • Urbanization has generally been poverty reducing, despite rising share of poor in urban areas and sometimes rising urban poverty • Spillovers from urban to rural. India example: Pre- vs post-1990: urban economic growth now matters far more to the rural poor • Africa is a notable exception. Less pro-poor urbanization process • Moving to density: A new KCP research program (Window 4) on Urbanization in Developing Countries proposes a program of research on urbanization, with a special focus on Africa

Opportunities Window 1 Better social protection • Policy Research Report on Conditional Cash Transfers • Influenced the large expansion in CCTs as crisis response in 2009/10 • Cash or condition? • Evidence from a Cash Transfer Experiment in Malawi (adolescent girls): conditions promoted schooling but also benefits from switching to unconditional transfers for older teenagers. • Supplementary feeding programs protect infants and young children from malnutrition • Indonesia programs improved the nutritional status of young children and helped avoid problems of severe malnutrition • Research on mental health: close connections between psychological health and social protection policy

Opportunities Window 1 Local governance • PRR: Localizing Development: Does Participation Work? • The idea that fostering citizen participation is central to resolving problems of good governance and development at the local level is one that has acquired tremendous force in recent times. • New Policy Research Report examines the foundations of this approach and evidence of its efficacy; broad inter-disciplinary approach. • Participatory Projects and Local Conflict Dynamics • Kecamatan Development Program (KDP) in Indonesia: assessing the level of conflict accompanying institutional transitions and the role of development projects in shaping these transitions. • Public awareness of rights and better government • Bihar experiment in awareness raising, using film medium to teach people their legal rights under National Employment Guarantee Act.

Risks Window 1 Risk and vulnerability in health • Access to antiretroviral therapy may increase risky sexual behaviors • Risky sexual behaviors increased in Mozambique in response to the perceived changes in risk associated with better access to antiretroviral therapy (ART). • Men and women respond differently to the perceived changes in risk: risky behaviors increase for men who believe, wrongly, that AIDS can be cured, while risky behaviors increase for women who believe, correctly, that ART can treat AIDS but cannot cure it • Health shocks are different • A multi-shock risk survey administered in Lao PDR indicates that health shocks are more common than most other shocks and more concentrated among the poor. • They also tend to be more idiosyncratic and more costly, leading to high medical expenses and sizeable income losses. • Health shocks also stand out from other shocks in the number of coping strategies they trigger, and in terms of households saying they were adversely affected.

Risks Window 2 Understanding the Global Financial Crisis • Liquidity played an important role in the transmission of the crisis • Banks’ reliance on wholesale funding greatly aided the international propagation of the global financial crisis, by making them more vulnerable to the liquidity crunch in world markets. • Macroeconomic risk contributes to bank runs in emerging markets • Aside from traditional bank-specific factors, runs are triggered also by macroeconomic shocks. Small macro shocks can cause large runs, with bigger effects on banks more exposed to macro risks.

Results Window 2 Impacts of crises • Short- and long-term impact of the financial crisis + FPD interventions designed to make firms grow, formalize, lower unemployment, create jobs, hire women... • Results are helping us re-think the role of state in finance, and • the need for greater emphasis on incentives in reforming regulation and competition policy and financial safety nets; • as well as effectiveness of different government policies in retaining employment and job creation. • High food prices & poverty vulnerability • Systematic forecasting/monitoring of poverty impacts based on micro data and economic simulations

Risks Window 2 Recovering from a crisis • Prudent policies enhanced emerging economies’ resilience to the global crisis • A comparative assessment of country performance reveals that emerging countries suffered growth collapses on par with those of industrial countries, but recovered faster. • A key reason was the radical break with the past in their ability to deploy counter-cyclical policies. • China’s labor market showed flexibility in the wake of the financial crisis • The crisis had a substantial initial impact on off-farm employment: as many as 49 million workers were laid-off between October 2008 and April 2009. • However, half of them were re-hired in off-farm work by April 2009, and by August 2009 less than 2 percent of the rural labor force was unemployed due to the crisis

Risks Window 2 Financial sector risks • Risk management, including crisis prevention, is a central part of the new finance research program • Most countries have suffered from financial crises interrupting the growth process. • At the micro level, financial instruments and markets for hedging and managing risk are crucial for individual firm and households. • Identified knowledge gaps/on-going research • Role of globalization, foreign entry, de-regulation and the role of the state in this process. • Weaknesses in the way financial risks are measured and managed; bankruptcy prediction and resolution processes, including design of safety nets and too-big-to-fail policies. • Role of financial literacy and business training to cope with crises.

Risks Window 2 Tools for managing macro-financial risks • New tool for simulating the impact of macro-shocks on poverty, income distribution and labor market outcomes. • The tool allows policy practitioners to simulate various scenarios of the effect of, for example, economic crisis on micro-level and thus to design effective policies to protect the most vulnerable population groups. • An updated debt sustainability framework to improve assessments of countries' solvency and vulnerability to real and financial shocks

Opportunities Window 2 Opportunities for trade • Not just protection, but inadequate infrastructure services increase trade costs and limit opportunities to trade. • A new cross-country database on services policy reveals that on average telecommunications and air-transport policies are nearly twice as restrictive in landlocked countries as elsewhere. • These policies lead to more concentrated market structures and more limited access to services than these countries would otherwise have.

Results Window 2 M&E for trade policies • Monitoring and analyzing policies affecting trade in goods and services • New estimates of trade restrictiveness show that the crisis did not provoke serious protection. • But did accentuate a longer-term trend of increasing recourse to temporary trade barriers, such as antidumping measures, especially by developing countries against other developing countries. • Shift away from economy-wide reforms toward focused interventions to facilitate trade and promote exports • Limited evidence on whether and how such interventions work. • A workshop on the Impact Evaluation of Trade-Related Policy Interventions took the first steps toward more rigorous evaluation of trade-related interventions.

Results Window 3 The quality and consequences of aid • Donors differ in the quality of their aid • A new aid-quality index with four coherently defined sub-indexes on aid selectivity, alignment, harmonization, and specialization. • Compared with earlier indicators used in donor rankings, this is more comprehensive and representative of the range of donor practices addressed in the 2005 Paris Declaration on Aid Effectiveness, thereby improving the validity, reliability, and robustness of rankings • Foreign aid workers win hearts and minds in the aftermath of Pakistan’s 2005 earthquake • Winning “hearts and minds” in the Muslim world is an acknowledged aim of U.S. foreign policy, and increasingly bilateral foreign aid serves as a vehicle toward this end. • Four years after the 2005 earthquake in Northern Pakistan, humanitarian assistance by foreigners and foreign organizations has left a lasting positive imprint on population attitudes

Risks Window 3 Environmental risks 1 • Adaptation to extreme weather events requires a mix of phased-in responses • Bangladesh case study –investment in better flood protection plus larger shelters, better early warning • Costs much less than not responding to increased weather related risks from climate change • Future expansion of biofuels would have mixed impacts on the environment as well as the economy • While trade can limit overall fuel and food cost impacts, there likely would be major winners (biofuel suppliers) and losers (with high biofuel targets, lower productivity) • Environmental impacts are uncertain but could involve more deforestation, increased CO2 emissions near-term

Risks Window 3 Environmental risks 2 • No easy answers for long-term CO2 reduction from electricity system • Complete transformation of energy system needed to limit climate change • Low-carbon renewable resources are costly to massively scale up; low energy “density” per unit resource input • Easier-to-scale options (fossil fuel + carbon storage, nuclear) have significant technology uncertainties, unresolved risks • Pilots of environmental performance disclosure, public dialogue processes indicate these are valuable complements to formal regulation in China

Opportunities Window 3 “Clean energy” • Calls for a major clean energy scale-up to limit global warming • Low-carbon energy options differ significantly in maturity, current cost, potential for cost declines. • Major questions: when and how to scale up, and who leads. • Higher energy costs reduce growth, with burden on the poor • Energy poverty: huge numbers lack electricity; dirty traditional fuels • Expanded global use of liquid biofuels will have significant economic winners and losers • Especially through impacts on land use and food trade • Environmental impact nearer-term may be disappointingly small; biofuels are relatively high-cost way to reduce CO2 • Urban pollution, energy use, congestion can be cut by lower fuel subsidies, greater incentives for other travel options

Transformations Windows 1 and 4 Can Africa replicate Asia’s Green Revolution? • In some places the revolution has begun • For example, high rice yields in parts of Africa • But growing conditions and market conditions vary greatly • Asian diets were heavily focused on a handful of crops grown under similar conditions; a few innovations transformational • For Africa, a portfolio of innovations is needed to start the process • Even so, because farm gate incentives vary, the conditions for economic viability vary as well • So far, gains in Africa are local rather than national transformations • Scope for sharing ingredients of success across countries

Transformations Windows 2 and 4 Export-led growth • Real undervaluation may promote export-led growth, at the expense of consumption • The export-led growth strategy of some emerging markets seeks to exploit positive externalities from traded goods production by hoarding reserves to keep a depreciated real exchange rate. • Analysis shows that this may succeed in raising growth, but with a potentially big cost in terms of current consumption – and hence an uncertain welfare effect. • Firm-level export transactions databases are yielding insights into the genesis, pattern and survival of exports. • For example, firm-level data on the nontraditional agriculture sector in Peru, which grew seven-fold from 1994 to 2007, reveals new products are typically discovered by large experienced exporters. • Discovery provokes tremendous firm entry but limited survival especially among firms that start small.

Transformations Window 4 Hard vs. soft industrial policy “Hard” industrial Policy: • Tariffs • Subsidies to specific sectors • Tax breaks for foreign investors • Domestic content requirements Soft” Industrial Policy: • Special Economic Zones offering lower cost infrastructure • Roads and ports designed to increase trade • Special Credit for exporters (Trade Credit) • Promoting clusters in order to export √ ?

Transformations Window 4 When might “hard” industrial policy work? • Research using firm-level data for China finds negative impact of protection but positive impact of tax incentives • Tariffs had a negative net impact: interventions skewed to sectors where China has a comparative advantage helped, although the targeting was not strong enough. • Strong evidence that tax holidays led to higher growth when targeted at labor-intensive, export-oriented, unskilled-intensive, and less R&D intensive sectors in China. • Because targeting was stronger using tax holidays, and effect uniformly positive, net impact of this intervention has been positive on firm productivity growth. • Benefits highest when instrument correlated with initial exports.

Conclusions We face continuing challenges in maintaining analytic excellence across the wide range of development issues faced by countries. The KCP is hugely important in allowing us to address pressing knowledge gaps, with the flexibility to adapt quickly to newly emerging gaps. Our traditional research products will remain important, but we are becoming more strategic about research questions. And our new emphasis on tool development will help leverage up our skills to provide a more open platform for democratizing development research and building stronger collaborations with our partners. The KCP will play an important role in this new direction.

Open Data • Share tools and essential information on the global economy and Bank’s operations • Open Knowledge • Enable researchers, students, local communities • to collect data, measure results, increase knowledge • Open Solutions • Work together to find solutions to development • problems

Presentation to KCP Consultative Group Meeting, Stockholm , November 2011