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July-September 1997 Volume 8, Number 3

5 New Research 9 16

Publications and Data Order Form

corruption Reducing n effectivestate can contribute powerfullyto sustainable

lead to paralysis. Every instrument for

restraininggovernmentneeds to be

developmentand the reductionof poverty.But thereis no s

. ~~guarantee thatstateintervention willbenefitsociety.

The state's monopoly on coercion, which gives it the power to intervene effectivelyin economic activity, also gives it the power to intervene arbitrarily. This power, coupled with access to information not available to the general public, creates ample opportunities for public officials to promote their own interests, or those of friends or allies, at the expense of the general interest. How can countries establish and nurture mechanisms that give state agencies the flexibility and the incentive to act for the common good, while at the same time restraining arbitrary and corrupt behavior in dealings with businesses and citizens? What formal checks and balances must be built into the structure of government? And what can the state do to combat corruption? Restraining the potential use and abuse of state power is a challenge for any country. Harder still is doing it without depriving state agencies of the flexibility they need to do their job. But arbitrary and capricious state action undermines more than credibility. It undermines the rule of law itself, by weakening the force of whatever rules the state has set in place. And it fosters conditions that encourage state officials to place themselves above the law and tempt the rest of society to do the same. Development, in these circumstances, hits a brick wall. Instruments of restraint-including an independent judiciary and the separation of powers-are a vital foundation for sustainable development. But excessiverestraint can

complemented by institutional arrangements that build in flexibility for the

executivebranch in formulatingand

implementing policies and adapting to new information and changing circumstances. Countries have used a variety of institutional arrangements that combine flexibility with restraint. Some arrangements-such as deliberation councils in East Asia and the Administrative Procedures Act in the United States-delegate substantial autonomy to executive agencies to define the substance and undertake the implementation of policy. But they also require these agencies to follow procedures that open their decisions to input and oversight by other arms of the state and by civil society and businesses. Other arrangements rely on mechanisms within the executive branch to promote flexibility within restraints, such as the devolution of managerial authority to executive agencies within set budgets and performance targets. But even if bureaucracies are embedded in processes that provide ample opportunity for outside input and oversight, the risk remains that officials will pursue personal rather than organizational goals. Self-seeking behavior can degenerate into corruption when private interests wield their influence in illegal and secret ways, circumventing the legal and bureaucratic rules designed to keep them out. Whether public institutions succumb to these and other sources of corruption will depend on the strength of their institutional defenses. Corruption flourishes where distortions in the policy and regulatory regime provide scope for it and where institutions of restraint are weak. It lies at the

intersection of the public and private sectors, as private interests wield their influence through illegal means to take advantage of opportunities for corruption and rent seeking, and public institutions succumb to these and other sources of corruption in the absence of credible restraints. Corruption violates the public trust and corrodes social capital, and it can have far-reaching externalities. Unchecked, the creeping accumulation of seemingly minor infractions can slowly erode political legitimacy to the point where even honest officialsand members of the public see little point in playing by the rules. The implications for investment and economic growth are profound. A private sector survey conducted for the World Bank's WorldDevelopmentReport 1997: The State in a Changing World(New York: Oxford University Press, 1997) confirms earlier studies that found that corruption (as perceived by businesspeople) is negatively correlated with both investment and growth. (This survey created an internationally comparable data set, for 69 developing and industrial countries, on different aspects of institutional uncertainty as perceived by entrepreneurs.) And surveys and anecdotal evidence suggest that the greatest victims of petty corruption are usually the poor. Despite such evidence, many parts of the developing world retain a certain ambivalence toward corruption. A commonly heard view is that corruption merely greasesthe wheels of commerce, and that without it there would be no transactions and no growth. Apparent support for this argument comes from the fact that some countries (including a few in East Asia) with high levelsof corruption have also achieved high levelsof growth. The private sector survey provides some insights into this apparent paradox. It found that the predictability of corruption-in terms of both the amount of the bribe and the certainty of obtaining the desired outcome-is an important mediating factor. Countries with similar levels of corruption can differ dramatically in their rates of investment; countries with highly predictable corruption have significantly higher investment rates than those in which payments and outcomes are more uncertain (figure 1). Overall, however, corruption hurts economic performance: no matter how high the degree of predictability of corruption in a country, its rate of investment would have been significantly higher had there been less corruption.

Moreover, countries that have achieved high rates of economic growth despite serious corruption may find themselves paying a higher price in the future. Tolerating corruption that

2

siphons off payments of, say, 10 percent on average may generate pressures to increase the take to 15 or 20 percent. Corruption feeds on itself, creating a widening spiral of illegal payoffs until ultimately development is undermined and years of progress are reversed. And the very growth that permitted corruption in the past can produce a shift from productive activities to an unproductive struggle for the spoils. Over time corruption becomes entrenched, so that when governments finally do move to contain it, they meet powerful resistance. Causes of corruption Incentives for corrupt behavior arise whenever public officials have wide discretion and little accountability. Some corruption stems from opportunities generated by the policy environment, at the bottom or the top of the hierarchy. Payoffs are frequent to lower-level officials charged with collecting tariffs, providing police protection, issuing permits, and the like. When corruption is endemic, these officials may create additional red tape and delays to induce even higher payments. Corruption also occurs at the highest levels of government, in the awarding of major contracts, privatization, the allocation of import quotas, and the regulation of natural monopolies. This helps explain why corruption is more prevalent in countries with highly distorted policies, as measured by such variables as the black market premium (top panel in figure 2). I G UR E I High and unpredictablecorruptionhurts investment F

Gross investment-GDP

ratio

(percent) 28.5

30 25 20

15

2.

_95 .21.3

12.3

10

5 0

High

High

Low

Low

corruption, corruption, corruption, corruption, lowpredictability highpredictability lowpredictability highpredictability

Note:Eachvalueis anaverage fora groupof countries. Results arebased ona

regression usingdatafrom39 industrialand developing countries,controllingfor income, education, and policy distortion. Source: World Bank, World Development Report 1997 (New York: Oxford University Press,1997).

WorldBank Policyand ResearchBulletin

July-September1997

The probability of being caught and punished also affects the level of corruption. Economic analysis of the law suggests that individuals weigh the expected benefits of breaking the law against the expected costs (the probability of being caught and punished multiplied by the level of punishment). Corruption may be high in countries in which the government does little to deter bribes. Corruption can even persist in countries with substantial freedom of the press and public resentment of corruption if there is little hope of independent judicial resolution of important cases, a relationship confirmed by the private sector survey (middle panel in figure 2). Finally, corruption may thrive if the consequences of being caught and disciplined are low relative to the benefits.

F IG U R E

2

Some factors associatedwith corruption Indexof corruption

6 5 4

*

3 2

*

1 0 0

1

Where civil service wages are very low, officials may try to

2

Indexof corruption

reduce corrupt behavior. Pay reform must be combined with credible monitoring and law enforcement.

5

6

4

promotion.

4

Policydistortion index

supplement their pay with illegal payoffs (bottom panel of figure 2). But simply raising civil service salaries may not

Combatingcorruption Corruption cannot be effectively attacked in isolation from other problems but must be combated through a multipronged strategy. Critical is to reduce opportunities for corruption by cutting back on officials' discretionary authority, to increase accountability by strengthening mechanisms of monitoring and punishment, and to reward favorable performance in decisions on pay and

3

+ *

3 2

0

1

2

3

4

5

6

Predictability of judiciary index

Index of corruption 6

Reducing opportunities for corrupt practice Any reform that increases the competitiveness of the economy will reduce incentives for corrupt behavior. Thus policies that lower controls on foreign trade, remove entry barriers to private industry, and privatize state firms in a way that ensures competition will all support the fight. If the state has no authority to restrict exports or to license businesses, there will be no opportunities to pay bribes in those areas. If a subsidy program is eliminated, any bribes that accompanied it will disappear as well. Of course, reducing official ' discretion does not mean eliminating regulatory and spending programs with strong justifications. Such programs be must

reformed,

not

eliminated.

must be reformed, not eliminated, Governments have sought to reduce the opportunities for corruption in various ways:

July-Septemnber 1997

World Bank Policy antd Research Bulletin

5 4

3

2

1

o 0

0.5 1.0 1.5 2.0 ~~~~~~~~~~Ratio of civil service wages to manufacturing

2.5

Note: Data for the top panel are from 39 industrial and developing countries during 1984-93 (for the policy distortion index) and 1996 (for the corruption index). The middle panel is based on a regression using data from 59 industrial and developing countries during 1996. Data for the bottom panel are from 20 industrial and developing countries in the late 1980s to early 1990s. Source: World Bank, World Development Report 1997 (New York: Oxford University Press, 1997).

3

* Clarifying and streamlining laws in ways that reduce official discretion. * Contracting for services with private companies, possibly foreign firms with no close ties to the country. * Making rules more transparent. * Introducing market-based schemes that limit the discretion of regulators. * Adopting administrative reforms that introduce competitive pressures into government. Strengthening mechanisms for monitoring and punishment Independent watchdog institutions that are part of the government structure can also curb corruption. Countries have experimented with various approaches: * Independent anticorruption commissions or inspectors general can investigate allegations and bring cases to trial. - Ombudsmen can hear citizen complaints and help increase the accountability of government agencies. - Public agencies can establish internal units to root out corrupt contractors and propose ways to reorganize the agency to reduce corruption. e Whistleblower statutes can be adopted to protect and reward public employees who report the malfeasance of coworkers or government contractors. Citizens groups can also be an important check on the arbitrary abuse of government power-if people can organize and if they can find out what is happening. To provide citizens with the means to act as independent watchdogs, governments should publish budgets, revenue collection data, statutes and rules, and the proceedings of legislative bodies. Financial data should be audited by an independent authority; unaudited secret funds or extrabudgetary funds available to chief executives are an invitation to corruption. But even if both the necessary information and the means of punishing corrupt practices are available, individual citizens are unlikely to act alone. Laws that make it easy to establish associations and nonprofits can help resolve this collective action problem. Fostering incentives to play by the rules The same oversight mechanisms used to detect and punish corrupt practices can be used to reward politicians and civil servants who act in the collective interest. Merit-based recruitment, promotion, and remuneration restrain political

4

patronage and attract and retain more capable staff. Clear and widely understood rules of conduct, accountability in performance, and transparency in decisions on pay and promotion all contribute to a healthy esprit de corps. They also encourage closer identification with an organization's goals, reduce the costs of making people play by the rules, and nurture internal partnerships and loyalty. Meritocracy has not yet become established in many countries. But countries with weak institutions and inadequate checks and balances can improve the performance of their civil service by relying on more transparent and competitive mechanisms for hiring and promotion. Strategic options: Balancingflexibility with restraints States in many developing countries have demonstrated a clear imbalance between flexibility and restraint. The capricious exercise of state power coupled with rampant and unpredictable corruption has undermined development in several countries. States with too much flexibility and not enough restraint will find that their actions are not viewed as credible, and investment and growth will suffer. These countries need to strengthen the formal instruments of restraint to enhance the credibility and accountability of the state. International commitment mechanisms can serve as a short-term substitute while these institutions are built up. Yet these actions will not be sufficient to stop the rot in countries in which endemic and entrenched corruption has undermined key functions of the state. Strengthening formal instruments of restraint is only one element of a multipronged strategy to control corruption. Reforming the civil service, reducing opportunities for officials to act corruptly, and enhancing accountability are other essential steps. Strengthening mechanisms for monitoring and punishment-of the people who pay bribes as well as those who accept them-will require vigorous enforcement of criminal law. But it will also require oversight by formal institutions such as statutory boards and by ordinary citizens (through voice and participation). These efforts can help not only in controlling corruption but also in improving many other functions of the state, such as policymaking and service delivery. Drawn from World Bank, World Development Report 1997:

The State in a Changing World (New York: Oxford University Press, 1997).

WorldBankPolicyand Research Bulletin

July-September 1997

hzr NewReesearch I

The research projectsdescribedhere are directedby WorldBank staffand funded by the Banks centralResearch SupportBudget(RSB).Research proposalsbeingpreparedwith RSB funding are listedonpage 8. For irnformation about the research projectsdescribedhere,contactthe researchers at theBanks main address (seebackpage). R E S E A RC H S T A RT S

Povertyand the International Economy: WhatArethe Links? L. Alan Winters,Will Martin, ShantayananDevarajan, and Martin Ravallion DevelopmentResearchGroup Ref no. 681-83 As countriesliberalizetrade and allow exchangerate adjustments,prices change,wagesadjust, and resources are reallocated.Governmentsconsidering trade reform naturallyare concerned about how these changeswill affectthe poor. But evidenceon the links betweenpoverty and trade reformis scant. Using Indonesiaand SouthAfricaas casestudies, this study aimsto contribute to the understanding of the channelsthrough which trade reform affectspoverty by advancingthe methodologyfor analyzingthese links. The study will focuson two links-that betweenpoliciesand prices and that betweenprices and poverty.Using detailedtime-series data spanningparticularreforms,it will look at how trade liberalization has affectedthe pricesof the goods that the poor produce and consume

July-September 1997

n and how it has affectedtheir wages

be realizedand the types of empirical

and income. Combining this work with computablegeneralequilibrium modeling,it will alsoderivethe implications of a broader set of policy shocksthan are observablein the data. Through household-levelanalysis of demand and supply,the study will then explorehow householdshave adjusted to the shocksresulting from trade reformsand what the net effects are for households.This analysiswill recognizethat the poor are heterogeneousand will fare in differentways

measuresthat are the best indicators that theyhave been realized.These measuresshould assistin evaluating whether a country'sreformprogram is a good investmentand in designing reforms that are appropriatefor a country'sinstitutional conditions. RSB support:$30,000 Staff weeks:4

undertradereform.

ofStatePollution ControlBoards

RSB support:$100,000 Staff weeks:32

SheoliPargal DevelopmentResearchGroup Ref no.681-86 Adequateinstitutional capacityis consideredessentialfor a regulatorysystem to perform well.But how can institutional capacitybe measured, and how might such measuresbe linked to indicatorsof performance? This study proposesto develop preliminarymeasuresof institutional capacityfor environmentalregulatory agenciesin six states of India. It would validatethe measuresby their ability to predict an agency'seffectivenessin inducing regulatorycompliance. To identifykey structural determinants of institutional capacity,the study will assessthe importance for performanceof such factorsas the size of the agency'sbudget, the shareof technicalstaff,and staff training and compensation.Performancewill be evaluatedon the basisof the agency's effectivenessin inducing initiallynoncompliant firms to complywith water pollution regulationsover fiveyears. The panel of firmswill consist of 50 plants in each state, randomlyselected in fivewater-pollution-intensivesectors: textiles,chemicals,food process-

PoliticalCredibility and Economic Reform PhilipKeefer DevelopmentResearchGroup Ref no.681-85 Researchhas shown that a key to successfulreform is political credibility-when policymakerswho can make and keeppromiseson enacting reform actuallydo so. But what are the necessaryconditionsfor political credibility,and how can their sufficiencybe measured? This studywill developa framework to help analystsdraw reliable judgments about politicalcredibility and thus readinessfor reform.It is based on the premisethat political credibilityhas three parts: the perception by policymakersthat reformis in their interests, the capabilityof policymakersto pass and implementreform, and the sustainabilityof reform (an aspectthat depends a great deal on institutional structure). The researchwill identify the conditions under which each of these componentsof politicalcredibilitycan

WorldBankPolicyandResearch Bulletin

Regulatory CapacityacrossIndian States:An Institutional Perspective on the Effectiveness

5

ing, pulp and paper,and iron and steel. The study will use standard econometrictechniquesto estimate the effectof regulatorycapacityon compliancerates.The probabilityof a plant's compliancewill be a function of plant-specificfactors(sector,size, inspectionhistory) and two factors that depend on the agency'smonitoring capacity-the probabilityof being inspectedand the quality of inspection. RSB support:$40,000 Staff weeks:6

pation in urban water supply.It will addresssuch questions as, Under what conditionsis the private sector more efficientthan the government?How can reformsbest be implementedand the desiredoutcomesin efficiency and coverageachieved-in different institutional and politicalsettings? The study will look at how different types of contractsaddressproblemsof incentives,information asymmetries,and credibility.It will also assessthe effectsof reform on performanceand on welfare. RSB support:$246,350 Staff weeks:123

Institutions,Politics, and Contracts:PrivateSector Participation in Urban WaterSupply Mary Shirley DevelopmentResearchGroup Ref no. 681-87 Poorperformancein water and sanitation has led some developingcountries to involvethe privatesector in service provision.This study will evaluatethe experiencewith private contractsin urban water supply,compareit with reformsunder public ownership,and deriveguidelineson designingand implementingsuccessfulreform through casestudiesin six countriesArgentina,Chile, C6te d'Ivoire, Guinea, Mexico,and Peru.This sample representsthe main contracting options in water supply (leases,management contracts,concessions), includes reformersand nonreformers, providesvaried institutionalsettings, and includes countrieswith continued public operation. The studywill analyzethe effectof politicalinstitutions and contracting practiceson the designand performanceof contractsfor private partici-

6

FinancialReforms, Market Structures, and Bank Credit FernandoMontes-Negret and LucaPapi FinancialSectorDevelopment Department Ref no. 681-90 Financialsectorreforms are generally thought to be good for borrowersand for growth-because they are expected to reducethe cost and increasethe availabilityof credit by loweringinterest rate spreadsand leadingto financialdeepening.But much of the analysisof financialreformshas looked at their effectson average spreads,and this aggregateview can concealimportant differencesin resultsamong sectorsand types of borrowers.If reformsare not accompanied by actionsto fosterefficiency and competition in banking, for example,they may lead to a perverse outcome. In an oligopolisticbanking sector and dualistic economy,financial reformscan widen interest rate differentials, increasingthe cost of credit for smalland medium-sizeborrowers. This studywill analyzethe effects of financialreform on competition

and efficiencyin banking in several countries, including Chile, Colombia, and Italy.It will examinebanks' behavior to find out whether interest ratesare determined competitivelyand whether they pose an obstacleto economic growth. If adequate disaggregated data are available,the study will use the data to identify sectorsand types of borrowersfor which such obstaclesmay be greatest. The study will apply a common methodologyand analyticalframework acrossthe samplecountries,to allowinternational comparisonand a meaningfulassessmentof the success of reforms.The study should yield usefulpolicylessonson financialsector reformand on financefor small and medium-sizeenterprises. RSB support:$32,000 Staff weeks:22 Delay in Disposition: Judicial Performance in DevelopingCountries Maria Dakolias LegalDepartment,Operations FrontOffice Ref no. 681-92 As a growingnumber of countries have undertakenjudiciaryreform to meet the requirementsof modernizing and integrating economies,a need has arisen for indicatorsof the performanceof courts, to assistin monitoring and evaluatingreform and in designingfuture reforms. Through a cross-countrycomparative analysisof courts, this study aims to developsuch performanceindicators and to provide a frameworkfor measuringthe effectsof reforms.The studywill reviewthe efficiencyand effectivenessof courts in about a dozen developingand industrial coun-

WorldBankPolicy andResearch Bulletin

July-September 1997

tries. It will determine efficiency on the basis of clearance rates (cases resolved as a share of those filed) and the ability to provide quality at a minimum cost. Effectiveness will be evaluated on the basis of the capacity to resolve conflicts within a reasonable cost and time, and subjective and objective evaluations of whether the court system delivers justice. The subjective evaluations will be based in part on the perceptions of judges and court personnel, who will be surveyed as part of the collection of data. The objective measure will be based on a weighted index of variables capturing the court's capacity to satisfy the public's demand for court services. RSB support: $35, 000 Staff weeks: 14 Government-Business Consultative Mechanisms and Economic Governance: A Three-Country Comparison Andrew Stone Private SectorDevelopment Department Ref no. 681-93 One element in Bank-recommended strategies for market-oriented reform is the formation of governmentbusiness consultative mechanisms. These mechanisms bring together government, business, and other economic actors to work out solutions to collective problems. They are thought to strengthen reform by improving the flow of information among economic actors, by fostering a sense of common ownership of reform, by pooling technical expertise, and by generating mutual trust. The record of such mechanisms has been mixed, however. Those in the high-performing East Asian

July-September 1997

economies have met many of the expectations. But some have failed to enhance reform or have even worked against successful reform. This study aims to contribute to the understanding of how different organizational practices and institutional structures influence the effectiveness of consultative mechanisms. It will test hypotheses, develop theoretical generalizations, and derive policy recommendations through comparative analysis of experience with consultative mechanisms in three countries-Ghana, Malaysia, and Mexico. The study will assess the effectiveness of consultative mechanisms on the basis of their performance (whether they achieve the objectives set for them), longevity, and the subjective evaluations of stakeholders, obtained through in-depth, semistructured interviews. By identifying the national settings and organizational and institutional forms that are most promising for effective consultative mechanisms, the study will help clarify for the Bank when and how to promote such mechanisms. RSB support: $111,313 Staff weeks:13 Quantifying the Net Economic Loss or Gain from Tobacco Use PrabhatJha Human Development Department Ref no. 681-95 If present smoking patterns persist, tobacco-related deaths will rise from 0.5-1 million a year in developing countries today to 7 million by 2025. Despite these large numbers, smokers do not know all the risks of tobacco use. Nor do they assume all its costs: the medical expenses and productivity losses arising from smoking-related

WorldBankPolicyand Research Bulletin

diseases and deaths impose a high social cost not captured in the price of tobacco products. These facts argue for public efforts to control tobacco use. To be effective, however, tobacco control policy requires a sound analytical basis, including measures of the health risks and economic costs and benefits of tobacco use. Although several studies have looked at the costs of tobacco use, few have included costbenefit analysis, and none has focused on developing countries. Applying cost-benefit analysis, this study will quantify the net economic loss (or gain) from tobacco use in lowand middle-income countries with different rates of tobacco consumption. It will take into account the consumer and producer surpluses associated with tobacco consumption along with the costs of tobacco-related diseases and deaths, including productivity losses and medical costs. It will also examine the impact on income transfers (taxes, pensions, and life and health insurance premiums). RSB support: $30, 000 Staff weeks: 6 Enterprise Restructuring in Bulgaria and Romania Simeon Djankov, Frank Lysy,Stijn Claessens,Patrick Tardy, and Sudhee Sen Gupta Europe and Central Asia, and Middle East and North Africa RegionsTechnical Department, Private Sectorand Finance Team;Europe and CentralAsia, Country Department I, Office of the Director,and Industry, Trade,and Finance OperationsDivision; EastAsia and PacificRegional Office, Office of the Regional VicePresident;and Private Sector Development Department,

7

Private Sector Development and Privatization Group Ref. no. 681-96 Bulgaria and Romania lag behind the

considering or using such programs. RSB support:$38,500 Staff weeks:2

of the rehabilitation of cultural heritage, focusing on the revenue and financing implications. RSB support:$40, 000

other economiesin Central and

Evaluation of CulturalHeritage

Staff weeks:15

Eastern Europe in restructuring state enterprises. Few enterprises have been privatized, and many continue to make large losses. These countries

Investments Michael Cohen Environmentally Sustainable Development, Office of the Vice

have neverthelessgone further in

President

The Maintenance of Investments

enterprise restructuring than those in the former Soviet Union, and their experience may offer some useful lessons. This study will look at that experience, drawing on enterpriselevel data for large panels of firms. The study will investigate the link between enterprise restructuring and the lack of hard budgets in Bulgaria and Romania. It will examine the effect of the source of financingbank credit, interenterprise credit, budgetary subsidies-on the softness of the budget. The focus will be on the role of the banking systems, which have continued to finance loss-making enterprises. The study will look at several aspects of privatization, including the effect of delayed privatization on the development of private entrepreneurship and the effect on performance of newly appointed boards of directors in

Ref no. 681-98 Requests for World Bank financing for restoration and preservation of urban cultural heritage have led to a need for a method for economic evaluation of such investments. Estimating the rate of return based on the projected increase in tourist revenues is straightforward, but it undervalues the intrinsic value of heritage. This study aims to develop a valuation method that captures the broader value and economic impact of investments in cultural heritage. In such sectors as water and sanitation, contingent valuation has been successfully used to value proposed investments based on customers' willingness to pay for improved services. The study will test the utility of this method in estimating the intrinsic value of cultural heritage investments by applying it to a program to rehabil-

in Bangladesh Shekhar Shah South Asia Country Department I, Country OperationsDivision Ref no. 681-72 RSB support:$12, 000

the interim before sale of an enter-

itate the Fez medina (old city) in

prise. The study will also examine the

Morocco. Using contingent

R ES EA RC H U N DER

P R O PO S A L S

P R E P A R AT I O N

Measuringthe Health Benefits of ImprovedWater and Sanitation Maureen Cropper Development ResearchGroup Ref no. 681-74 RSB support:$15,000 The Interaction of Politics, Political Institutions, and AgencyIndependence in Monetary and Fiscal Policy Philip Keefer Development ResearchGroup Ref no. 681-80 RSB support: $10, 000

valuation,

two countries' isolation programs,

it will interview foreign tourists in

Inequality and Labor Markets

which isolate loss-making enterprises

Morocco, questioning them on how

in East Asia

from the banking system. It will assess

much they would be willing to pay-

Michael Walton and Ravi

the programs' effectiveness in encour-

in the form of, say, a special fee-for

Kanbur

aging restructuring

specific improvements

Poverty Reduction and Economic

and investigate

possible shortcomings

in credibility,

to the medina.

The study will develop a valuation

Management, Poverty Group

incentives, and coverage of financial

equation to predict willingness to pay as

Ref no. 681-91

risks. It will draw policy conclusions

a function of age, income, nationality,

RSB support: $12, 000

that may be useful not only for

and whether the tourist has visited Fez.

Bulgaria and Romania but also for countries in the former Soviet Union

8

The study will also develop a methodology

to guide public funding

World Bank Policy and Research Bulletin

July-September 1997

*

.

Publi1cati oinis

aInlid Dabt

Forinformationon how to orderthe WorldBankpublicationsreviewedin this issue,seepage16. B 0 0 K S

Everyone's Miracle:Revisiting Povertyand Inequalityin EastAsia VinodAhuja, Benu Bidani,Francisco Ferreira,and MichaelWalton Directionsin DevelopmentSeries For the past 35 yearsa growingnumber of East Asianeconomieshave consistentlyrecorded someof the highest rates of economicgrowth in the world. This growth was accompanied by improvementsin a number of social indicators,suggestingthat social welfarewas rising throughout the region. Nevertheless,recentdevelopments and newlyavailabledistributional data require that the issuesof poverty and inequalityin EastAsia and Pacificbe revisited.This report undertakesa comprehensiveassessment of the situationin the region and a more detailedlook at particular issues.The study had two fundamental motivations.First, povertyremains a central concernin the region,with about a third of the world'spoor living in East Asiain the mid-1990s. Second,the region has a growing concernwith inequality.The report shows that East Asia'spast success should not make the world assume that developmentin the region is a finishedtask.

July-Septem ber 1997

J 0 U R NA L

Thearticlessummarizedbelow

supply and use of water support a shift to a market-basedapproach.Chile's

experienceshowsthat formalwater

appear in the August issue of the

markets can improve the economic

WorldBank ResearchObserver, vol. 12, no. 2.

efficiencyof water use and stimulate investment.

Globalization and Inequality, Pastand Present JeffreyG. Williamson In both the late nineteenthand late twentieth centuries,the trend toward globalizationwas accompaniedby rising income inequalityin rich countries and declininginequalityin poor ones.A third to a half of the rise in inequalitysince the 1970s in the rich countries has been attributed to global economicforces,about the same as a century earlier.Will politicalpressure in the rich countriescausethe world economy to once againretreat from globalization?

The Impactof T&VExtension in Africa:The Experience of Kenya and BurkinaFaso VishvaBindlishand RobertE. Evenson Agriculturalextensionprograms based on the training and visit (T&V) system operate in some 31 Sub-Saharan African countries.Evidencefrom Kenyaand Burkina Fasoshowsthat such programssupport agricultural growth and produce high returns on investments.But long-term increases in output in Sub-SaharanAfricawill depend on the developmentof improvedtechnologiesrelevantto local conditions.

The Policymaking Usesof MultitopicHousehold SurveyData: A Primer MargaretE. Grosh Household surveysare a valuabletool for policymakersdecidingamong policy options. This article illustratesthe kinds of issuestypicallyaddressedin these surveysand shows how detailed analysesof the data can feed into the decisionmakingprocess.

Publicand PrivateAgricultural Extension:Partnersor Rivals? Dina Umali-Deininger This article examinesthe roles of the public and private sectorsin agricultural extension.It identifiesareas where opportunitiesfor private (forprofit and nonprofit) participation will arise,but finds that becauseof market failures,some types of extension serviceswill requirepublic funding-although not necessarily public delivery.

FormalWater Markets:Why, When,and Howto Introduce TradableWater Rights Mateen Thobani In most countries the state owns the water resourcesand hydraulic infrastructure, and public officialsdecide who getsthe water, how it is to be used, and how much willbe charged for it. But costlyinefficienciesin the

World Bank Policy and ResearchBulletin

Cofinanced PublicExtension in Nicaragua GabrielKeynan,Manuel Olin, and Ariel Dinar A pilot program in Nicaraguaset out to test whether a truly demand-driven extensionsystemaimed at farmers with small and medium-sizeholdings

9

could be developed.It introduced

Poverty,Social Services, and

WaterPricing Experiences:

incentives for providers through a contribution by the farmers paid as a bonus to the extensionist. The outcomes showed that the cofinancing can be successful.

Safety Nets in Vietnam Nicholas Prescott DiscussionPaper 376 Although Vietnam has made impressive progress in providing broad access to basic social services, the quantity and quality of service provision have shown signs of deterioration in the past two decades. This paper examines the public sector's changing role in financing and providing social services and safety nets in Vietnam. It assesses the country's efficiency in targeting public resources to the poor in the wake of the important economic policy reforms initiated in 1989. And it highlights the emerging importance of public sector pricing policy and private out-of-pocket spending in social sector financing.

An International Perspective Ariel Dinar and Ashok Subramanian TechnicalPaper 386 This paper compares water pricing experiences across 22 countries in different sectors. Case studies show that countries have different reasons for charging for water, including recovering costs, redistributing income, improving water allocation, and encouraging conservation. Tables illustrate such topics as the average price of municipal water in Spain, monthly water fees in Lisbon, nominal and real irrigation water prices in Tunisia, canal water rates for irrigation in India, and water charges for metered residences and industries in Sudan.

Reconsidering Agricultural Extension Robert Picciotto andJock R. Anderson This article reviews the evolution of the institutional design of agricultural extension programs and of the institutional environment in which they operate. It characterizes their present environment as one of declining government funding and more differentiated requirements. And it recommends that development assistance agencies support policies aimed at increasing the role of users, private

companies,and the voluntary sector.

A CommercialBank's Microfinance Program:The Case of Hafton NationalBank in Sri Lanka

Privatizationand Restructuring in Centraland Eastern Europe: Evidenceand Policy Options GerhardPohl,RobertE. Anderson,

Joselito S. Gallardo,Bikki K. Randhawa, and OrlandoJ Sacay DiscussionPaper36 9 This paper reviews the experience of

Stijn Claessens,and Simeon Djankov TechnicalPaper 368 The countries of Central and Eastern

1997: Abstracts of Current

Hatton National Bank, Sri Lanka's largestprivate commercialbank,

Europemust determinewhat policies willmost encourageenterprise

Studies This volume providesa snapshot of one year in the processof investigation, debate, and reassessmentof issuesby the World Bank'sresearchprogram. It reports on the researchprojects initiated, under way,or completed in the Bank in fiscal 1997. An abstract for each project describesthe questionsaddressed,the analyticalmethods used, the findingsto date, and their policyimplications.Each abstract alsolists any reportsor publications produced.The volume coversmore than 200 researchprojects,grouped by theme.

which has initiated a program offering financial services to the poor while continuing its traditional business operations. The paper addresses four issues: What motivated the bank to undertake a microfinance program? Can a privately owned commercial bank successfully downscale part of its operations for microfinance? What adjustments are needed in regular banking operations to build a profitable microfinance program? Is a microfinance operation consistent with a privately owned bank's profitmaximizing objective?

restructuring, essential for the transition to a normal market economy and for accession to the European Union. Based on analysis of data for more than 6,300 industrial firms in seven countries of the region, this paper concludes that privatization is the key to restructuring. Becauseprivatization methods show similar results, the paper compares the extent of restructuring across firms in the seven countries to determine which country's policies have been most effective in encouraging restructuring.

D I S C U S S I 0 N, T E C H N I C A L,

RE L A T E D

A ND

PA P E R S

TheWorldBank Research Program

10

WorldBank Policyand ResearchBulletin

July-September1997

P OL IC Y

R ES E A RC H

W OR K I NG

P A P ERS

Working Papersdisseminate thefindings of work in progressand encourage the exchangeof ideasamong Bank staff and all othersinterested in development issues. Wevelorking Papuers are notaaiahe throu nghh Puations Salesno Unait.e Pleaseh addressrqueatisfpaplersUito Pleaseaddressrequestsforpapers to the contactperson sndicatedat the

Shifting Responsibility for Social Services as Enterprises Privatize in Belarus David Sewell WIPS1719 * Contact Constance Lawrence, room H7-092, fax 202477-0686

Roads,Population Pressures,and Deforestationin Thailand, 1976-89 Maureen Cropper,Charles Griffiths, and Muthukumara Mani WPS 1726 * Contact Anna Marie Maranon, room N10-031, fax 202522-3230.

The Distribution of Foreign Direct Investment in China Harry G. Broadman and Xiaolun Sun WPS 1720 * Contact Joan Grigsby, roomMC8-238, fax 202-522-1556

The Economics of the Informal Sector: A Simple Model and Some Empirical Evidence from Latin America Norman A. Loayza WaPS1727

*

Contact Rebecca

The Evolution of Poverty and Welfare in Nigeria, 1985-92 Sudharshan Canagarajah,John Ngwafon, and Saji Thomas WIPS 1715 * Contact Betty CaselyHayford, roomJ8-270, fax 202473-8065.

EU Accession of Central and Eastern Europe: Bridging the Income Gap Luca Barbone andJuan Zalduendo WIPS1721 * Contact Luca Barbone, room HI1-079, fax 202-477-1034. Uncertainty, Instability and Irreversible Investment: Theory, Evidence, and Lessons for Africa

Reforming Pensions in Zambia: An Analysis of Existing Schemes and Options for Reform Monika Queisser,Clive Bailey,

Luis Serve'n WIPS1722 * Contact Emily Khine, room N11-061, fax 202-522-3518. The Productivity Effects of

room MC9-378, fax 202522-1675. Does Mercosur's Trade Performance Raise Concerns about the Effects of

and john Woodall W/PS 1716 * Contact Hedia Arbi, room G8-149, fax 202-522-3190.

Decentralized Reforms: An Analysis . . Lixin CohlnXu

Regional Trade Arrangements? Alexander Yeats WIPS1729 * ContactJennifer

Do Labor Market Regulations Affect Labor Earnings in Ecuador? Donna MacIsaac and Martin Rama WPS 1717 * Contact Sheila Fallon, room N8-030, fax 202-522-1153. ' Does Environmental Regulation Matter? Determinants of the Location of New Manufacturing Plants in India in 1994

Muthukumara Mani, Sheli SheoliPagal,Access Pargal,52119 Muthuumar Mani and Mainul Huq WVPS1718 * Contact Evelyn de Castro, room Ni 0-019, fax 202522-3230.

July-September 1997

WPS 1723 * Contact Paulina Sintim-Aboagye, room N9-030, fax 202-522-1155. Debt Maturity and Firm Performance: Ael Studyond Comanies ~~~~~~A Panel Study of Indian Companies Fabio Schiantarelli and Vivek Srivastava WPS 1724 * Contact Bill Moore, room N9-038, fax202-522-1155.

522-3518. Regional Labor Markets during Deregulation in Indonesia: Have the Outer Islands Been Left Behind? ChrisManning WIPS1728 * ContactJoseph Israel,

Ngaine, room N5-060, fax 202522-1159. Have Trade Policy Reforms Led to Greater Openness in Developing Countries? ShbAnrannja Shuby Andriamanansara WPS 1730 * ContactJennifer Ngaine, room N5-056, fax 202-

to Long-Term Debt and Effects on Firms' Performance: Lessons from Ecuador FVPeljaramilloand abio Schzantarelli WPS 1725 - Contact Bill Moore, room N9-038, fax 202-522-1155.

World Bank Policy and ResearchBulletin

Pension Reform, Growth, and the Labor Market in Ukraine Michelle Riboud and Hoaquan Chu WPS 1731 * Contact RosarioHablero, room H5-163 fax 202-477-3378.

11

Agricultural Trade and Rural Development in the Middle East and North Africa: Recent Developments and Prospects Dean A. DeRosa

Safe and Sound Banking in Developing Countries: We're Not in Kansas Anymore Gerard CaprioJr. WVPS1739 * Contact Bill Moore,

The Role of Long-Term Finance: Theory and Evidence Gerard CaprioJr. and Asli Demirguic-Kunt WPS 1746 - Contact Paulina

W/PS1732 * Contactjennifer Ngaine, room N5-056, fax 202-522-1159.

room N9-038, fax 202-522-1155. Wen Is Foreign Aid Policy Credible?

Sintim-Aboagye, room N9-030, fax 202-522-1155.

The Usefulness of Private and Public Information for Foreign Investment Decisions Yuko Kinoshita and Ashoka Mody WPS 1733 * Contact Rafaela Reff, room Q5-139, fax 202-477-0218. Q5-139,fax Are Markets Learning? Behavior in the Secondary Market for Brady Bonds Luca Barbone and LorenzoForni WPS 1734 * Contact Luca Barbone, room HI 1-079, fax 202-477-1034.

Aid Dependence and Conditionality Jakob Svensson WVPS1740 * Contact RebeccaMartin, room NI1-059, fax 202-522-3518. . . . ~~~~Privatization, Public Investment, and Capital Income Taxation Harry Huizinga and Soren Bo Nielsen WIPS1741 * Contact Paulina Sintim-Aboagye, room N9-030, fax 202-522-1155.

Protection and Trade in Services: A Survey Bernard Hoekman and CarlosA. Primo Braga W/PS 1747 - ContactJennifer Ngaine, room N5-060, fax 202-522-1159.

Competition Policy and the Global Trading System: A DevelopingCountry Perspective Bernard Hoekman WVPS1735 * ContactJenniferNgaine, room N5-060, fax 202-522-1159.

Transport Costs and "Natural" Integration in Mercosur Azita Amjadi and L. Alan Winters WIPS1742 * Contactjennifer Ngaine, room N5-056, fax 202-522-1159. How Chinas Government and State

room N5-060, fax 202-522-1159. Applying Economic Analysis to Technical Assistance Projects Gary McMahon WPS 1749 * Contact Cynthia Bernardo, room NI 0-055, fax 202-

Creating Incentives for Private Infrastructure Companies to Become More Efficient Ian Alexander and Colin Mayer WVPS1736 * Contact Randee Schneiderman, room G4-040, fax 202522-3481.

522-1154. Regional Integration and Foreign Direct Investment: A Conceptual Framework and Three Cases Magnus Blomstrim and Ar Kokko WPS 1750 * ContactJennifer Ngaine, room N5-060, fax 202-522-1159.

Ownership and Corporate Governance: Evidence from the Czech Republic Stijn Claessens,Simeon Djankov, and Gerhard Pohl W/PS 1737 * Contact Eaten Hatab, room H8-087, fax 202-477-8772.

Enterprises Partitioned Property and Control Rights Lixin Colin Xu WPS 1743 * Contact Paulina Sintim-Aboagye, room N9-030, fax 202-522-1155. . Moving to Greener Pastures? Multinationals and the PollutionHaven Hypothesis Gunnar S. Eskeland andAnn E Harrison WVPS1744 * Contact Cynthia Bernardo, room N10-053, fax 202522-1154.

Using Tariff Indices to Evaluate Preferential Trading Arrangements: An Application to Chile Eric Bond WVPS1751 * ContactJennifer Ngaine, room N5-060, fax 202-522-1159. Ghana's Labor Market (1987-92)

Some Aspects of Poverty in Sri Lanka: 1985-90 Gaurav Datt and Dileni Gunewardena WVPS1738 * Contact PatriciaSader, room N8-040, fax 202-522-1153.

How Foreign Investment Affects Host Countries Magnus Blomstrim andAri Kokko WVPS1745 * ContactJennifer Ngaine, room N5-060, fax 202-522-1159.

Sudharshan Canagarajah and Saji Thomas WPS 1752 * Contact Betty CaselyHayford, roomJ8-270, fax 202473-8065.

12

Has Agricultural Trade Liberalization Improved Welfare in the LeastDeveloped Countries? Yes Merlinda D. Ingco WIPS1748 * Contactjennifer Ngaine,

WorldBankPolicyand Research Bulletin

July-September1997

Can CapitalMarkets Create Incentivesfor Pollution Control? PaulLanoie,BenoitLaplante, and Maite Roy WPS 1753 * ContactRoula Yazigi, roomNi 0-023,fax 202-522-3230.

Credibilityof Rulesand Economic Growth: Evidencefrom a Worldwide Surveyof the PrivateSector Aymo Brunetti,GregoryKisunko, and BeatriceWeder WPS 1760 * ContactMichaelGeller,

PensionReform:Is There a Tradeoff betweenEfficiencyand Equity? EstelleJames WPS 1767 * ContactSelina Khan, roomN8-024, fax 202522-1153.

Researchon Land Markets in South Asia:What HaveWe Learned? RashidFaruqeeand Kevin Carey WPS 1754 * ContactClydinaAnbiah, roomT7-020,fax 202-522-1778.

roomN7-078,fax 202-522-0056 Bending the Rules:Discretionary Pollution Control in China SusmitaDasgupta,Mainul Huq, and David Wheeler

Is There a Quantity-QualityTradeoff as EnrollmentsIncrease?Evidence from Tamil Nadu, India 1?Duraisamy,EstelleJames,Julia Lane, andJee-PengTan

SurveyResponsesfrom Women Workersin Indonesirs Textile,

WTPS1761 * ContactEvelynde Castro, roomN10-019, fax 202-522-3230.

WYIPS 1768 * ContactSelina Khan, roomN8-024, fax 202-

Garment, and FootwearIndustries Mari Pangestuand MedelinaK Hendytio WPS 1755 - ContactJosephIsrael, roomMC9-378,fax 202-522-1675.

Strategiesfor PricingPublicly ProvidedHealth Services PaulJ GertlerandJeffreyS. Hammer WPS1762 * ContactCynthia Bernardo,roomNi 0-053,fax 202-

522-1153. Information, Incentives,and Commitment: An EmpiricalAnalysis of Contracts between Government and State Enterprises

World Crude Oil Resources:Evidence

522-1154.

Mary M. Shirleyand L. ColinXu

from EstimatingSupplyFunctions for 41 Countries G. C. Watkinsand ShaneStreifel WPS 1756 - ContactJeanJacobson, roomN5-032, fax 202-522-3564.

China and the MultilateralInvestment GuaranteeAgency YushuFeng WPS 1763 * ContactElisabethBeers, room U12-121,fax 202-522-2640.

Using EconomicPolicyto Improve EnvironmentalProtectionin Pakistan RashidFaruqee WIPS1757 * ContactClydinaAnbiah, roomT7-020,fax 202-522-1778.

A Reversalof Fortune for Korean Women: Explaining1983'sUpward Turn in RelativeEarnings Yanavan derMeulen Rodgers WPS 1764 - ContactDawn

Government Employmentand Pay: A Globaland Regional

The Restructuringof LargeFirms in Slovakia

Ballantyne,roomS10-147 fax 202522-3237

Perspective SalvatoreSchiavo-Campo,Giulio

SimeonDjankovand GerhardPohl WIPS1758 * ContactFaten Hatab, roomH8-087,fax 202-477-8772.

ExplainingAgriculturaland Agrarian Policiesin DevelopingCountries HansP Binswangerand Klaus

Mukherjee MP11CncAs PS 177m -

World Crude Evidence Oil Resources:

Deininger

Institutional Obstaclesto Doing Busiess:Regon-b-Regon esuls

Busmess:Reglion-by-RegonResults PrivateSector Aymo Brunetti, GregoryKisunko, and BeatriceWeder WVPS 1759 * ContactMichael Geller,roomN7-078,fax 202522-0056.

July-September 1997

W

7eIznoger

WPS 1765

*

Contact Dean Housden,

roomS11-046,fax 202-522-3307.

New Systemsfor Old Age Security: Theory, Practice,and Empirical Evidence EstelleJames WPS 1766 * ContactSelinaKhan, roomN8-024,fax 202-522-1153.

World BankPolicy andResearch Bulletin

UM~WS 1769

Sintim -

* Contact Paulina

room n

a

202-5221155. Povertyand SocialTransfers in Hungary Christiaan Grootaert

WPS 1770 * ContactGracieOchieng WPS 177042Cac202-522i324i

faxt202-

~~~~~Panton, room H8-005, fax 202477-3387. What DrivesDeforestationin the BrazilianAmazon?Evidencefrom Satelliteand SocioeconomicData AlexanderS. 1?Pfaff W/PS 1772

*

Contact Anna Marie

Maraeion,roomNi0-037 fax 202522-3230.

13

The Costs and Benefitsof Regulation: Implicationsfor Developing Countries J. Luis Guaschand RobertW Hahn WPS 1773 * ContactJoyTroncoso, roomI8-314,fax 202-676-0239.

High-levelRent-Seekingand Corruption in African Regimes: Theory and Cases JacquelineCoolidgeand Susan Rose-Ackerman WPS 1780 * ContactNessaBusjeet,

TradingArrangementsand Industrial Development DiegoPugaandAnthonyj Venables WPS 1787 * ContactJenniferNgaine, roomN5-056,fax 202-522-1159. An EconomicAnalysisof Woodfuel

The Demand for BaseMoney and the Sustainabilityof PublicDebt ValerianoE Garcia WPS 1774 * ContactJorgeForgues, room18-449,fax 202-676-9271.

roomF3K-138,fax 202-974-4303. TechnologyAccumulationand Diffusion:Is There a Regional Dimension? PierCarloPadoan

Managementin the Sahel:The Case of Chad KennethM. Chomitzand Charles Griffiths WPS 1788 * ContactAnna Marie

Can High-InequalityDeveloping

W/PS1781 * ContactJenniferNgaine,

Marafion,roomNIO-037,fax 202-

CountriesEscapeAbsolutePoverty? Martin Ravallion W/PS1775 * ContactPatriciaSader, roomN8-040, fax 202-522-1153.

roomN5-05., fax 202-522-1159. RegionalIntegration and the Pricesof Imports: An EmpiricalInvestigation W/PS1782 * ContactJenniferNgaine,

522-3230. Competition Law in Bulgariaafter Central Planning BernardHoekmanand Simeon

From Pricesto Incomes:Agricultural

roomN5-056, fax 202-522-1159.

Djankov

Subsidizationwithout Protection? John BaffesandJacobMeerman WPS 1776 * ContactPauline Kokila,roomN5-030, fax 202-

Trade PolicyOptions for Chile: A QuantitativeEvaluation GlennW Harrison,ThomasE Rutherford,and David G. Tarr WPS 1783 - ContactJenniferNgaine,

WVPS1789 * ContactJenniferNgaine, roomN5-056,fax 202-522-1159. Interpretingthe Coefficientof Schoolingin the Human Capital EarningsFunction

roomN5-060,fax 202-522-1159.

BarryR. Chiswick

522-3564. Aid,Policies,andtGrowth CraigBurnsideand DavidDollar WITS1777* ContactKari Labrie, roomN 11-056,fax 202-522-3518.

Analyzingthe Sustainabilityof Fiscal Deficitsin DevelopingCountries John T Cuddington HlVPS 1784 * ContactSheilaKingHow GovernmentPoliciesAffecrthePesoFud RelationshipbetweenPolish and IVatson,roomN3-040,fax 202-522World Wheat Prices 3277.

V/PS 1790 * ContactPromilaSingh, roomJ3-227, fax 202-522-3233. TowardBetterRegulationof Private PensionFunds

SzczepanFigiel,Tom Scott, and PanosVarangis WVPS 1778 * ContactJean Jacobson,roomN5-026,fax 202522-3564.

The Causesof Government and the Consequencesfor Growth and Well-Being Simon Commander,Hamid R. Davoodi,and Unel Lee WoPS1785 * ContactEric Witte, room M3-094, fax 202-676-0965.

room '8-337, fax 202-676-0368. Tradeoffsfrom Hedging Oil Price Risk in Ecuador SudhakarSatyanarayanand Eduardo Somensatto WPS 1792 * ContactEduardo Somensatto,roomH5-103, fax 202-

The Economicsof Customs Unions in the Commonwealth of Independent States ConstantineMichalopoulos and David Tarr WVPS1786 * ContactMinervaPatefia, roomN5-048, fax 202-522-1159.

477-8518. Wage and PensionPressureon the PolishBudget Alain de Crombrugghe WVPS1793 * ContactManiJandu, roomN7-032,fax 202-522-0304.

WaterAllocationMechansms:

HemantShah WPS 1791 * ContactHemantShah,

Principles and Examples

ArielDinar,Mark W Rosegrant, and RuthMeinzen-Dick WVPS 1779 * ContactMichele Rigaud,roomS8-258,fax 202522-3309.

14

WorldBankPolicyand Research Bulletin

July-September 1997

EL EC TR 0 N I C

I N F0 R M AT I 0 N

A N D

D AT A

In many developing countries government support for regulation of industrial pollution has remained lukewarm despite the large potential benefits. The resistance stems in part from uncertainty about the cost of pollution reduction and about which pollution control instruments will work under developing country conditions. What is needed are information on different methods of pollution abatement and reliable estimates of their costs in developing countries. For the past several years the World Bank has been working to meet this need. A toolforpolicymakers In 1993 the Bank developed the Industrial Pollution Projection System (IPPS), a method for estimating pollution problems and abatement costs quickly and inexpensively in settings where environmental data are incomplete or lacking. The IPPS provides policymakers with a tool for establishing regulatory priorities based on principles of cost-effectiveness. Unlike engineering estimates or projections based on case studies, the IPPS is based on actual data on emissions and abatement costs, covering about 100,000 manufacturing plants. The Bank developed the IPPS parameters in collaboration with the U.S. Census Bureau and the U.S. Environmental Protection Agency (EPA), drawing on EPA databases for air, water, and soil pollution at the plant level. The IPPS has aggregated the plantlevel pollution data to estimate average pollution "intensities," or emissions per unit of economic activity (output and employment), at two-, three-, and

Jul-ySeptember 1997

four-digit levels of the International Standard Industrial Classification

to be significantly lower than those in developing countries. And because

(ISIC). The pollution intensities cover emissions of about 200 metals and toxic substances to air, water, and soil. Multiplying the pollution intensity coefficients by estimates of output and employment in a locality yields firstorder estimates of pollution loads. The coefficients also enable policymakers to estimate the pollution generated by different sectors down to the level of the industry (such as manufacturing of woven garments) and to identify a target pollution level. Tests of the IPPS estimates in several Asian and Latin American countries have shown that the estimates provide good indicators of the relative contribution to pollution problems by different types of manufacturers. Having estimated relative contributions to pollution, policymakers need to know how much pollution abatement will cost for different industries. Drawing information from two sources-the U.S. Department of Commerce's annual 20,000-plant survey of pollution abatement costs and expenditures and the U.S. Census Bureau's Annual Survey of Manufacturers-the Bank has estimated marginal and average total abatement costs by sector for several major air and water pollutants.

technology does not advance at an even pace across industries, the industries that are now "clean" in industrial countries may be among the "dirtiest" in developing countries. For these reasons the Bank has begun work to extend the IPPS using developing country data. In China a team from the Bank and the National Environmental Protection Agency (NEPA), using information on about 6,000 plants, has recently estimated pollution intensities for the most critical air and water pollutants at three- and fourdigit ISIC levels. In Mexico, working with the National Environment Ministry, Bank staff are estimating air pollution intensities at the two- and three-digit ISIC level, using data for about 6,000 plants. In Brazil the Bank is estimating pollution intensities using data from the Sao Paulo state environment agency on about 1,500 plants for water pollution and 300 plants for air pollution. The pollution intensity parameters for China, Mexico, and Brazil and abatement cost parameters to be estimated for China will be incorporated in the IPPS in the coming year.

Extending the IPPS A drawback in using the IPPS in developing countries is that the U.S.based estimates of emissions rates reflect technologies in use in industrial countries. In these countries the drive to increase efficiency and meet high emissions standards has led to pollution intensities that could be expected

World Bank Policy and ResearchBulletin

How to get the data The IPPS estimates are available for downloading at a Bank Website (http://www.worldbank.org/NIPRI). Data also are available at the cost of reproduction, on diskette or paper, for selected countries, variables, and periods. A CD-ROM version is planned for release in 1998. For information contact Evelyn de Castro (tel. 202458-9121, fax 202-522-3230, email [email protected]).

15

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WorldBank Policyand ResearchBulletin

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