The World Bank Economic Review

Hoekman, Bernard; Sanfilippo, Marco; Tambussi, Margherita

doi: 10.1093/wber/lhaf009pmid: N/A

This paper analyzes the relationship between inward foreign direct investment (FDI) and the structural transformation of local labor markets in Africa. We combine geolocalized information on the distribution of FDI with a novel database that provides information from 40,633,256 individuals in 2,570 subnational units from 1987 to 2019. We find that FDI contributes to increased employment and shifts of workers towards modern industries and higher-skilled occupations. Results are heterogeneous, reflecting the characteristics of the foreign investors and their business activities. FDI projects are associated with increases in internal migration, while geospatial analysis of changes in the performance of domestic firms exposed to nearby FDI projects provides evidence of positive spillovers, suggesting complementary mechanisms through which FDI drives structural change.

Kilumelume, Michael; Morando, Bruno; Newman, Carol; Rand, John

doi: 10.1093/wber/lhaf010pmid: N/A

This paper documents a strong empirical link between trade protection and the misallocation of capital among import-competing domestic firms. Using a decade of tax administrative data from South Africa, the different sources of capital dispersion in 71 manufacturing industries are disentangled and a strong relationship between import tariffs and firm-specific distortions is found. A one-standard-deviation increase in import tariffs leads to aggregate productivity losses of 2.8 to 6.2 percent through this mechanism. This is driven by correlated distortions, whereby inefficient producers command a larger share of resources in industries that are more protected, and a greater dispersion in markups. The estimated effects are larger when controlling for heterogeneity in production technologies and undetectable when considering standard measures of misallocation, such as the dispersion in the average productivity of capital.

Beverelli, Cosimo; Braml, Martin T; Fontagné, Lionel; Keck, Alexander; Orefice, Gianluca

doi: 10.1093/wber/lhaf013pmid: N/A

We analyze the trade impact of pre-shipment inspections (PSI)—a practice under which imports need to undergo a third-party review process before shipment, and whose utilization has been limited by the WTO Trade Facilitation Agreement. We show that PSI requirements had a negative impact on imports, and were most harmful for trade in differentiated manufacturing products (administrative trade cost channel). In contrast, PSI were facilitating trade in products subject to conformity assessment procedures related to sanitary and phytosanitary measures (information channel). Counterfactual analysis suggests that the reduction in administrative costs outweighed the provision of information, with the removal of PSI leading to a slight increase in developing countries’ imports. The removal of PSI could also induce a cost: the relaxation of controls on custom misinvoicing. We show that PSI had a limited effect on trade misinvoicing at the intensive margin, and on lost exports at the extensive margin.

Van Biesebroeck, Johannes; Zaurino, Elena

doi: 10.1093/wber/lhaf015pmid: N/A

In principle, trade policy can complement direct aid to help poorer countries develop, but does it work in practice? We evaluate to what extent product-level exports from developing countries respond positively to trade preferences unilaterally granted by the EU and the United States. Using a four-way difference-in-differences estimator that leverages the high-dimensionality of the data, we find a robust response to programs that grant preferential market access. While the magnitudes of the estimated effects tend to be rather small, they are likely to underestimate the full, long-term impact. The impact is heterogeneous and stronger for goods where price competition is the most important dimension of market success, such as less complex and more upstream products. The additional exports generated by improved market access provide only limited upgrading potential for the local economies.

Kebede, Hundanol

doi: 10.1093/wber/lhaf011pmid: N/A

ABSTRACTAs part of the negotiation process to join the WTO, China’s average tariff rate on imports decreased from over 40 percent in 1992 to about 15 percent in 2000. I study how the tariff cuts fueled structural transformation leveraging spatial variation in exposure to the tariff cut across Chinese counties due to sectoral variations in the level of tariff cuts and variation in the industrial composition of the counties’ economies. Using input-output linkage across industries, I find that tariff cuts in upstream industries significantly reduced measured input costs in counties that specialized in downstream industries. The decreases in measured input costs significantly increased employment in the manufacturing sector and shrunk employment in the agricultural sector between 1990 and 2000. Falsification exercises regressing changes in sectoral shares of employment between 1982 and 1990 on changes in measured input costs between 1990 and 2000 show null effect. I find little evidence of adverse import competition effect from the tariff decreases.

Munyehirwe, Anicet; Ankel-Peters, Jörg; Sievert, Maximiliane; Bulte, Erwin; Fiala, Nathan

doi: 10.1093/wber/lhaf014pmid: N/A

Energy efficiency is a key component of climate policy. The rebound effect, namely the increases in demand in response to efficiency-induced price reductions, potentially nullifies some of the energy savings from energy-efficiency improvements. This paper examines macro rebound effects following the introduction of energy-efficient biomass cookstoves (EEBCs) in rural Sub-Saharan Africa. It presents a model of biomass supply and demand, and empirically evaluates a government pilot project in Rwanda that randomly subsidized EEBCs at the village level, leading to exogenous variation in adoption rates. The paper explores consumption spillovers to nonadopters through price reactions on local village markets, referred to as the “local macro rebound effect.” The theoretical model and empirical results show that equilibrium response effects can take different forms, depending on the local context. The paper identifies conditions that determine the shape and size of such effects.

Barreto, Yuri; Oliveira, Rodrigo

doi: 10.1093/wber/lhaf022pmid: N/A

The economic literature has shown that exogenous transitory crop diseases affect education by changing the opportunity cost of children’s time. We argue that this is only part of the explanation. When permanent, crop diseases may change contracts and the organization of labor by eroding the productive structure and decreasing land values. This paper studies the long-term effects of a long-lasting environmental shock on individuals’ educational achievement and earnings. We investigate the 1988 witches’-broom outbreak in Brazil, the world’s second-leading cocoa producer at the time. Our results show that the disease negatively impacted the long-term education and earnings of exposed cohorts living in affected areas. Our findings suggest that an increase in child labor and family farm work, driven by changes in labor contracts and land use, could explain the results. In addition, we show evidence of the increase in land management contracts known as sharecroppers (meeiros, in Portuguese), which are frequently tied to child and modern slave labor in the affected regions.

Jaramillo, Paula; LaFave, Daniel; Novak, Lindsey K

doi: 10.1093/wber/lhaf018pmid: N/A

Patience and risk tolerance are important determinants of far-reaching life choices that impact welfare. This study investigates the effect of extreme weather events on individuals’ risk and time preferences in Indonesia. Matching high-resolution precipitation and longitudinal survey data, the study illustrates that each additional year of low rainfall in a respondent’s location increases the probability that they are risk averse and impatient. Exploiting within-person changes in exposure to rainfall between survey waves, this study identifies novel symmetry in these results—individuals who experience worsening conditions over time are more likely to be risk averse, while those experiencing improved conditions are more risk tolerant and patient.

Zhan, Haikun

doi: 10.1093/wber/lhaf008pmid: N/A

This paper shows that farm revenue variance among Nepalese households increased during the 1996–2006 Maoist insurgency. This increase was partly driven by households in high-conflict areas expanding their crop portfolios to include more risky non-cereal crops, shifting from predominantly cereals to a mix of cereals and non-cereals, as an adaptive strategy to mitigate losses from Maoist in-kind taxes on cereals. However, this strategy exposed households to greater revenue risk. A one-standard-deviation increase in conflict exposure led the average household to increase its non-cereal crops from 4.36 to 6.01, a 37.84 percent rise, while keeping the same number of cereal crops. As a result, a risk-averse agricultural household experienced a 16.35 percent decline in welfare.

Goldemberg, Diana; Jordan, Luke; Kenyon, Thomas

doi: 10.1093/wber/lhaf005pmid: N/A

This paper applies novel techniques to long-standing questions of aid effectiveness. It constructs a new data set using machine-learning methods to encode aspects of development project documents that would be infeasible with manual methods. It then uses that data set to show that the strongest predictor of these projects’ contributions to development outcomes is not the self-evaluation ratings assigned by donors, but their degree of adaptation to country context and that the largest differences between ratings and actual impact occur in large projects in institutionally weak settings. It also finds suggestive evidence that the content of ex post reviews of project effectiveness may predict sector outcomes, even if ratings do not.