What Can Countries in Other Regions Learn from Social Security Reform in Latin America?

About a dozen countries in Latin America have enacted reformsthat include elements being contemplated elsewhere, includingthe partial privatization of social security. It is not easyto draw universal lessons for social security reform from theexperience of countries such as Argentina, Chile, and Mexico,however, where sizeable public pension systems went bankruptbefore the populations aged, mainly because of mismanagement.Most developing economies have much smaller social securitysystems. Relatively well-managed systems in industrial countriesface problems that are long term in nature and have been broughtabout by an aging population. The experiences of Latin Americanevertheless offer some general lessons for countries in otherparts of the world. These lessons relate to changes in labormarket incentives accompanying reforms and how workers reactto them, government actions that have met with success in managingthe transition to funded pensions, and the expectations of individualsfrom social security systems. Latin America's reforms suggestthat the most effective approach is to keep payroll taxes low,governments solvent, and social security systems focused onproviding reasonable insurance against poverty in old age. JEL codes: G23, H31, H53, H55, J26     

THE MULTIFIBRE ARRANGEMENT AND ITS EFFECTS ON DEVELOPING COUNTRIES

The MFA provides for bilateral quotas against textile and clothingexports from developing countries. Thus, although it is administeredunder the auspices of GATT, the MFA derogates two GATT principles:nondiscrimination and the avoidance of quantitative restrictions.The impact of the MFA on developing countries is examined inthe article. Four important short-term effects of the MFA onexporting developing countries are (a) the forgoing of exports,(b) the transfer of quota rents, (c) the shift to unrestrictedexporters, and (d) the upgrading of products. In the long termthe MFA discourages newcomers from becoming successful exportersof textile and clothing products. Although it also encouragesforeign investment in unrestricted developing countries, ingeneral the MFA is harmful to current and potential exportersof textiles and clothing in developing countries, and it benefitsdomestic producers of textiles and clothing in the importingindustrial countries.      

THE IMPACT OF EC-92 ON TRADE IN DEVELOPING COUNTRIES

How is the attempt of the European Community (EC) to createa single market going to affect the developing countries? Thisarticle argues that the net direct effects of EC-92 may be rathersmall: the trade creation and trade diversion effects broughtabout by the program may cancel each other out, with few repercussionsfor the developing countries as a group. The expected changesin trade flows arising from relatively small changes in nominalprices and aggregate incomes, the changes in market structure,the removal of internal barriers, and a predicted 5 percentincrease in EC output may be important to European policymakers,but they are rather remote from the developing countries. The threat of EC-92 to the developing countries lies elsewhere:from diversion of investment from those countries to the ECand from the resurrection of protectionism by the EC, especiallyin the form of nontariff barriers, toward the outside world.      

THE PUBLIC SUBSIDIZATION OF EDUCATION AND HEALTH IN DEVELOPING COUNTRIES: A Review of Equity and Efficiency

The public sector in developing countries has traditionallyplayed an important role in the financing of educational andhealth services. This review finds, however, that the shareof public subsidies in these two sectors is not progressive,that is, proportionately higher for individuals in the lowersocioeconomic groups. This distribution persists despite explicitpolicies of universal free provision in many countries. Thearticle argues that the extent and pattern of public spendingcontribute to underinvestment and to a misallocation of scarceresources within the education and health sectors.      

INCOMPLETE MARKETS AND COMMODITY-LINKED FINANCE IN DEVELOPING COUNTRIES

This article provides a framework for appraising new financialinstruments and evaluating the extent to which they can helpalleviate problems of incomplete credit markets and contingentclaims markets in developing countries. Although the issuesinvolved apply to any new financial instrument, we give particularattention to commodity-linked securities because many developingcountries specialize in producing a handful of primary commoditiesand are therefore exposed to substantial commodity price risks.The article looks at the supply of, demand for, and pricingof commodity-linked securities and discusses some issues thataffect their use by developing countries: their special legalstatus as sovereign debt; their feasibility (since to becometruly effective they will require liquid secondary markets);and the construction of an optimal portfolio of external debtobligations. It also discusses the potential for new financialinstruments—particularly commodity-linked securities—asa tool for risk management in developing countries.      

USING RANDOMIZED CONTROL DESIGNS IN EVALUATING SOCIAL SECTOR PROGRAMS IN DEVELOPING COUNTRIES

Seven case studies—from Bolivia, Colombia, Indonesia,Mexico, Nicaragua, Taiwan (China), and Turkey—demonstratethe feasibility of conducting rigorous impact evaluations indeveloping countries using randomized control designs. Thisexperience, covering a wide variety of settings and social programs,offers lessons for task managers and policymakers interestedin evaluating social sector investments. The main conclusions are: first, policymakers interested inassessing the effectiveness of a project ought to consider arandomized control design because such evaluations not onlyare feasible but also yield the most robust results. Second,the acute resource constraints common in developing countriesthat often make program rationing unavoidable also present opportunitiesfor adopting randomized control designs. Policymakers and programmanagers need to be alert to the opportunities for buildingrandomized control designs into development programs right fromthe start of the project cycle because they, more than academicresearchers or evaluation experts, are in the best positionto ensure that opportunities for rigorous evaluations are exploited.      

SOUTH-SOUTH TRADE: Theory, Evidence, and Policy

Recently a number of commentators have argued that trade policyin developing countries should be deployed discriminatorilyto encourage the expansion of trade among southern countries.Such a strategy is seen as being central in the framing of anew international economic order. This article evaluates thearguments in favor of a relative expansion of South-South tradeand reviews the experience of developing countries with discriminatoryregional trading arrangements. It contends that the case forspecific policies to promote South-South trade is not convincingand that experience with discriminatory arrangements is notencouraging. The expansion of South-South trade can be expectedto continue in the context of multilateral trade expansion,and the potential gains are likely to be greater if this processis allowed to evolve freely in a multilateral setting.      

THE ECONOMICS OF MUNICIPAL SOLID WASTE

This article examines the generation and management of municipalsolid waste through the lens of economics. The authors estimatethat the global burden of municipal solid waste amounted to1.3 billion metric tons in 1990, or two-thirds of a kilogramof waste per person per day. Industrial countries account fora disproportionately high share of the world's waste relativeto their share of world population, while developing countriesaccount for a disproportionately high share of the world's wasterelative to their share of world income. Analyses across countriesand over time reveal that the generation of municipal solidwaste is positively related to variations in per capita incomeand that the generation of municipal solid waste per capitadoes not vary with population size among countries with comparableper capita income. Practices for collecting, processing, and disposing of municipalsolid waste vary widely across countries, generally in accordwith the nature of the waste stream and key environmental andeconomic features. The least efficient practices tend to befound in developing countries, creating serious threats to localenvironmental quality and public health. Although considerableevidence indicates that the generation and management of wasteis sensitive to income and price variables, natural incentivesto overuse common property and the presence of inter- generationalexternalities both suggest that private economic behavior willnot yield socially optimal outcomes in this area. Communityintervention may be needed to promote the social good, withevidence accumulating in support of arrangements involving theparticipation of private firms. The authors' calculations alsosuggest that improvements made now in the handling of hazardouswaste will be far less expensive in discounted terms than undoingin the future the damage being caused by current practices.Addressing these issues from a rational societal perspectivewill become increasingly urgent in the future, especially inthe developing countries, where the authors project that municipalsolid waste will increase at an annual rate of 2.7 percent throughthe year 2010.      

Privatization and Corporate Governance: Principles, Evidence, and Future Challenges

Unless developing countries embrace a corporate governance perspective,privatization is unlikely to provide the benefits of improvedperformance with accountability. This article introduces theconcept of governance chains that can constrain the grabbinghands of public and private actors by providing informationand accountability mechanisms to help investors monitor managers.Empirical data on established firms from 49 countries provideestimates of the relative importance and strength of privateand formal chains of governance. The framework and empiricalbenchmarks help explain the outcomes of past privatizationsand suggest certain steps that governments can pursue to besure to get the most out of future privatization activity.      

The Role of Long-Term Finance: Theory and Evidence

Improving the supply of long-term credit to industrial firmsis considered a priority for growth in developing countries.A World Bank multicountry study looks at whether a long-termcredit shortage exists and, if so, whether it has had an impacton investment, productivity, and growth. The study finds thateven after controlling for the characteristics of individualfirms,businesses in developing countries use significantly less long-termdebt than their counterparts in industrial countries. Researchersare able to explain the difference in debt composition betweenindustrial and developing countries by firm characteristics;by macroeconomic factors; and, most importantly, by financialdevelopment, government subsidies, and legal and institutionalfactors. The analysis concludes that long-term finance tends to be associatedwith higher productivity. An active stock market and an abilityto enter into long-term contracts also allow firms to grow atfaster rates than they could attain by relying on internal sourcesof funads and short-term credit alone. Importantly, althoughgovernment-subsidized credit markets have increased the long-termindebtedness of firms, there is no evidence that these subsidiesare associated with the ability of firms to grow faster. Indeed,in some cases subsidies are associated with lower productivity.      

Vouchers for Basic Education in Developing Economies: An Accountability Perspective

Advocates argue that voucher programs can correct the incentiveproblems of education systems in developing economies. An accountabilityperspective, based on a principal-agent framework, was developedto clarify the arguments for and against education vouchers.An assessment of findings on voucher programs in industrialcountries and a review of voucher or quasi-voucher experiencesin Bangladesh, Chile, Colombia, Côte d'Ivoire, and theCzech Republic support the usefulness of the analytic framework.The assessment concludes that the policy relevance of voucherprograms for developing economies remains uncertain. Major voucherinitiatives have been attempted only in countries with a well-developedinstitutional infrastructure. Some studies find favorable benefitsfor at least some population groups, but others find limitedeffects and evidence of increasing social stratification inschools. Whether vouchers lead to better outcomes or greaterstratification appears related to specific contexts, institutionalvariables, and program designs.      

The "Cotton Problem"

Cotton is an important cash crop in many developing economies,supporting the livelihoods of millions of poor households. Insome countries it contributes as much as 40 percent of merchandiseexports and more than 5 percent of GDP. The global cotton market,however, has been subject to numerous policy interventions,to the detriment of nonsubsidized producers. This examinationof the global cotton market and trade policies reaches fourmain conclusions. First, rich cotton-producing countries shouldstop supporting their cotton sectors; as an interim step, transfersto the cotton sector should be fully decoupled from currentproduction decisions. Second, many cotton-producing (and oftencotton-dependent) developing economies need to complete theirunfinished reform agenda. Third, new technologies, especiallygenetically modified seed varieties, should be embraced by developingeconomies; this would entail extensive research to identifyvarieties appropriate to local growing conditions and the establishmentof the proper legislative and regulatory framework. Finally,cotton promotion is needed to reverse or at least arrest cotton’sdecline as a share of total fiber consumption.      

Developing Countries and a New Round of WTO Negotiations

This article summarizes some of the results and findings emergingfrom an ongoing World Bank research and capacity-building projectthat focuses on the World Trade Organization (WTO) negotiatingagenda from a developing country perspective. Recent researchsuggests that the potential gains from further multilateralliberalization of trade remain very large. The payoffs associatedwith attempts to introduce substantive disciplines in the WTOon domestic regulatory regimes are much less certain. This suggeststhat the focus of current and future negotiations should beprimarily on the bread and butter of the multilateral tradingsystem—the progressive liberalization of barriers to tradein goods and services on a nondiscriminatory basis. In addition,priority should be given to ensuring that rules are consistentwith the development needs of poorer countries and to helpingdeveloping countries implement WTO obligations.      

THE COMMON AGRICULTURAL POLICY: A Review of Its Operation and Effects on Developing Countries

Policy changes in the European Community (EC)—the world'slargest importer and, since 1986, exporter of agricultural commodities—mayhave significant effects on world markets and developing countries.This article investigates the EC's Common Agricultural Policy(CAP), its history, mode of operation, and the prospects andpossibilities for change, to bring out the implications of thepolicy for developing country exporters and importers. The hypothesisthat evolves differs from that of many studies in proposingthat an agricultural liberalization in the EC is unlikely toeffect any great change in world market prices over the firstfew years. Developing countries' principal gain from a liberalizationof the CAP would derive from increased stability of world marketprices, improved access to export markets, and a reduction inthe uncertainty currently caused by discretionary measures inthe EC.      

THE ECONOMICS OF NATURAL RESOURCE EXTRACTION: A PRIMER FOR DEVELOPMENT ECONOMISTS

As developing countries become major consumers of the globalsupply of commercial energy, it is essential to understand thedeterminants of future energy prices. At the same time, manydeveloping countries are relying on exports of their own naturalresources—tropical hardwoods, oil, tin, gold, and otherminerals—to generate badly needed foreign exchange. Governmentpolicies influence how much of a resource is extracted todayand how much is saved for the future. Flawed policies needlesslywaste precious national wealth.      

ANIMAL HEALTH SERVICES: FINDING THE BALANCE BETWEEN PUBLIC AND PRIVATE DELIVERY

Growing fiscal deficits and greater awareness of the huge economiccost of often-inefficient government activities have renewedinterest in transferring the delivery of important servicesfrom the public to the private sector in developing countries.This article, drawn from a longer study, offers a frameworkfor determining the appropriate roles of the public and privatesectors in delivering animal health services, such as veterinarysurveillance, disease vector control, vaccination, clinicaltreatment of sick animals, inspection of livestock products,and veterinary research and extension. The profitability and therefore the supply of private veterinaryservices is governed by several factors arising from economiesof scale, such as the size of the livestock enterprises in thelocality, the nature of potential or actual diseases, and thetypes of animals raised in the production systems. Thus, inareas where private veterinary work is unprofitable or whereother types of market failure occur, economic or social concernsmay make some type of public intervention necessary. The transferof animal health services from the public to the private sectormust be done selectively, and government support may be neededto ensure the success of such transfers.      

EXPORT PROCESSING ZONES: The Economics of Enclave Manufacturing

Export processing zones (EPZS) are economics enclaves withinwhich manufacturing for export occurs under virtual free tradeconditions. Many developing countries have established EPZSin hopes of reaping economic gains through employment, foreignexchange earnings, and technology transfer. This article studiesthe benefits and costs of EPZS in Indonesia, the Republic ofKorea, Malaysia, and the Philippines and reviews the relationshipbetween the welfare effects of EPZS and the host country's economicpolicies. When the domestic economy is distorted, the EPZ conferslimited welfare gains. Nevertheless, EPZS are far from the "enginesof development" that some countries had initially hoped theywould become.      

THE ROLES OF THE PRIVATE AND PUBLIC SECTORS IN ENHANCING THE PERFORMANCE OF SEED SYSTEMS

Seeds are crop-based agriculture's most important input, yetfew developing countries have succeeded in establishing efficientseed production and supply systems. In many developing countriesthe large-scale, centralized state farms and public seed corporationsestablished to multiply and disseminate improved seeds of selectedcrops have proved ineffectual, failing to meet the diverse cropand varietal requirements of farmers. Governments and assistingagencies are currently reassessing their strategies, payinggreater attention to the potential contributions of privatefirms, cooperatives, other nongovernmental organizations (NGOs),and farmers themselves. This article contributes to that reassessment. It defines thescope for involving the private sector in an array of seed-relatedactivities, identifies critical and complementary roles forthe public sector, and reviews seed system development in industrialand developing countries, with a primary focus on institutionaldimensions. The article advocates a phased withdrawal of thepublic sector from the commercial side of seed production andmarketing, while recognizing a continued important role forthe public sector in plant breeding research, germplasm andvarietal maintenance, training, quality control, and consumerprotection.      

Developing Countries' Changing Participation in World Trade

Recent years have seen substantial reductions in trade policyand other barriers inhibiting developing country participationin world trade. Lower barriers have contributed to a dramaticshift in the pattern of developing country trade—awayfrom dependence on commodity exports to much greater relianceon manufactures and services. In addition, exports to otherdeveloping countries have become much more important. Thesechanges have profound implications for the role played by developingcountries in the world economy and trade system.      

The Costs and Benefits of Regulation: Implications for Developing Countries

The literature on the benefits and costs of regulation demonstratesthat this issue can be explored systematically using standardeconomic analysis. It also shows that regulation can have asignificant adverse impact on economic growth. Specifically,regulation aimed at controlling prices and entry into marketsthat would otherwise be workably competitive is likely to reducegrowth and adversely affect the average standard of living.In addition, process regulation can impose a significant coston the economy. Nonetheless, social regulations may have significantnet benefits for the average consumer if designed judiciously. There are several policies developing countries might consideradopting to improve their general approach to regulation. Theappropriate regulatory tools and framework will depend on manyfactors, including bureaucratic expertise, resource availability,political constraints, and economic impacts. There is a generalneed to enhance the capability for evaluating regulation atthe local and national levels.