PSD Blog - The World Bank Group

Ending poverty...through supermarkets?

Walmart has attracted its fair share of attention in debates about globalization and poverty. A new paper from the University of Chicago business school suggests that stores like Walmart have helped dampen the growth of inequality in the U.S. by reducing the prices faced by the poor. Christian Broda, one of the authors, sums it up over at Vox:

The expansion of superstores – like Wal-Mart and Target – has also played an important role in accounting for the inflation differentials between rich and poor. Superstores sell the same products as traditional shops at much lower prices. Today the poor do roughly twice as much of their buying of non-durable goods in these stores than the rich. So poor consumers have been the biggest beneficiaries of Wal-Mart coming to town.

Of course, I doubt this will end the debate about Walmart. (Look at this paper for a rather less sanguine take on Walmart that focuses on its effects on employment and income.) Yet, the U.S. is not the only place providing evidence that chains benefit the poor. A recent briefing from the International Food Policy Research Institute suggests that the spread of supermarkets in developing countries has been beneficial for poor consumers.   

Who gets the credit?

A new paper coauthored by fellow PSD blogger Thorsten Beck entitled Who Gets the Credit? offers up some new insights on what effect credit availability has on GDP growth. Using data on 45 countries between 1994 and 2005 on the relative share of enterprise vs. household credit, the authors conclude:

We find that it is bank lending to enterprises, not to households, that drives the positive impact of financial development on economic growth.

I find this a startling conclusion; most of the literature on human capital suggests that credit constraints play an important role in dampening growth. Student loans - one of the products that the IFC has been involved in - should help overcome this credit constraint and give a boost to growth in the long run. Even in the absence of formal student loans, other forms of household credit can help keep students in primary and secondary education longer, thereby improving human capital outcomes.

One question I have concerning the study, then, is whether the effects of household credit on growth could take longer to appear than that of enterprise credit. Studying takes years; whereas, new equipment can be put to use immediately. Beck et al. do note that the issue of time horizon still needs to be addressed: "More research is needed. First, expanding the existing data towards panel data sets with a longer-time series dimension will allow more rigorous testing of both determinants and effects of credit composition." I look forward to their next contribution to this topic.   

Rising food prices and child labor

Over at the Economist, a debate is heating up over the following proposition: "There is an upside for humanity in the rise of food prices." I just checked, and right now the votes stand at 59 percent "pro" and 41 percent "con." It seems to me that the result is a bit skewed, however, given the wording of the question - I can imagine few things in the world that don't have at least some upside. In support of the proposition is Homi Kharas, a senior fellow at the Wolfensohn Centre of the Brookings Institution. Here is his take:

The collapse of Doha

It's official - the Doha round of trade talks has ended without producing any agreement. The FT provides the details. While it's a shame for world trade, I'd like to highlight one small item that might be salvaged. During the negotiations, the U.S. and the European Union 'offered' to increase the number of temporary work visas available for skilled professionals. This is something that these countries ought to be unilaterally, regardless of the failure of Doha.

It goes almost without saying that the U.S. and the European Union would benefit from the skilled labor, while the immigrants would earn higher wages and gain new skills. But such a policy is particularly important for the U.S. While American universities have benefitted from the talent of the smartest people on earth for the last half century, they can no longer count on this resource. Europe's Bologna Process is on its way to creating a unified higher education space, making it ever more attractive to the world's best and brightest. The U.S. can hardly afford to continue to put up excessive barriers to the international scientists and tech gurus who are central to its economic strength. Given an increase in their options, the skilled laborers of the developing world may very well take their talents elsewhere.

Integrating Eastern Europe's Roma

Communism failed to do it - can capitalism do any better? So far, the answer is not clear. I'm referring to the integration of the Romani minority into the mainstream of eastern Europe's transition countries. For those not familiar with this topic, 'Roma' is the polite term used in place of the more common 'Gypsy'. (The words themselves are laden with baggage - in English, Gypsy is tied to the pejorative verb "to gyp", while the Slovak version 'cigan' is tied to the verb 'ciganit', which means "to lie.") The approach of the authorities in most communist countries in the 1950s was to forcibly sedentarize the population, a nice term for shooting their horses and burning their wagons and most of their possessions. Many Roma were then forced into new industrial settings - for instance, thousands of Slovak Roma were required to move to northern Bohemia to work in factories. As an experiment in social engineering, it was a failure; social integration did not result.   

Measuring Impact

As I discussed in an earlier post on social enterprise, the efforts of non-profits and corporate social responsibility departments are often confounded by the difficulty of measuring results in the absence of a bottom line. A new methdology put out by the World Business Council for Sustainable Development and the IFC aims to remedy that. Entitled Measuring Impact, this new methodology has the goal of helping "companies understand their contribution to development and use this understanding to inform their operational and long-term investment decisions and have more informed conversations with stakeholders."

The war on obesity - in Brazil

Brazilians have earned a reputation around the world for their beauty, boosted by fashion icons like Gisele Bündchen. But a recent article from the Science and Development Network sounded an alarm about the state of things in Brazil. Jonathan Wells, a reader in childhood nutrition at the UCL Institute of Child Health in London, commented on the alarming growth of obesity in Bündchen's homeland:

In Brazil, between 1973 and 1996, obesity increased from 2.4 to 6.9 per cent in men and from 7.0 to 12.5 per cent in women. In simple terms, obesity arises when people consume more energy than they expend, either by eating too much or exercising too little.

It may seem strange to sound an alarm about obesity while so much attention is being directed at rising food prices. (See, for example, this piece by Martin Wolf.) Obesity, however, is a serious problem in many middle-income countries, perhaps outstripping the number of undernourished individuals. A slightly dated article in Foreign Policy suggests that China, Mexico, Brazil, and Togo all have higher rates of obesity than undernourishment.

While higher food prices may put a dent in this trend, that's not entirely clear in advance. It will depend on how individuals at risk for obesity respond to price changes - and they may opt for cheaper, less healthier food if that's what is available. So what should be done about this serious health threat?

Where does it pay to be an academic?

In a survey of academic salaries in 15 countries around the world, Canada came out on top, with an average monthly salary of $4,856 per month (in PPP dollars), and China came last with a monthly salary of $1,182. This is according to data collected by the Boston College Center for International Higher Education and reported in the most recent edition of International Higher Education. In general, academics in developing countries have lower salaries than their counterparts in the developed world.

Given these huge differentials, one might expect even more of a brain drain from places like China to Canada than is currently taking place. Of course, government barriers to movement of labor might play a part, and differences in the quality of faculty might also be part of the puzzle. But I don't think that this can fully explain how Canadian salaries are more than four times that in China. There is at least one missing piece that explains this puzzle.

Evaluating creative capitalism

The discussion over at Creative Capitalism continues, and the most recent offering is from Esther Duflo. (Duflo is well known because of her work promoting the use of randomized evaluations in development economics.) In part, she responds in her post to criticisms from Bill Easterly directed at the notion of creative capitalism. Easterly argues strongly for the primacy of what he calls "traditional capitalism" in raising the poor out of poverty. Duflo, on the other hand, argues in support of creative capitalism:

There is, however, a fundamental difference between producing goods or services to sell on the market, and producing them to improve the lives of the poor. This difference creates a fundamental difficulty for creative capitalism. In their day jobs, capitalists make money and stay in business only because consumers like their products enough to pay a price high enough to allow the capitalist to make money. This ensures that businesses add value on a sustained basis...This automatic feedback loop is generally missing in the social sector...

Duflo's support for creative capitalism derives from her belief that there are ways to create this feedback loop.

I Fox, you Rabbit

Kiev, July 2008. The kids jumped all over me as soon as I arrived, my son jabbering excitedly in English and my daughter in Russian. It’s hard to believe they grew up in the same household. This is one of the consequences of my spending two years in Aceh, Indonesia, which was a non-family post when I went there in 2006. While I was there I parked my family in Kiev, where my wife is from. With the school year over, I’m back in Kiev to pick them up and move them to Ulaanbaatar.

The contrast between Ulaanbaatar and Banda Aceh is huge and required a lot of adjustment when I moved there last May. One day I was in a lush, hot, humid, jungle climate, with endless ocean, the next I was wearing jackets and sweaters and surrounded by Soviet architecture. I was astonished that in mid-May there were still no leaves on trees, and that the mountains around the city looked brown and parched. I almost wept when, on the morning of May 28, I opened the curtains of the hotel and saw a city covered in snow.