International Growth Centre

Despite numerous journalistic accounts, systematic quantitative evidence on economic conditions during the ongoing COVID-19 pandemic remains scarce for most low- and middle-income countries, partly due to limitations of official economic statistics in environments with large informal sectors and subsistence agriculture. We assemble evidence from over 30,000 respondents in 16 original household surveys from nine countries in Africa (Burkina Faso, Ghana, Kenya, Rwanda, Sierra Leone), Asia (Bangladesh, Nepal, Philippines), and Latin America (Colombia). We document declines in employment and income in all settings beginning March 2020. The share of households experiencing an income drop ranges from 8 to 87% (median, 68%). Household coping strategies and government assistance were insufficient to sustain precrisis living standards, resulting in widespread food insecurity and dire economic conditions even 3 months into the crisis. We discuss promising policy responses and speculate about the risk of persistent adverse effects, especially among children and other vulnerable groups.

While potentially negative impacts of credit constraints on economic development have long been discussed conceptually, empirical evidence for Africa remains limited. We use a direct elicitation approach on a national sample of Rwandan rural households to empirically assess the extent and nature of credit rationing in the semi-formal sector and its impact, using an endogenous switching model. Elimination of all constraints could increase output by some 17 per cent. Implications for policy and research are spelled out.

A key objective of the African Continental Free Trade Area (AfCFTA) is to develop regional value chains (RVCs) to help grow and diversify the manufacturing sector, an objective taking a new urgency under the Coronavirus Disease (COVID) pandemic where the future of supply chain trade remains uncertain. Participation in global value chain (GVC) trade depends heavily on low trade costs that, in turn, depend on low tariff and non-tariff trade barriers. Currently, the average tariff on intermediates across African countries is about 10%, about twice the rate for other developing regions (AEO, 2018; Figure 3.11). In the East African Community (EAC), arguably Africa's most integrated Regional Economic Community (REC), an agreement has been reached to move from a three-band tariff structure to a four-band tariff structure. 1 The objective of this revision at the EAC level-and of the move toward free trade at the AfCFTA level-is to boost supply chain trade (regional and non-regional) value chain trade at the REC and continental levels.

This article positions itself among the very rare microeconomic analyses on the consequences of civil war. Up to now, most analyses on this topic are based on household surveys. The originality of the present study is that it investigates for the first time the likely predominant route by which civil conflict affects the economy, specifically through firms. The context of the study is Sierra Leone, a country that was ravaged by violent conflict from 1991 to 2002. The approach is to use geographical variations in the intensity of conflict to estimate the impact of violence on firms, on which we have data from the World Bank 2007 Employers’ Survey. The proposed theory is that during conflict, violence affects production through a form of technical regress and demand through a reduction in income. The persistent post-conflict effects are less obvious. We assume that war forces a prolonged contraction in output skills, which slows the pace of recovery. We termed this phenomenon “forgetting by not doing”. The results confirm our theory: the size of firms in 2006 is negatively affected by the intensity of the war in the area it operates. The analysis of training needs clearly corroborates the long-lasting lack of skills experienced as a result of the war in areas where the conflict was more intense. Yet, the analysis cannot identify robust recovery patterns.

We design a field experiment to study how the allocation of authority between frontline procurement officers and their monitors affects performance both directly and through the response to incentives. In collaboration with the government of Punjab, Pakistan, we shift authority from monitors to procurement officers and introduce financial incentives in a sample of 600 procurement officers in 26 districts. We find that autonomy alone reduces prices by 9% without reducing quality and that the effect is stronger when the monitor tends to delay approvals for purchases until the end of the fiscal year. In contrast, the effect of performance pay is muted, except when agents face a monitor who does not delay approvals. Time use data reveal agents' responses vary along the same margin: autonomy increases the time devoted to procurement and this leads to lower prices only when monitors cause delays. By contrast, incentives work when monitors do not cause delays. The results illustrate that organizational design and anti-corruption policies must balance agency issues at different levels of the hierarchy.

Abstract We analyze COVID-19 vaccine acceptance across 15 survey samples covering ten low- and middle-income countries (LMICs) in Asia, Africa, and South America, Russia (an upper-middle-income country), and the United States, using survey responses from 44,260 individuals. We find considerably higher willingness to take a COVID-19 vaccine in LMIC samples (80% on average) compared to the United States (65%) and Russia (30%). Vaccine acceptance was primarily explained by an interest in personal protection against COVID-19, while concern about side effects was the most commonly expressed reason for reluctance. Health workers were the most trusted sources of information about COVID-19 vaccines. Our findings suggest that prioritizing vaccine distribution to LMICs should yield high returns in promoting global immunization coverage, and that vaccination campaigns in these countries should focus on translating acceptance into uptake. Messaging highlighting vaccine efficacy and safety, delivered by healthcare workers, may be most effective in addressing remaining hesitancy.

This paper provides a pragmatic and objective diagnostic approach to the assessment of public investment management systems for governments. Since weaknesses in public investment management can negate the core argument that additional fiscal space allocated to public investments could enhance future economic prospects, attention to the processes that govern public investment selection and management is critical. The paper begins with a description of eight key "must-have" features of a well-functioning public investment system: (1) investment guidance, project development, and preliminary screening; (2) formal project appraisal; (3) independent review of appraisal; (4) project selection and budgeting; (5) project implementation; (6) project adjustment; (7) facility operation; and (8) project evaluation. The emphasis is placed on the basic processes and controls (linked at appropriate stages to broader budget processes) that are likely to yield the greatest assurance of efficiency in public investment decisions. The approach does not seek to identify best practice, but rather to identify the "must have" institutional features that would address major risks and provide an effective systemic process for managing public investments. The authors also develop a diagnostic framework to assess the main stages of the public investment management cycle. In principle, the identification of core weaknesses will allow reforms to focus scarce managerial and technical resources where they will yield the greatest impact. In addition, the framework is intended to motivate governments to undertake periodic self-assessments of their public investment systems and design reforms to enhance the productivity of public investment.

Urbanization is an inherent part of economic development, yet its success in delivering jobs, productivity, and liveability varies widely. This issue of the Oxford Review of Economic Policy compares the experience of different countries and analyses the causes of their different performance. Cities are policy intensive, requiring public provision of infrastructure, regulation, and coordination. This in turn requires authorizing environments with a sufficiently broad span of control, and correspondingly powerful checks and balances to prevent abuse.

We study the relationship between firms’ output quality and organizational structure. Using data on the production and transaction chain that makes up Peruvian fish meal manufacturing, we establish three results. First, firms integrate suppliers when the quality premium rises for exogenous reasons. Second, suppliers change their behavior to better maintain input quality when vertically integrated. Third, firms produce a higher share of high-quality output when weather and supplier availability shocks shift them into using integrated suppliers. Overall, our results indicate that quality upgrading is an important motive for integrating suppliers facing a quantity-quality trade-off, as classical theories of the firm predict.

This paper provides a pragmatic and
\n objective diagnostic approach to the assessment of public
\n investment management systems for governments. Since
\n weaknesses in public investment management can negate the
\n core argument that additional fiscal space allocated to
\n public investments could enhance future economic prospects,
\n attention to the processes that govern public investment
\n selection and management is critical. The paper begins with
\n a description of eight key "must-have" features of
\n a well-functioning public investment system: (1) investment
\n guidance, project development, and preliminary screening;
\n (2) formal project appraisal; (3) independent review of
\n appraisal; (4) project selection and budgeting; (5) project
\n implementation; (6) project adjustment; (7) facility
\n operation; and (8) project evaluation. The emphasis is
\n placed on the basic processes and controls (linked at
\n appropriate stages to broader budget processes) that are
\n likely to yield the greatest assurance of efficiency in
\n public investment decisions. The approach does not seek to
\n identify best practice, but rather to identify the
\n "must have" institutional features that would
\n address major risks and provide an effective systemic
\n process for managing public investments. The authors also
\n develop a diagnostic framework to assess the main stages of
\n the public investment management cycle. In principle, the
\n identification of core weaknesses will allow reforms to
\n focus scarce managerial and technical resources where they
\n will yield the greatest impact. In addition, the framework
\n is intended to motivate governments to undertake periodic
\n self-assessments of their public investment systems and
\n design reforms to enhance the productivity of public investment.

We use a two-stage experiment to study how a short-term subsidy for a new product affects uptake, usage, and future demand for the same product (a new solar lamp). We use an auction design to gauge willingness-to-pay, and randomly vary the strike price across villages to create random variation in purchase prices and uptake across villages. Our main results are that subsidies do not adversely affect subsequent product use, but stimulate uptake. If subsidies depress future willingness-to-pay, then this effect is outweighed by additional learning about the benefits of the new product. The net effect is that short-term subsidies increase future willingness-to-pay. However; prices play an important allocative role, and lowering prices via subsidies encourages uptake by households with low use intensity. We do not find any evidence supporting social learning and anchoring beyond the initial sample of beneficiaries.

Performance pay for tax collectors has the potential to raise revenues, but might come at a cost if taxpayers face undue pressure from collectors. We report the first large-scale field experiment on these issues, where we experimentally allocated 482 property tax units in Punjab, Pakistan into one of three performance-pay schemes or a control. After two years, incentivized units had 9.3 log points higher revenue than controls, which translates to a 46 percent higher growth rate. The scheme that rewarded purely on revenue did best, increasing revenue by 12.8 log points (62 percent higher growth rate), with little penalty for customer satisfaction and assessment accuracy compared to the two other schemes that explicitly also rewarded these dimensions. Further analysis reveals that these revenue gains accrue from a small number of properties becoming taxed at their true value, which is substantially more than they had been taxed at previously. The majority of properties in incentivized areas in fact pay no more taxes, but do report higher bribes. The results are consistent with a collusive setting in which performance pay increases collector's bargaining power over taxpayers, who either have to pay higher bribes to avoid being reassessed, or pay substantially higher taxes if collusion breaks down.

Thanks to antiretroviral therapies (ART), people living with HIV (PLHIV) can now have a near-normal life at a cost of a few hundred dollars per year. We postulate that given this new low cost of maintaining lives, there is a moral duty to rescue those who are infected. This obligation creates a financial quasi-liability which for some African countries is comparable to their debt-to-GDP ratios. We construct a model to show that expenditure on prevention can pre-empt some of these liabilities. However, even with optimal prevention the quasi-liability is likely to remain too high to be affordable for a significant number of African countries. Extending the model to two players, we show that if the international community accepts part of the quasi-liability, as it does, it should finance a broadly equal share of prevention and treatment of future infections to mitigate moral hazard and avoid sub-optimal investment in prevention.

Are ordinary citizens or political party leaders better positioned to select candidates? While the American primary system lets citizens choose, most democracies rely instead on party officials to appoint or nominate candidates. The consequences of these distinct design choices are unclear: while officials are often better informed about candidate qualifications, they may value traits, like party loyalty or willingness to pay for the nomination, at odds with identifying the best performer. We partnered with both major political parties in Sierra Leone to experimentally vary how much say voters have in selecting Parliamentary candidates. Estimates suggest that more democratic procedures increase the likelihood that parties select voters’ most preferred candidates and favor candidates with stronger records of public goods provision. (JEL D72, H41, O17)

Abstract Centralized targeting registries are increasingly used to allocate social assistance benefits in developing countries. There are two key design issues that matter for targeting accuracy: (i) which households to survey for inclusion in the registry; and (ii) how to rank surveyed households. We attempt to identify their relative importance by evaluating Indonesia's Unified Database for Social Protection Programs (UDB), among the largest targeting registries in the world, used to provide social assistance to over 25 million households. Linking administrative data with an independent household survey, we find that the UDB system is more progressive than previous, program-specific targeting approaches. However, simulating an alternative targeting system based on enumerating all households, we find a one-third reduction in undercoverage of the poor compared to focusing on households registered in the UDB. Overall, there are large gains in targeting performance from improving the initial registration stage relative to the ranking stage.

This paper responds to the development
\n policy debate involving the World Bank and the IMF on the
\n use of fiscal policy not only for economic stabilization but
\n also to promote economic growth and increase per capita
\n income. A key issue in this debate relates to the effect of
\n the composition of public expenditure on economic growth.
\n Policy makers and some researchers have argued that
\n expenditure on growth-enhancing functions could enhance
\n future revenue and justify the provision of "fiscal
\n space" in the budget. But there are no simple ways to
\n identify the growth-maximizing composition of public
\n expenditure. The current paper lays out a research strategy
\n to explore the effects of fiscal policy, including the
\n composition of public expenditure, on economic growth, using
\n a time series approach. Based on the modeling strategy of
\n Greiner, Semmler and Gong (2005) we develop a general model
\n that features a government that undertakes public
\n expenditure on (a) education and health facilities which
\n enhance human capital, (b) public infrastructure such as
\n roads and bridges necessary for market activity, (c) public
\n administration to support government functions, (d)
\n transfers and public consumption facilities, and (e) debt
\n service. The proposed model is numerically solved,
\n calibrated and the impact of the composition of public
\n expenditure on the long-run per capita income explored for
\n low-, lower-middle- and upper-middle-income countries.
\n Policy implications and practical policy rules are spelled
\n out, the extension to an estimable model indicated, a debt
\n sustainability test proposed, and the out-of-steady-state
\n dynamics studied.

Abstract This paper is designed to help both the beneficiary governments and donors of aid for trade identify countries that are under‐performing in trade and which are receiving less aid for trade than their global performance might otherwise suggest is necessary. Building on previous work, it provides a procedure to assess potential need for spurring trade volume, and then looks at country allocations of aid for trade to see which are receiving below‐average amounts in the supply of aid for trade – relative to their potential needs. Countries, as they design national development strategies, may wish to consider giving greater attention to trade and requesting that donors allocate to them more aid for trade. As part of the analysis, the paper provides a conceptual framework for selecting indicators of trade performance and its policy determinants that the WTO and its partners might monitor closely as part of the aid for trade initiative.

The fragmentation of production across borders allows firms to make and export final goods, or to perform only intermediate stages of production by processing imported inputs for re-exporting. We examine how financial frictions affect companies' choice between processing and ordinary trade -implicitly a choice of production technology and position in global supply chains -and how this decision affects performance. We exploit matched customs and balance-sheet data from China, where exports are classified as ordinary trade, import-and-assembly processing trade (processing firm sources and pays for imported inputs), and pure-assembly processing trade (processing firm receives foreign inputs for free). Value added, profits and profitability rise from pure assembly to processing with imports to ordinary trade. However, more profitable trade regimes require more working capital because they entail higher up-front costs. As a result, credit constraints induce firms to conduct more processing trade and pure assembly in particular, and preclude them from pursuing higher value-added, more profitable activities. Financial market imperfections thus impact the organization of production across firms and countries, and inform optimal trade and development policy in the presence of global production networks.

We study communication frictions within multinationals (MNCs), hypothesizing that language barriers reduce management knowledge transfers within the organization. A distinct feature of such MNCs is a three-tier hierarchy: foreign managers (FMs) supervise domestic managers (DMs) who supervise production workers. Tailored surveys from our setting -MNCs in Myanmar -reveal that language barriers impede interactions between FMs and DMs. A first experimental protocol offers DMs free English courses and confirms that lowering communications costs increases their interactions with FMs. A second experimental protocol that asks human-resource managers at domestic firms to rate hypothetical resumes reveals that multinational experience and, specifically, DM-FM interactions are valued in the domestic labor market. Together, these results suggest that reducing language barriers can improve transfers of management knowledge, an interpretation supported by improvements in soft skills among treatment DMs in the first experiment. A model in which communication within MNCs is noncontractible -a realistic feature of workplace life -reveals that the experimental results are consistent with underinvestment in language training and provide a rationale for policy intervention.

There are two broad views as to why people stay poor. One emphasizes differences in fundamentals, such as ability, talent or motivation. The other, the poverty traps view, differences in opportunities which stem from access to wealth. To test between these two views, we exploit a large-scale, randomized asset transfer and an 11-year panel on 6000 households who begin in extreme poverty. The setting is rural Bangladesh and the asset is cows. The data supports the poverty traps view -we identify a threshold level of initial assets above which households accumulate assets, take on better occupations (from casual labor in agriculture or domestic services to running small livestock businesses) and grow out of poverty. The reverse happens for those below the threshold. Structural estimation of an occupational choice model reveals that almost all beneficiaries are misallocated in the work they do at baseline and that the gains arising from eliminating misallocation would far exceed the program costs. Our findings imply that large transfers which create better jobs for the poor are an effective means of getting people out of poverty traps and reducing global poverty.