KCP Meeting Oslo, November 1 2010

1. KCP Meeting Oslo, November 1 2010 KCP-Funded Research in 2009/10Some Examples Development Research Group, World Bank

2. Outline Poverty and public services • Monitoring development outcomes • Delivering better services to poor people Investment and the private sector • Private sector development • Finance Global public goods • Energy and environment • Analytic software

3. Better Data for Monitoring Development Outcomes

4. Living Standards Measurement Study Phase IV

5. Improving household survey data • Development objective: • give national statistical offices, international agencies and researchers access to new, validated tools for data collection and poverty measurement. • Public goods: • Data and data collection methodologies are public goods. By improving methods for data collection, can help poorer countries which have the poorest data. • Method: • Worked with national statistical offices and both local and international researchers to ensure greatest learning and dissemination.

6. Three-pronged approach • Methodological Research: Experiments in (for example) measuring household usage of financial services; testing recall; using vignettes to calibrate subjective scales. • Stock-taking: Synthesizing latest developments. • Technology for Surveys: Identifying features needed to improve usefulness of computer assisted personal interviewing.

7. An example: Subjective welfare • Subjective questions on welfare (“happiness”, “satisfaction with life,” ‘economic ladder”) are increasingly popular. • However, heterogeneity in scales (“frame of reference effects”) cloud the interpretation. • LSMS IV experiments with using vignettes to anchor scales reveal that: • Systematic scale heterogeneity exists, but • the bias in standard regression models for subjective welfare is small.

8. Inequality in China:Correcting for bias in survey-based measures due to selective response

9. Rising concern about survey non-response in China (as elsewhere) • Special concern in urban areas, where it is thought that the “rich” (including new rich) are unwilling to participate in surveys, or are too busy. • Concerns that the problem might be increasing over time. • Estimates for the US suggest Gini index may be underestimated by 5% points due to selective non-response. • China’s National Bureau of Statistics asked us for help in developing correction methods.

10. Ongoing study for China • Two stages in sampling in Urban Household Survey (UHS) of NBS • Stage 1: Large national random sample (about half million) with very short questionnaire and very high response rate; this is the UHSS. • Stage 2: UHS will be randomly drawn from Stage 1 sample, given very detailed questionnaire using daily diary method • Step 1: Model probability of a UHSS household being selected for and agreeing to participate in the UHS. • Two behaviors matter: NBS sample selection + compliance choices by those sampled. • Step 2: Use predicted probabilities to re-weight the UHS data to better represent the population.

11. What types of households are more likely to get into the UHS from the UHSS? • Local (urban) hukou • Low-middle income => • Not single member household • Larger dwelling • Has computer • Better type of housing • Owned house • Female headed • Old head • Better educated (except pos-graduates!) P Mean=6123 1585 RMB lnY Working with NBS we will soon be able to re-weight the UHS to address these sources of bias stemming from selective compliance.

12. Delivering Better Services to Poor People

13. Policy Research Report on Participatory Development

14. Research questions Does participation improve development outcomes for the poor and other marginalized groups? • Improve access to public services • Reduce poverty, increase assets, expand livelihood opportunities • Does Participation Improve Accountability? • Are investments more aligned with local preferences? • Is there less capture and corruption? Does Participation Increase Civic Capacity • Does participatory development improve the ability to act collectively? • Are the poor better able to observe, monitor and sanction service providers and policy makers?

15. Lessons • Only mildly more successful at targeting the poor • Little evidence of sustained poverty impacts • Significant capture and corruption • Little evidence of improvements in collective action or in capacity to monitor (but poorly measured) • However, provision of local public goods and broad public services tends to improve overall • Heterogeneity in outcomes • Poor, remote do worse • Inequality always worsens outcomes • Low community capacity is a very significant constraint

16. Policy Messages • Need for strong functioning center that can set rules, can monitor and sanction does not decline with decentralization • Outcomes better when participatory projects implemented or aligned with elected local governments • Participatory institutions that have “teeth” to monitor and sanction are more likely to succeed • Mandating inclusion can help • Interventions that provide information tend to increase accountability • Need to question ‘golden rules’ of participation like local co-financing and local setting of eligibility criteria • When localities differ in resources and local inequality is important, these can increase exclusion and worsen horizontal inequality

17. Incentivizing Better Health-Seeking Behaviors

18. Can a CCT lead to better health-seeking behaviors? • The RESPECT project in Tanzania. • Randomized experiment. • Both treatment (n=1,275) and control groups (n=1,124) get counseling, training, testing. • Treatment group gets reward for testing negative for the set of curable STIs tested every 4 months. • Rewards (every 4 months) • High-value: 20,000 TZ Shillings or ~= USD 20 • Low-value: 10,000 TZ Shillings or ~= USD 10

19. Results • High value cash award: (20$/4months) • Intervention reduced STI prevalence by 3.4 percentage points after one year. [95% CI: 0.1, 6.8%; p-value=.046] • Low value cash award: (10$/4months) • Intervention did not reduce STI prevalence. [95% CI: -4.0%, 2.9%; p-value=.076]

20. Interpretation and implications • Cash incentives significantly reduced STIs at 12-months in the high cash value group but not low cash value group. • Ongoing research is investigating extent to which intervention reduces risky sexual behaviors. • This study is only intended to be a proof of concept. Further effectiveness studies are needed before considering implementation.

21. Using the Mass Media to Influence Public Good Provision

22. The effects of radio access on public education in Benin • Media interventions are the most tractable for donors. • What we don’t know • Effects of media on public good access? • Non-media information campaigns have no effect on public school performance in India; • positive effect on public health performance in Uganda. • Do media matter because of accountability (uninformed public can’t hold government accountable)? Or because of household behavior (uninformed public doesn’t know how to take advantage of public goods)?

23. Our “natural” experiment • Radios, public education and household behavior in Benin • Great variation in Northern Benin to community radio broadcasts – the kind most likely to convey information on health and education. • Programming information from 21 radio stations, school information on 210 villages and the education decisions of 4,500 households across 32 communes in Northern Benin (out of 77 total communes). • Research questions • Does radio access influence school performance (test scores, literacy)? • Does this effect work through accountability or household behavior?

24. Results • Controlling for village remoteness and other village characteristics, villages with greater radio access have: • higher pass rates on the school-leaving exam. • greater French literacy among 8 year olds (based on exam we administered to 10 second-graders in each village). • In contrast: no effects of radio access on: • Government-supplied school input (teacher absenteeism, # teachers-classrooms-textbooks) • Local collective action (PTAs no more active). • Household knowledge of government policies governing education inputs. • Large effect on household behavior. Households that listened more to community radio • invest more in children’s education; • more likely to know about local and national pass rates on school-leaving exam; literacy of children in village.

25. Investment and Private Sector Development

26. Deals versus Rules: Policy Implementation Uncertainty • The most common approach to assessing ‘regulatory burden’ or ‘regulatory quality’ is to use a single, country-level measure, such as in the “Doing Business Indicators”. • But this may miss most of the action • Enormous variation within countries • Implementation matters • Understand gaps between de jure and de facto outcomes • Favored and un-favored firms: broader governance and political economy important too.

27. Data • Enterprise Surveys: De facto • 108 countries • 100,000 + interviews • Firm experiences on the ground • 3 specific transactions with close DB counterparts: • Days to clear goods through customs • Days to get an operating license • Days to get a construction permit • Doing Business: De jure • Covers all the same countries (plus others) • Covers same transactions • Assumes: • Clearly defined steps, comparable beginning and end across countries • Firm and government fully comply

28. The gap between de jure and de facto measures of regulation 45 degree line gap between de facto and de jure 95th pctile 75th pctile 25th pctile 5th pctile

29. De jure and de facto measures • Variation within countries is often considerably larger than in average levels across countries • E.g. in SSA, the average DB time to clear customs is 20 days – but all but 1 ES country has 90th-10th percentile gap greater than 20 days • Variation has little correlation with formal DB measures (<5%) • Gaps between de jure and de facto are large • For construction permits, average gap of ES and DB is 177 days – almost 3 times as large as the actual ES average of 64 days. • And grow with de jure measures • De facto indicators do not expand along with de jure measures • Few firms actually experience the long delays in worst performing DB countries

30. Results • Single, average measure for a countries misses much of the action • Implementation – and variations in implementation are critical • Favored and disfavored firms • Burdensome requirements -- that are not implemented: • opens the door to corruption • undermines government’s credibility • thwarts the public interest they were supposed to serve • may undermine support for reforms by creating different interests between favored and non-favored firms.

31. Improving Management in India • KCP funded an innovative experiment in India which aimed to assess the causal impact of better management • International consulting firm introduced modern management practices in treated firms, not in control firms • We find large improvements in quality, a fall in inventory levels, and increases in output. • Profits rose $200,000 in the treated firms, and productivity by 10%. • Firms started decentralizing more once modern management methods were in place. • Policy implications: • Need for better business schools • Providing regulatory structure for consulting industry to signal quality effectively • Allowing more entry of multinationals to provide training ground for managers.

32. What is the Constraint? Prices or Knowledge? • We piggy-backed an evaluation on a nationally representative household survey in Indonesia in 2008. • Unbanked households were our baseline sample • Visited 40 villages in Java, and randomly assigned the following treatments within village: • 50% were invited to financial literacy training, crossed with financial incentives to open a bank account. • We monitored account openings for subsequent two months and conducted a follow-up two years later

33. Prices or Knowledge cont., We find: • A strong correlation between financial literacy and behavior. • However, our financial education program has only modest effects, increasing demand for bank accounts only for those with low levels of education or financial literacy • In contrast, small subsidies greatly increase demand • The follow-up survey confirms these findings, demonstrating the newly opened accounts remain open and in use two years after the intervention • Results suggest reform aimed at reducing the price of financial services may be the most effective way of stimulating demand, coupled perhaps with a focused and carefully targeted financial literacy program

34. Financing Development

35. Capital raisings activity by developing countries • How much do developing countries use domestic and international markets to finance their activities? • There is increasing access to international capital markets • Developing countries have participated actively in this process and have relied less on public sources of capital over time • For example, IBRD and IDA borrowing has declined from 18% of borrowing from private sources in 1991 to 3% in 2008 • Also, capital markets have been an important source of funds relative to banks (the traditional source of financing) • In parallel to the internationalization, there is a continuing and growing use of domestics markets, especially in recent years

36. Capital raisings activity by developing countries • The use of private capital markets increases as countries become richer • Though substantial heterogeneity, across countries and firms at any income level, in the amount of access to capital markets • All types of countries raise capital in domestic and international capital markets: No threshold effect • The process of gaining greater capital market access is gradual • There is no point at which access becomes deep, stable, and irreversible. • Crisis-induced volatility is significant across all income levels, but is larger in developing economies

37. Understanding demand for financial services • Access to financial services is critically important for growth—estimated 2 billion people worldwide will enter the formal financial system in the next 20 years. • Supplyof financial services well-studied – institutions, infrastructure, rule of law, etc. • Demandside less well understood, especially in emerging markets. • The motivation for this KCP supported study is to better understand micro-underpinnings of demand.

38. Access to banking services in Mexico • New KCP research studied the economic impact of opening a bank for low-income individuals in Mexico • This bank opened 800 branches at once in 2002 in pre-existing retail stores • Locations without these retail stores provide a comparison group for measuring effects • Effects of bank opening • Increase in informal businesses by 7.6 percent • Increase in overall employment by 1.4 percent • Increase in income by 7 percent • Granting banking licenses to financial institutions that cater to low-income households has a positive development impact since it promotes entrepreneurship and employment, thereby raising incomes.

39. Global Public Goods

40. Energy • Biofuels: competition between food and fuel, but also more deforestation and higher energy costs. • Renewable energy in Africa: very promising for more rural areas, less competitive in cities. • Urban energy use: more efficient pricing and mass transit investments can reduce waste, reduce congestion, improve environment. • Energy efficiency: planned field study of different approaches to improve practices (e.g. financing, information)

41. Climate change • Potential for less carbon-intensive growth through energy substitution and innovation. • Managing potential international conflicts over scarcer shared waters due to climate change. • New options for strengthening international cooperation to limit global greenhouse gases

42. Green growth (just starting) • Case study of industrial transformation processes in China and their environmental implications. • Review of prior research on economics of technological change – how might there be a win-win for economy and environment?

43. Automated Economic Analysis Aims: • To speed-up production of routine analytic work. • Free resources for more meaningful and interesting tasks. • Easily introduce new techniques and methods • Minimize human errors • Generate standard, comparable results across the countries/years. • Minimize training time

44. ADePT: From data to report User micro-level data: DHS, LSMS, LFS, … ADePT Inside ADePT: User Computational interface kernel (Stata) Print-ready output

45. About ADePT • Free, stand-alone program available to everybody • Accepts individual- and household-level data in Stataand SPSS format. Uses Stata numerical engine for computations. • Minimal data preparation required from the users • Extensive diagnostics of possible problems with the data • ADePT is a tool for simulations and sensitivity analysis • Intuitive user-friendly interface • Tested on 100’s of datesetsfrom more than 50 countries: LSMS, HBS, DHS • Users of ADePT come from the WB, international research institutions, universities, and government agencies. • Expected increase in the number of users when new modules are released

46. ADePT Localization • First launch in Indonesia. ADePT Indonesia – interface and output translated to Bahasa Indonesian. • Allows distributing ADePT in the regional (kabupatan) offices where the knowledge of English could be an issue. • Current version of ADePT is translated to: • Bahasa Indonesian, Russian, Spanish, Bulgarian, Georgian • Translations on French, Portuguese, Nepali, and Romanian are under way • Localized versions of ADePT reduce the requirements on users and simplify training in the program.