This paper attempts to improve the understanding and measurement of decentralization and its relationship with corruption in a worldwide context. This is done by presenting the conceptual underpinnings of such relationship as well as using superior and more defensible measures of both decentralization in its various dimensions as well as corruption for a sample of 182 countries. It is the first paper that treats various tiers of local governments (below the inter-mediate order of government) as the unit of comparative analysis. In contrast, previous analyses erroneously focused on subnational governments as the unit of analysis which yields invalid cross-country comparisons. By pursuing rigorous econometric analysis, the paper demonstrates that decentralization, when properly measured to mean moving government closer to people by empowering local governments, is shown to have significant negative effect on the incidence of corruption regardless of the choice of the estimation procedures or the measures of corruption used. In terms of various dimensions of decentralized local governance...

In many markets, industry and policymakers agree that there may be too many insurers. In others, the consensus is that there could be benefit from more competition. But this broad consensus is often supported by evidence that is more qualitative, anecdotal, or judgmental despite being unanimous. What is less clear, however, is how far consolidation or liberalization will go, how fast, and when it will end. This paper presents some initial observations from a cross-country data set and proposes that individual country results can be interpreted against this data set to inform expectations regarding trends in competition, concentration and consolidation, to inform analysis of the sector, for individual firm strategic planning and wider market risk assessments. A "natural level" for measures is suggested as a starting hypothesis. Further consideration is then made of the role of absolute market size, stage of market development, and differentials between life and non life segments. Analysis of the natural level...

This paper attempts to quantify the impact of the HIV/AIDS epidemic on social capital with cross-country data. Using data from the World Values Survey, the authors estimate reduced-form regressions of the main determinants of social capital controlling for HIV prevalence, institutional quality, social distance, and economic indicators. The results obtained indicate that HIV prevalence affects social capital negatively. The empirical estimates suggest that a one standard deviation increase in HIV prevalence will lead to a decline of at least 1 percent in trust, controlling for other determinants of social capital. Moving from a country with a relatively low level of HIV prevalence, such as Estonia, to a country with a relatively high level, such as Uganda, there is a more than 11 percent point decline in social capital. These results are robust in a number of dimensions and highlight the empirical importance of an additional mechanism through which HIV/AIDS hinders the development process.

The Knowledge Assessment Methodology (KAM) database measures variables that may be used to assess the readiness of countries for the knowledge economy and has many policy uses. Formal analysis using KAM data is faced with the problem of which variables to choose and why. Rather than make these decisions in an ad hoc manner, the authors recommend factor-analytic methods to distill the information contained in the many KAM variables into a smaller set of "factors." Their main objective is to quantify the factors for each country, and to do so in a way that allows comparisons of the factor scores over time. The authors investigate both principal components as well as true factor analytic methods, and emphasize simple structures that help provide a clear political-economic meaning of the factors, but also allow comparisons over time.

This paper attempts to quantify the impact of the HIV/AIDS epidemic on social capital with cross-country data. It estimates reduced-form regressions of the main determinants of social capital controlling for HIV prevalence, institutional quality, social distance, and economic indicators using data from the World Values Survey. The results obtained indicate that HIV prevalence affects social capital negatively. The empirical estimates suggest that a one standard deviation increase in HIV prevalence will lead to a 1 percent decline in trust, controlling for other determinants of social capital. If one moves from a country with a relatively low level of HIV prevalence such as Estonia, to a country with a high level such as Zimbabwe, one would observe an approximate 8 percent decline in social capital. These results are robust in a number of dimensions and highlight the empirical importance of an additional mechanism through which HIV/AIDS hinders the development process.

Existing empirical studies on the relation between inequality and growth have been criticized for their focus on income inequality and their use of cross-country data sets. Schipper and Hoogeveen use two sets of small area welfare estimates-often referred to as poverty maps-to estimate a model of rural per capita expenditure growth for Uganda between 1992 and 1999. They estimate the growth effects of expenditure and education inequality while controlling for other factors, such as initial levels of expenditure and human capital, family characteristics, and unobserved spatial heterogeneity. The authors correct standard errors to reflect the uncertainty due to the fact that they use estimates rather than observations. They find that per capita expenditure growth in rural Uganda is affected positively by the level of education as well as by the degree of education inequality. Expenditure inequality does not have a significant impact on growth.

Relative deprivation, shame and social exclusion can matter to the welfare of people everywhere. The authors argue that such social effects on welfare call for a reconsideration of how we assess global poverty, but they do not support standard measures of relative poverty. The paper argues instead for using a weakly-relative measure as the upper-bound complement to the lower-bound provided by a standard absolute measure. New estimates of global poverty are presented, drawing on 850 household surveys spanning 125 countries over 1981-2008. The absolute line is $1.25 a day at 2005 prices, while the relative line rises with the mean, at a gradient of 1:2 above $1.25 a day. The authors show that these parameter choices are consistent with cross-country data on national poverty lines. The results indicate that the incidence of both absolute and weakly-relative poverty in the developing world has been falling since the 1990s, but more slowly for the relative measure. While the number of absolutely poor has fallen, the number of relatively poor has changed little since the 1990s...

Using cross-country and panel regressions, this article investigates how gender inequality in education affects long-term economic growth. Such inequality is found to have an effect on economic growth that is robust to changes in specifications and controls for potential endogeneities. The results suggest that gender inequality in education directly affects economic growth by lowering the average level of human capital. In addition, growth is indirectly affected through the impact of gender inequality on investment and population growth. Some 0.4-0.9 percentage points of differences in annual per capita growth rates between East Asia and Sub-Saharan Africa, South Asia, and the Middle East can be accounted for by differences in gender gaps in education between these regions.

The authors explore the relationship between the relative size of the small and medium enterprise (SME) sector, economic growth, and poverty using a new database on the share of SME labor in the total manufacturing labor force. Using a sample of 76 countries, they find a strong association between the importance of SMEs and GDP per capita growth. This relationship, however, is not robust to controlling for simultaneity bias. So, while a large SME sector is characteristic of successful economies, the data fail to support the hypothesis that SMEs exert a causal impact on growth. Furthermore, the authors find no evidence that SMEs reduce poverty. Finally, they find qualified evidence that the overall business environment facing both large and small firms-as measured by the ease of firm entry and exit, sound property rights, and contract enforcement-influences economic growth.

Income differences arise from many sources. While some kinds of inequality, caused by effort differences, might be associated with faster economic growth, other kinds, arising from unequal opportunities for investment, might be detrimental to economic progress. This study uses two new metadata sets, consisting of 118 household surveys and 134 Demographic and Health Surveys, to revisit the question of whether inequality is associated with economic growth and, in particular, to examine whether inequality of opportunity -- driven by circumstances at birth -- has a negative effect on subsequent growth. The results are suggestive but not robust: while overall income inequality is generally negatively associated with growth in the household survey sample, we find no evidence that this is due to the component associated with unequal opportunities. In the Demographic and Health Surveys sample, both overall wealth inequality and inequality of opportunity have a negative effect on growth in some of the preferred specifications...

We model a value of statistical life (VSL) transfer function for application to road-safety engineering in developing countries through an income-disaggregated meta-analysis of scope-sensitive stated preference VSL data. The income-disaggregated meta-analysis treats developing country and high-income country data separately. Previous transfer functions are based on aggregated datasets that are composed largely of data from high-income countries. Recent evidence, particularly with respect to the income elasticity of VSL, suggests that the aggregate approach is deficient because it does not account for a possible change in income elasticity across income levels. Our dataset (a minor update of the OECD database published in 2012) includes 123 scope-sensitive VSL estimates from developing countries and 185 scope-sensitive estimates from high-income countries. The transfer function for developing countries gives VSL = 1.3732E−4 × (GDP per capita)∧2.478, with VSL and GDP per capita expressed in 2005 international dollars (an international dollar being a notional currency with the same purchasing power as the U.S. dollar). The function can be applied for low- and middle-income countries with GDPs per capita above $1268 (with a data gap for very low-income countries)...

The main purpose of this paper is to provide a critical overview of the recent empirical contributions that use cross-country data to study the effects of product market regulation and reform on a country's macroeconomic performance. After a brief review of the theoretical literature and of relevant micro-econometric evidence, the paper discusses the main data and methodological issues related to empirical work on this topic. It then critically evaluates the cross-country evidence on the effects of product market regulation on mark-ups, firm dynamics, investment, employment, innovation, productivity, and output growth. The paper concludes with a summary of lessons learned from the econometric results.

The authors explore the relationship between financial structure - the degree to which a financial system is market- or bank-based - and economic development. They use three methodologies: 1) The cross-country approach uses cross-country data to assess whether economies grow faster with market- or bank-based systems. 2) The industry approach uses a country-industry panel to assess whether industries that depend heavily on external financing grow faster in market- or ban-based financial systems, and whether financial structure influences the rate at which new firms are created. 3) The firm-level approach uses firm-level data across a broad selection of countries to test whether firms are more likely to grow beyond the rate predicted by internal resources, and short-term borrowings in market- or bank-based financial systems. The cross-country regressions, the industry panel estimations, and the firm-level analyses, provide remarkably consistent conclusions: a) Financial structure is not an analytically useful way to distinguish financial systems. b) Financial structure does not help us understand economic growth...

Good governance -- in the form of institutions that establish predictable, impartial, and consistently enforced rules for investors -- is crucial for the sustained and rapid growth of per capita incomes in poor countries. Aid dependence can undermine institutional quality by weakening accountability, encouraging rent seeking and corruption, fomenting conflict over control of aid funds, siphoning off scarce talent from the bureaucracy, and alleviating pressures to reform inefficient policies and institutions. The author's analyses of cross-country data provide evidence that higher aid levels erode the quality of governance, as measured by indexes of bureaucratic quality, corruption, and the rule of law. This negative relationship strengthens when instruments for aid are used to correct for potential reverse causality. It is robust to changes in the sample and to several alternative forms of estimation. Recent studies have concluded that aid's impact on economic growth and infant mortality is conditional on policy and institutional gaps. The author's results indicate that the size of the institutional gap itself increases with aid levels.

Ethiopia is among the World Bank's largest IDA-eligible borrowers in Sub-Saharan Africa, with a country portfolio comprising 22 active projects for a total net commitment of US$2 billion as of end-FY07. The Bank's overarching objective during the period under review (FY98-FY06) was to support the Government in its efforts to reduce poverty by helping to: (i) promote pro-poor growth; (ii) advance private sector development; (iii) enhance human development; (iv) respond to the needs of post-conflict and emergency rehabilitation; and (v) improve governance. The evaluation finds that IDA's country strategy for Ethiopia and the associated program during the period under review were relevant to the country's development needs, which included the need to manage (and over time reduce the country's exposure to) frequent exogenous shocks and a fragile socio-political environment, especially following the post-election violence in 2005. IDA's strategy and program were also aligned with those of other development partners (DPs). The efficacy of the program was somewhat below average when measured against the goals envisaged at the outset. There were positive outcomes inter alia in post-conflict rehabilitation...

This Country Economic Memorandum is the first economic report in a decade. It gives priority to updating knowledge about the evolution of social and economic developments during the 1990s. It reviewareas of progress in macroeconomic reforms and the lack of success in governance and institutional reforms. Substantial reforms were undertaken in this period , but the civil war continued to have a serious negative impact on Sudan's people and its economic prospects. While the results of the reforms have been promising, particularly in the area of macroeconomic stabilization and liberalization, the distribution of economic wealth needs to improve. Although there has not been any national household survey since 1978, social indicators point to low levels of welfare throughout Sudan, with some indicators well below those in Sub-Saharan Africa. among the many issues facing the Sudanese economy are these: There has been high growth but skewed distribution. Stabilization has been costly in social terms: expenditures were cut by more than 50 percent relative to gross domestic product (GDP)...

Modern political economy stresses "society's polarization" as a determinant of development outcomes. Among the most common dorms of social conflict are class polarization, and ethnic polarization. A middle class consensus is defined as a high share of income for the middle class and a low degree of ethnic polarization. A middle class consensus distinguishes development successes from failures. A theoretical model shows how groups - distinguished by class or ethnicity - will under-invest in human capital and infrastructure when there is "leakage" to another group. The author links the existence of a middle class consensus to exogenous country characteristics, such as resource endowments, along the lines of the provocative thesis of Engerman and Sokoloff (1997), that tropical commodity exporters are more unequal than other societies. The author confirms this hypothesis with cross-country data. This makes it possible to use resource endowments as instruments for inequality. A higher share of income for the middle class and lower ethnic polarization...

The author provides theoretical and empirical evidence of a negative association between income inequality and real exchange rates. First, he builds a theoretical model showing the transmission mechanism from inequality to real exchange rates. Second, using cross-country data, he demonstrates that the theoretical argument has empirical support. The association is large, significant, and robust to alternative specifications of the reduced form model and estimation methodologies. These findings provide empirical support for Poverty Reduction Strategy Papers, government strategies agreed on with the World Bank that hinge on four major objectives: accelerating equity-based growth, guaranteeing access to basic social services for the poor, expanding opportunities for employment and income-generating activities for the poor, and promoting good governance. The author's analysis indicates that "equity-based growth" and "export-driven growth" are compatible policy goals. But the negative relationship between inequality and real exchange rates does not imply that policies aimed at dramatic redistribution will automatically lead to real depreciation of the domestic currency...

Individual countries face the challenge of implementing strategies that help realize the ambitions of the global Sustainable Development Goals (SDG) agenda, adopted by the UN General Assembly in September, 2015. This book presents the Country Development Diagnostics Post-2015 framework and a brief applications of the framework to ten countries.

This paper revisits four recent cross-country empirical studies on the effects of inequality on growth. All four studies report strongly significant negative effects, using the popular system generalized method of moments estimator that is frequently used in cross-country growth empirics. This paper shows that the internal instruments relied on by this estimator in these inequality-and-growth regressions are weak, and that weak instrument-consistent confidence sets for the effect of inequality on growth include a wide range of positive and negative values. This suggests that strong conclusions about the effect of inequality on growth— in either direction—cannot be drawn from these studies. This paper also systematically explores a wide range of alternative sets of internal instruments, and finds that problems of weak instruments are pervasive across these alternatives. More generally, the paper illustrates the importance of documenting instrument strength, basing inferences on procedures that are robust to weak instruments...