Policies on Managing Risk in Agricultural Markets

Over the past dozen years, policymakers have largely abandonedlong-standing popular approaches for addressing risk in agriculturewithout fully resolving the question of how best to manage thenegative consequences of volatile agricultural markets. Thearticle reviews the transition from past policies and describescurrent approaches that distinguish between the trade-relatedfiscal consequences of commodity market volatility and the consequencesof price and production risks for vulnerable rural householdsand communities. Current policies rely more heavily on markets,even though markets for risk are incomplete in numerous ways.The benefits and limitations of market-based instruments areexamined in the context of risk management strategies, and innovativeapproaches to extend the reach of risk markets are discussed.      

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.      

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.      

政府采购救济制度设计之理念偏差及其纠正

政府采购救济制度是事关充分有效保障供应商权利、制约采购权及我国加入GPA前国内法律调整的关键问题,其质疑投诉制度过于冗长和救济范围较窄、救济对象欠全面等缺陷也是导致我国政府采购实践质次价高甚至政府采购法制价值虚置的重要原因,对其改造迫在眉睫。理论上看,现行救济制度之弊端并非立法机关的疏漏、立法技术和能力欠缺所致,其根本在于权力导向型制度设计之理念偏差。可见,制度改造不能通过就事论事的具体方面和环节的修补而完成,必须从理念到规则对现行救济制度进行系统检讨,变权力导向型制度设计理念为规则导向型理念,并依新理念统摄政府采购救济制度型构。     

Why Most Developing Countries Should Not Try New Zealand's Reforms

During the past decade New Zealand has introduced far-reachingreforms in the structure and operation of government departmentsand agencies. This model has attracted interest in developingcountries because it promises significant gains in operationalefficiency. But developing countries, which are dominated byinformal markets, are risky candidates for applying the NewZealand model. The author suggests that basic reforms to strengthenrule-based government and pave the way for robust markets shouldbe undertaken first.      

Public Intervention in Health Insurance Markets: Theory and Four Examples from Latin America

This article examines rationales for public intervention inhealth insurance markets from the perspective of public economics.It draws on the literature of organizational design to examinealternative public intervention strategies, including issuesof contracting, purchaser provider splits, and regulation ofcompetition. Health insurance reforms in four Latin Americancountries are then considered in light of the insights providedby the theoretical literature.      

Formal and Informal Markets for Water: Institutions, Performance, and Constraints

Water markets—either formal or informal—can be anefficient method for reallocating scarce water supplies. Atthe same time certain constraints can raise the transactioncosts of trading water. This paper reviews the conditions necessaryto establish successful water markets, identifies potentialproblems, and offers mitigating strategies. It also uses examplesof several informal and formal water markets already in operationto illustrate these problems and the solutions to them.      

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.      

Weak Links in the Chain II: A Prescription for Health Policy in Poor Countries

In an earlier article, the authors outline some reasons forthe disappointingly small effects of primary health care programsand identified two weak links standing between spending andincreased health care. The first was the inability to translatepublic expenditure on health care into real services due toinherent difficulties of monitoring and controlling the behaviorof public employees. The second was the "crowding out" of privatemarkets for health care, markets that exist predominantly atthe primary health care level. This article presents an approach to public policy in healththat comes directly from the literature on public economics.It identifies two characteristic market failures in health.The first is the existence of large externalities in the controlof many infectious diseases that are mostly addressed by standardpublic health interventions. The second is the widespread breakdownof insurance markets that leave people exposed to catastrophicfinancial losses. Other essential considerations in settingpriorities in health are the degree to which policies addresspoverty and inequality and the practicality of implementingpolicies given limited administrative capacities. Prioritiesbased on these criteria tend to differ substantially from thosecommonly prescribed by the international community.      

The Evolution of the World Bank's Land Policy: Principles, Experience, and Future Challenges

This article examines the evolution of policy recommendationsconcerning rural land issues since the formulation of the WorldBank's "Land Reform Policy Paper" in 1975. That paper set outthree guiding principles: the desirability of owner-operatedfamily farms; the need for markets to permit land to be transferredto more productive users; and the importance of an egalitarianasset distribution. In the 25 years since that paper was published,these guiding principles have remained the same, but it is nowrecognized that communal tenure systems can be more cost-effectivethan formal title, that titling programs should be judged ontheir equity as well as their efficiency, that the potentialof land rental markets has often been severely underestimated,that land-sale markets enhance efficiency only if they are integratedinto a broader effort at developing rural factor markets, andthat land reform is more likely to result in a reduction ofpoverty if it harnesses (rather than undermines) the operationof land markets and is implemented in a decentralized fashion.Achieving land policies that incorporate these elements requiresa coherent legal and institutional framework together with greaterreliance on pilot programs to examine the applicability of interventionsunder local conditions.      

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.      

Why OECD Countries Should Reform Rules of Origin

With preferential trade agreements on the rise worldwide rulesof origin—which are necessary to prevent trade deflection—areattracting increasing attention. At the same time, preferenceerosion for Generalized System of Preferences (GSP) recipientsis increasing resistance to further multilateral negotiations.Drawing on different approaches, this article shows that thecurrent system of rules of origin that is used by the EuropeanUnion and the United States in preferential trade agreements(including the GSP) and that is similar to systems used by otherOrganisation for Economic Co-operation and Development countriesshould be drastically simplified if developed economies reallywant to help developing economies integrate into the world tradingsystem. In addition to diverting resources for administrativetasks, current rules of origin carry significant compliancecosts. More fundamentally, it is becoming increasingly clearthat they are often been designed to force developing economiesto buy inefficient intermediate products from developed economiesto "pay for" preferential access for the final product. Theevidence also suggests that a significant share of the rentsassociated with market access (net of rules of origin compliancecosts) is captured by developed economies. Finally, the restrictivenessof rules of origin is found to be beyond the levels that wouldbe justified to prevent trade deflection, suggesting a captureby special interest groups. The article outlines some alternativepaths to reforms. JEL codes: F13, F15     

THE COSTS AND BENEFITS OF BEING A SMALL, REMOTE, ISLAND, LANDLOCKED, OR MINISTATE ECONOMY

Any index of smallness is somewhat arbitrary, but common practicehas been to use population and income criteria. Experience suggeststhat smallness is neither a necessary nor sufficient conditionfor poor development performance. This paper considers the problemsthat small economies are most often alleged to face, includingabsence of economies of scale, vulnerability, remoteness, reducedaccess to capital markets, problems of macroeconomic policydependence, and overstatement of real income. The paper concludesthat many of the alleged problems of small economies are eithernot peculiar to small economies or can be addressed throughsuitable policy measures.      

EMERGING EQUITY MARKETS: GROWTH, BENEFITS, AND POLICY CONCERNS

Since the mid-1980s, stock market activity has increased substantiallyin many developing countries. This article first examines themain characteristics of emerging stock markets and illustratesthe evolution of equity prices in these markets during the lastdecade. It then discusses the reasons for the markets' growthand assesses the extent to which they have been affected bydomestic policies and external factors. The authors discussthe likely benefits of these markets, the effects any abruptcorrection in stock prices could have for the economy, and theways in which these markets can be made more efficient.      

Democracy, Public Expenditures, and the Poor: Understanding Political Incentives for Providing Public Services

The incentives of politicians to provide broad public goodsand reduce poverty vary across countries. Even in democracies,politicians often have incentives to divert resources to politicalrents and private transfers that benefit a few citizens at theexpense of many. These distortions can be traced to imperfectionsin political markets that are greater in some countries thanin others. This article reviews the theory and evidence on theimpact on political incentives of incomplete information forvoters, the lack of credibility of political promises, and socialpolarization. The analysis has implications for policy and forreforms to improve public goods provision and reduce poverty.      

Using Global Positioning Systems in Household Surveys for Better Economics and Better Policy

Distance and location are the important determinants of manychoices that economists study. Economists often rely on informationabout these variables that is self-reported by respondents insurveys, although information can sometimes be obtained fromsecondary sources. Self-reports are typically used for informationon distance from households or community centers to roads, markets,schools, clinics, and other public services. There is growingevidence that self-reported distance is measured with errorand that these errors are correlated with outcomes of interest.In contrast to self-reports, global positioning systems (GPS)can determine location within 15 m in most cases. The fallingcost of GPS receivers makes it increasingly feasible for fieldsurveys to use GPS to more accurately measure location and distance.This article reviews four ways that GPS can lead to better economicsand better policy by clarifying policy externalities and spillovers,by improving the understanding of access to services, by improvingthe collection of household survey data, and by providing datafor econometric modeling of the causal impact of policies. Severalpitfalls and unresolved problems with using GPS in householdsurveys are also discussed. JEL codes: C81, O12, R20     

HOW DO MARKET FAILURES JUSTIFY INTERVENTIONS IN RURAL CREDIT MARKETS?

Understanding of the economic causes and consequences of marketfailure in credit markets has progressed a great deal in recentyears. This article draws on these developments to appraisethe case for government intervention in rural financial marketsin developing countries and to discover whether the theoreticalfindings can be used to identify directives for policy. Before debating the when and how of intervention, the articledefines market failure, emphasizing the need to consider thefull array of constraints that combine to make a market workimperfectly. The various reasons for market failure are discussedand set in the context in which credit markets function in developingcountries. The article then looks at recurrent problems thatmay be cited as failures of the market justifying intervention.Among these problems are enforcement; imperfect information,especially adverse selection and moral hazard; the risk of bankruns; and the need for safeguards against the monopoly powerof some lenders. The review concludes with a discussion of interventions,focusing on the learning process that must take place for financialmarkets to operate effectively.      

Banking and Regulation in Emerging Markets: The Role of External Discipline

This article reviews the main issues of regulating and supervisingbanks in emerging markets with a view toward evaluating thelong-run options. Particular attention is paid to Latin Americaand East Asia. These economies face a severe policy commitmentproblem that leads to excessive bailouts and potential devaluationof claims of foreign investors. This exacerbates moral hazardand makes a case for importing external discipline (for example,acquiring foreign short-term debt). However, external disciplinemay come at the cost of excessive liquidation of entrepreneurialprojects. The article reviews the tradeoffs imposed by externaldiscipline and examines various proposed arrangements, suchas narrow banking, foreign banks and foreign regulation, andthe potential role for an international agency or internationallender of last resort.      

URBAN LABOR MARKETS AND DEVELOPMENT

Economic growth and the distribution of its benefits dependon how well the labor market mobilizes human resources in newactivities, locations, and skills. This article surveys theliterature on the functioning of labor markets in developingcountries. It shows that broad analyses of population, nationalincome, and urbanization dominated early thinking, but therewas little detail on how rural and urban labor markets functioned.The urban economies were seen as being dominated by high-wagemodern sector employment, which provided the motive for rural-urbanmigration. Although migrants swelled the ranks of the urbanunemployed, wages were said to remain high because of organizedpressures that spanned the urban economy and encouraged a chronicexcess of job seekers and urban problems. Current research, in contrast, shows that the urban economyis quite diverse and economic growth has increased the rangeof opportunities. A considerable number are in viable self-employmentand small-scale economic activity with variable economic returns.However, many are denied access to opportunity because of thelimited employment, credit, and educational infrastructure.Accelerated development and broadened access will thus strengthenthe effectiveness of the labor market in a strategy of growthwith equity.      

ECONOMIC ANALYSIS FOR HEALTH PROJECTS

This paper applies to the health sector a method of projectanalysis advocated recently by Devarajan, Squire, and Suthiwart-Narueput.A health project evaluation should establish a firm justificationfor public involvement; establish the counterfactual—whatwould happen with and without the project; and determine thefiscal effect of the project and the appropriate levels of feesin conjunction with project evaluation. The evaluation shouldalso acknowledge the fungibility of project resources and examinethe incentives both for high-level public servants to shiftgovernment resources away from project-funded activities tothose that have not been evaluated and for lower-level contractorsand civil servants to provide good or bad service. Market failuresin health services and insurance markets should serve as a startingpoint for economic analysis, not as a reason to ignore economicsin health projects. Project outputs should be predicted aftertaking into account the reaction of consumers and providersin the private sector as well as market structures of supply,demand, and equilibrium for health services.