PSD Blog - The World Bank Group

Weekend Reading: Unemployment Edition

Can development workers win wars?

Is transport infrastructure the most important aspect of urban evolution?

The Treasury's courtship of the blogosphere.

Is China's changing worldview bad for business?

America's largest retailer: it's not Wal-Mart.

Why are some marathons more volatile than others?

The EU's role in reducing state fragility in Sub-Saharan Africa.

Thoughts on migration: Kosovo edition.

Unemployment

What America can learn from Europe about unemployment.

Other difficulties that arise from high unemployment.

Plus, unemployment charts galore from Calculated Risk.

A less pessimistic take on today's numbers (it's still ugly).

Why employment is down and GDP up? It's all about productivity.

Rethinking the brain drain

An article in Foreign Policy last month asks us to rethink the brain drain. Authors Michael Clemens and David McKenzie (the latter an employee of the World Bank) argue that the movement of skilled labor is a boon to both developed and developing countries. They decry the term "brain drain" as a serious mischaracterization of the phenomenon. Perhaps they need an alternative catchy phrase to supplant the term—how about brain train?

The theory of industrial policy meets reality

The idea of industrial policy has been seeing a bit of a resurgence since the financial crisis. It's good to be reminded of the reality of what these policies end up looking like in practice. It seems that Ethiopia's private sector coffee exporters are not too sympathetic to the idea. (H/t African Agriculture)  

Does GATS require network neutrality?

A new paper argues that permanent blocks by WTO members on internet services like search engines, photo sharing, etc. run afoul of the General Agreement on Trade in Services. The International Economic Law and Policy blog has the details.

Small businesses and the case for safe savings

Writing in this blog last July, Anushka Thewarapperuma penned a favorable review of a new book by Daryl Collins and Jonathan Morduch on how people living on less than $2/day manage their financial lives. The authors discovered that the world's poor are quite good at managing their finances:

The poorest people on earth engage in the sort of sophisticated money management that would make Chuck Schwab proud.

Thewarapperuma ended her post by noting that Collins "will be coming out soon with a pilot study using the same methodology of financial diaries, this time for small businesses."

Flash-forward to today, and Collins is back with her new study, commissioned by FinMark Trust, which gathers cash flow and qualitative information for small businesses in South Africa. The report, which surveyes 26 businesses in Langa and Nyanga townships across a range of industries, makes some initial conclusions about the financial services and training needs of these small enterprises, including:

Microfinance under the microscope

Last year I speculated about the potential impact of the financial crisis on the environment for microfinance. A report from the Economist Intelligence Unit (2008 Microscope on the Microfinance Business Environment in Latin America and the Caribbean) provided data on the microfinance premium—the difference between what mainstream banks and MFIs charge for a loan—in many countries in Latin America. How much would MFIs reliant on external funding get squeezed, and would they get squeezed worse than the banks?

The recently published 2009 Microscope (now expanded to 55 countries around the world with the assistance of IFC) gives a mixed answer. Of the 13 countries in Latin America for which there are data in both the 2009 and 2008 Microscope, seven saw their microfinance premiums rise while six saw their microfinance premiums fall (see image below the jump for the most recent premiums).

Improving Credit in Armenia

The 2006 and 2007 Doing Business reports both found that Armenia has been reforming in the area of credit. Armenian lenders can now rely on a credit registry when deciding on loan applications. But have these reforms really had an impact?

The recently-released enterprise surveys country note on Running a Business in Armenia shows that these reforms have indeed resulted in improved access to credit, which in turn is making it easier for Armenian firms to operate efficiently.

Both prepaid sales and sales on credit nearly doubled in recent years, from 15 to 16 percent in 2005 to 30 percent in 2009. Furthermore, the figure below shows that the value of collateral (expressed as a percentage of the loan amount) necessary to secure a loan has decreased substantially across all sectors of the economy.

 

Bringing Finance to Pakistan's Poor

Yesterday I attended the World Bank's book launch of Bringing Finance to Pakistan's Poor: Access to Finance for Small Enterprises and the Underserved. The authors, Tatiana Nenova and Ceclie Thioro Niang, interviewed 10,000 households from across Pakistan's geographic and socio-economic landscape, including both men and women.

In general, Pakistanis are underserved by both formal and informal channels of finance. Only 14 percent of the total population has formal access, while just over 59 percent have access to either formal or informal finance. As the chart above illustrates, this is quite low compared to Bangladesh (32% formal access), India (48%) and Sri Lanka (59%). Small and medium enterprises, which account for 30% of GDP and 78% of jobs, only account for 16% of the country's overall credit.

Good News in Migration

A few months ago, I attended the World Bank's conference on Diaspora for Development, hosted by Dilip Ratha, lead economist at the World Bank. The general feeling at that time was that remittance flows would contract significantly this year, but, paradoxically, would become a more important source of external financing in many countries, as foreign direct investment had dropped by up to 50 percent.

Since then, the situation for migrants has improved. Today, the World Bank released its Migration and Remittance Trends 2009 report, which features several upward revisions in remittance flows. Dilip Ratha's People Move blog has the highlights:

Newly available data show that officially recorded remittance flows to developing countries reached $338 billion in 2008, higher than our previous estimate of $328 billion. Based on monthly and quarterly data released by some central banks and in line with the World Bank’s global economic outlook we estimate that remittance flows to developing countries will fall to $317 billion in 2009. This 6.1 percent decline is smaller than our earlier expectation of a 7.3 percent fall.

1929 vs 2008

Free Exchange points to an excellent graph from Paul Krugman illustrating how the policy responses and automatic stabilizers during the current crisis have been much more successful than those during the Great Depression. The chart speaks for itself:

The authors conclude: 

The world is not yet out of the woods, but for now at least, it seems that policy was much better this time around than it was in the early years of the Depression. And as a result, a great deal of human suffering has been avoided. 

Let's hope this growth is sustainable.