PSD Blog - The World Bank Group

Credit growth in emerging Europe: a cause for stability concern?

Asked about the location of the next financial crisis, many economists and analysts point to emerging Europe, i.e. the countries east of Germany that have experienced rapid credit growth and increasing macroeconomic imbalances.

A recent paper suggests that risks are more likely to arise from macroeconomic imbalances rather than from bank fragility. But supervisors, do not relax and better be ready!

Aid the precarious

Aid is proven to be more volatile than fiscal revenues, particularly in highly aid-dependent countries; shortfalls in aid and domestic revenue tend to coincide. Pierre-Richard Agénor and Joshua Aizenman in a highly theoretical paper analyze the impact of this unpredictability:

[Aid] may not only potentially exacerbate the impact of macroeconomic shocks […], but it may also contribute to the emergence, or persistence, of a poverty and low-output trap if aid exerts productive effects–either directly (because donors commit to certain projects) or through its impact on public spending.

Reform yourself and the equity returns will follow

How did Eastern Europe overtake East Asia? In a four-minute video interview, Michael Klein, World Bank-IFC Vice President for Financial and Private Sector Development, explains why countries that didn't make it to the top of the Doing Business 2008 report don't have to despair.

By the way, did you know that Estonia and Poland have as many registered businesses per capital as Hong Kong? The same holds for Georgia and Malaysia.

Doing Business 2008 report is out now

At 00:01 GMT, the World Bank released its annual ranking of the ease of doing business in 178 economies.

Ordered by the time and cost required to set, run and close a business, Eastern Europe and Central Asia were the fastest reforming region this year. Latin America and East Asia were the slowest, with the exception of China, who implemented new private property rights and a new bankruptcy law.

Business climate rankings matter to women. Higher scores correspond to a higher number of women entrepreneurs and employees in an economy. Forty-one percent of women in Rwanda run a small business but only 18 in the Democratic Republic of Congo, where women need their husbands' consent to start a business.

Interestingly, though Brunei, Liberia and Luxemburg joined the list, nothing has changed on the very top or the bottom. As in the year before, Singapore ranks the first and the Democratic Republic of Congo as the last of the list. Egypt became the top reformer but Georgia, with its provocative media campaign, still holds a high spot. And while almost all countries, including Belarus, registered some positive reforms, Venezuela and Zimbabwe bucked the trend.

For complete listings and to create your own rankings visit the Doing Business site.

In good taste: ethical fashion

Ahead of Paris Fashion Week, Washington, DC will have its own ethical fashion show this Thursday. The organizers hope to draw public attention to the final product but also to those who made it and the raw materials used.

But why does fashion matter? The textile and apparel industries represent 10 percent of global trade with the developing world, and clothing imports to the U.S. account for 90 percent of the its $60 billion market.

See the invitation and come if you are in the area.

Entrepreneurship - new data, new research

What drives entrepreneurship across countries? What is the effect of entrepreneurship on economic development? Important questions, but up to now little data to answer them.

The 2007 World Bank Group Entrepreneurship Survey helps fill this gap with data for 84 developing and industrial countries. A first analysis of the data shows that countries with better governance and fewer licensing procedures have more entrepreneurs. Political turmoil seems to hurt entrepreneurship.

The most transformative development technology

Currently there are around 3 billion mobile phone subscribers. By 2015 this number which is expected to reach 5 billion when, according to Nokia, two out of three people in the world will have a cell phone.

Through a combination of a growing coverage with a cheaper technology, mobile telephony is slowly bypassing many obstacles that poor infrastructure has put in the way of economic development:

To the astonishment of the industry, people living on a few dollars a day have proven avid phone users, and in many parts of the world cellular airtime has become a de facto currency. The reason is simple: a mobile phone can dramatically improve living standards by saving wasted trips, providing information about crop prices, summoning medical help, and even serving as the conduit to banking services.

This trend will continue as cell-phone makers and service providers are one-by-one discovering the top dollar at the bottom of the pyramid. More in the BusinessWeek article.

Don't even think about it - Facebook at work

Are social websites a major damper to productivity? A new report finds that 233 millions hours are lost to Internet networking every month.

$100 laptop now almost $200

The One Laptop Per Child foundation will raise the price of its low-cost computer to $188.

The computer was designed for sale directly to participating (undisclosed) governments, who, in turn, agreed to distribute the product at no cost to elementary school children. The foundation will consider now releasing the notebook to a commercial market, hoping to encourage competition to lower their prices.

Update: "Give 1, Get 1" at $399.

The U.S. subprime mortgage market - do we need more restrictions?

It is certainly too early to assess the extent of the mortgage crisis in the U.S., but perhaps we can turn to history to see which policies have worked to protect subprime borrowers from loan sharks.

A recent paper compares states and counties with different anti-predatory lending laws. While a more generous definition of what constitutes a sub-prime borrower seems to help, more restrictions on lending terms appear to have an opposite effect. Bottom line, the devil is in the details. Food for thought for today's policy makers.