Public Social Spending in Africa: Do the Poor Benefit?

Education and health care are basic services essential in anyeffort to combat poverty and are often subsidized with publicfunds to help achieve that purpose. This paper examines theeffectiveness of public social spending on education and healthcare in several African countries and finds that these programsfavor not the poor, but those who are better-off. It concludesthat this targeting problem cannot be solved simply by adjustingthe subsidy program. The constraints that prevent the poor fromtaking advantage of these services must also be addressed ifthe public subsidies are to be effective.      

MACROECONOMIC ADJUSTMENT AND POVERTY IN AFRICA: AN EMERGING PICTURE

The view that macroeconomic adjustment disproportionately hurtsthe poor in Africa has become commonplace. The popular mediaand the nongovernmental aid community frequently express thisview in critiques of Bankfunded economic reform programs. Yetthe evidence on which the claim has been based is flimsy andanecdotal. The emergence of more convincing data, from detailedhousehold surveys in Africa, provides an opportunity to setthe record straight. The evidence from six African countries reviewed in this articledemonstrates that poverty was more likely to decline in thosethat improved their macroeconomic balances than in those thatdid not. The critical factor is economic growth: the economygrew more rapidly and poverty declined faster in countries thatimproved macroeconomic balances, depreciating the real effectiveexchange rate. Changes in the real exchange rate also immediatelyand favorably affected rural incomes, benefiting the poor bothdirectly and indirectly. But the findings also highlighted threecauses for policy concern. First, many African governments haveyet to display a real commitment to macroeconomic reform; second,the poorest of the poor have not benefited from recent growthin some countries; and, third, the prospects for the poor arenot rosy unless there is more investment in human capital andbetter targeting of social spending.      

Toward Transparency: New Approaches and Their Application to Financial Markets

The Asian financial crisis in the late 1990s not only highlightedthe welfare consequences of transparency in the financial sectorbut also linked this relatively narrow problem to the broadercontext of transparency in governance. It has been observedthat objections to transparency, often on flimsy pretexts, arecommon even in industrialized countries. This article arguesthat transparency is indispensable to the financial sector anddescribes its desirable characteristics: access, timeliness,relevance, and quality. The authors emphasize the need to weighthe costs and benefits of a more transparent regulatory policy,and they explore the connection between information imperfections,macroeconomic policy, and questions of risk. The article arguesfor developing institutional infrastructure, standards, andaccounting practices that promote transparency, implementingincentives for disclosure and establishing regulations to minimizethe perverse incentives generated by safety net arrangements,such as deposit insurance. Because institutional developmentis gradual, the authors contend that relatively simple regulations,such as limits on credit expansion, may be the most reasonableoption for developing countries. They show that transparencyhas absolute limits because of the lack of adequate enforcementand argue that adequate enforcement may be predicated on broaderreforms in the public sector.      

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.      

Spatial productivity spillovers from public infrastructure: Evidence from state highways

Is public-sector infrastructure a key determinant of productivity? Traditional, project-based analyses of benefits and costs typically do not find large rates of return. Proponents of infrastructure spending instead point to regressionbased analyses of the links between private productivity and public infrastructure that imply large productivity effects from public spending. The disparity in estimated returns is often attributed to geographic spillovers in productivity benefits that are not captured by disaggregated analyses. We examine the degree to which state highways provide productivity benefits beyond the narrow confines of each state's borders. Despite the fact that state highways-especially the interstate highway system-are designed at least in part with interstate linkages in mind, we find no evidence of quantitatively important productivity spillovers.     

TECHNOLOGICAL CHANGE AND COMMERCIALIZATION IN AGRICULTURE: The Effect on the Poor

Do the economic gains brought by technological innovation andcommercialization in agriculture work their way through to thepoor? The prevailing optimistic view is that they do. But thisview is not universal: some hold that these forces for changecan interact with, or even induce, institutional and marketfailure, with adverse consequences for the poor. Adherents of the pessimistic view point to real-world instancesin which the poor have failed to reap the benefits, or evenhave lost, from the technological change or commercialization.Where these effects have occurred we find that they are mostlyattributable to inelastic demand or adverse institutional features;often, when technology or commercialization has been blamedfor the decline in income of the poor, other—not necessarilyconnected—policies have in fact been responsible for thedamage. This article contends that the optimistic view is, by and large,correct: normally, technology and commercialization stimulateagricultural growth, improve employment opportunities, and expandfood supply—all central to the alleviation of poverty.The evidence does not offer much encouragement to an extensionof this view—that through "social engineering" the benefitsfrom technology and commercialization can easily be targetedtoward the poor; the limited opportunities for such targetingshould of course be seized.      

Appraising Workfare

Workfare programs aim to reduce poverty by providing low-wagework to those who need it. They are often turned to in a crisis.This article offers some simple analytical tools that can beused to rapidly appraise the cost-effectiveness of an existingworkfare operation as a basis for deciding whether the programshould be expanded. For pedagogic purposes, two stylized versionsof a range of programs found in practice are analyzed: one fora middle-income country, the other for a low-income country.The cost of a given gain to the poor is about the same for bothprograms, although the components of that cost are very different,with implications for the timing of benefits. The author pointsto program design changes that could enhance the impact on poverty.      

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.      

Weak Links in the Chain: A Diagnosis of Health Policy in Poor Countries

Recent empirical and theoretical literature sheds light on thedisappointing experience with implementation of primary healthcare programs in developing countries. This article focuseson the evidence showing two weak links in the chain betweengovernment spending for services to improve health and actualimprovements in health status. First, institutional capacityis a vital ingredient in providing effective services. Whenthis capacity is inadequate, health spending, even on the rightservices, may lead to little actual provision of services. Second,the net effect of government health services depends on theseverity of market failures—the more severe the marketfailures, the greater the potential for government servicesto have an impact. Evidence suggests that market failures arethe least severe for relatively inexpensive curative services,which often absorb the bulk of primary health care budgets.A companion paper, available from the authors (seep. 219), offersa perspective on how government funds can best be used to improvehealth and well-being in developing countries. It gives an alternativeview of appropriate public health policy, one that focuses onmitigating the characteristic market failures of the sectorand tailoring public health activities to the government's abilityto deliver various services.      

Reducing the Incidence of Low Birth Weight in Low-Income Countries Has Substantial Economic Benefits

Reducing the incidence of low birth weight not only lowers infantmortality rates but also has multiple benefits over the lifecycle. This study estimates the economic benefits of reducingthe incidence of low birth weight in low-income countries, boththrough lower mortality rates and medical costs and throughincreased learning and productivity. The estimated economicbenefits, under plausible assumptions, are fairly substantial,at about $510 per infant moved from a low-birth-weight status.The estimated gains are primarily from increases in labor productivity(partially through more education) and secondarily from avoidingcosts due to infant illness and death. Thus there may be manyinterventions to reduce the incidence of low birth weight thatare warranted purely on the grounds of saving resources or increasingproductivity.      

Data and Dogma: The Great Indian Poverty Debate

What happened to poverty in India in the 1990s has been fiercelydebated, both politically and statistically. The debate hasrun parallel to the wider debate about globalization and povertyin the 1990s and is also an important part of that debate. Theeconomic reforms of the early 1990s in India were followed byrates of economic growth that were high by historical standards.The effects on poverty remain controversial, however. The officialnumbers published by the government of India, showing an accelerationin the rate of poverty reduction from 36 percent of the populationin 1993/94 to 26 percent in 1999/2000, have been challengedfor showing both too little and too much poverty reduction.The various claims have often been frankly political, but thereare also many important statistical issues. The debate, reviewedin this article, provides an excellent example of how politicsand statistics interact in an important, largely domestic debate.Although there is no consensus on what happened to poverty inIndia in the 1990s, there is good evidence both that povertyfell and that the official estimates of poverty reduction aretoo optimistic, particularly for rural India. The issues coveredin this article, although concerned with the measurement ofpoverty in India, have wide international relevance—discrepanciesbetween surveys and national accounts, the effects of questionnairedesign, reporting periods, survey nonresponse, repair of imperfectdata, choice of poverty lines, and interplay between statisticsand politics.      

IT doesn't matter

As information technology has grown in power and ubiquity, companies have come to view it as ever more critical to their success; their heavy spending on hardware and software clearly reflects that assumption. Chief executives routinely talk about information technology's strategic value, about how they can use IT to gain a competitive edge. But scarcity, not ubiquity, makes a business resource truly strategic--and allows companies to use it for a sustained competitive advantage. You only gain an edge over rivals by doing something that they can't. IT is the latest in a series of broadly adopted technologies--think of the railroad or the electric generator--that have reshaped industry over the past two centuries. For a brief time, as they were being built into the infrastructure of commerce, these technologies created powerful opportunities for forward-looking companies. But as their availability increased and their costs decreased, they became commodity inputs. From a strategic standpoint, they became invisible; they no longer mattered. that's exactly what's happening to IT, and the implications are profound. In this article, HBR's editor-at-large Nicholas Carr suggests that IT management should, frankly, become boring. It should focus on reducing risks, not increasing opportunities. For example, companies need to pay more attention to ensuring network and data security. Even more important, they need to manage IT costs more aggressively. IT may not help you gain a strategic advantage, but it could easily put you at a cost disadvantage. If, like many executives, you've begun to take a more defensive posture toward IT, spending more frugally and thinking more pragmatically, you're already on the right course. The challenge will be to maintain that discipline when the business cycle strengthens.     

Enforcement and Good Corporate Governance in Developing Countries and Transition Economies

More than regulations, laws on the books, or voluntary codes,enforcement is key to creating an effective business environmentand good corporate governance, at least in developing countriesand transition economies. A framework is presented to help explainenforcement, the impact on corporate governance when rules arenot enforced, and what can be done to improve corporate governancein weak enforcement environments. The limited empirical evidencesuggests that private enforcement tools are often more effectivethan public tools. However, some public enforcement is necessary,and private enforcement mechanisms often require public lawsto function. Private initiatives are often also taken underthe threat of legislation or regulation, although in some countriesbottom-up, private-led initiatives preceded and even shapedpublic laws. Concentrated ownership aligns incentives and encouragesmonitoring, but it weakens other corporate governance mechanismsand can impose significant costs. Various steps can be takento reduce these costs and reinforce other corporate governancemechanisms. But political economy constraints, resulting fromthe intermingling of business and politics, often prevent improvementsin the enforcement environment and the adoption and implementationof public laws.      

Promoting Efficient Rural Financial Intermediation

Although governments have traditionally used subsidized creditprograms to promote agricultural growth, this approach has generallyfailed to improve incomes and alleviate poverty in rural areas.It has also led to the mistaken belief that rural credit programscannot be profitable. A new approach seeks to raise standardsof living in rural areas by casting the government in a veryd role—one of setting a favorable legal andpolicy environmentfor rural financial markets and addressing spec market failurescost effectively through well-designed and self-sustaining interventions.There is evidence that this approach can be highly successful.The Village Bank system of Bank Rakyat Indonesia has shown thatfinancial services can be extended to millions of low-incomerural clients without relying on subsidies. Indeed, the programhas generated enormous profits for the bank by using simple,innovative, and largely replicable techniques.      

Walking up the Down Escalator: Public Investment and Fiscal Stability

When growth-promoting spending is cut so much that the presentvalue of future government revenues falls by more than the immediateimprovement in the cash deficit, fiscal adjustment becomes likewalking up the down escalator. Although short-term cash flowsmatter, too tight a focus on them encourages governments toinvest too little. Cash-flow targets also encourage governmentsto shift investment spending off budget by seeking private investmentin public projects, irrespective of its real fiscal or economicbenefits. To deal with this problem, some observers have suggestedexcluding certain investments (such as those undertaken by publicenterprises deemed commercial or financed by multilaterals)from cash-flow targets. These stopgap remedies may help protectsome investments, but they do not provide a satisfactory solutionto the underlying problem. Governments can more effectivelyreduce the biases created by the focus on short-term cash flowsby developing indicators of the long-term fiscal effects oftheir decisions, including accounting and economic measuresof net worth, and, where appropriate, including such measuresin fiscal targets or even fiscal rules. JEL codes: O23, E62, H60, H54     

Targeting Outcomes Redux

A newly constructed comprehensive database of 122 targeted antipovertyinterventions in 48 countries is used to examine the contestedissue of the efficacy of targeting interventions in developingcountries. Though the median program transfers 25 percent moreto poor individuals (those in the bottom two quintiles) thanwould universal allocation, a quarter of the interventions areregressive. Targeting is better in richer countries, in countrieswhere governments are more likely to be held accountable, andin countries where inequality is higher. Interventions thatuse means testing, geographic targeting, and self-selectionbased on a work requirement are all associated with an increasedshare of benefits going to poor people. Proxy-means testing,community-based selection, and demographic targeting to childrenshow good results on average but with wide variation. Self-selectionbased on consumption, demographic targeting to the elderly,and community bidding show limited potential for good targeting.The substantial variation in targeting performance within specificprogram types and specific targeting methods suggests that differencesin implementation are also important factors in determiningthe success of targeting to poor individuals.      

ON "HUNGER AND PUBLIC ACTION": A Review Article on the Book by Jean Dreze and Amartya Sen

Recent writings on poverty and hunger agree broadly on objectivesand means but diverge significantly in emphasis. Views differon the importance and function of economic growth and on howmuch weight to give to direct public support. These differencescan matter in policy choices. Hunger and Public Action, by JeanDrèze and Amartya Sen, is an important contribution tothe literature on antihunger policy. This article criticallyexamines the issues raised by the book, its differences withother recent writings, and the implications for both policyand future research on policy.      

LAND RIGHTS SYSTEMS AND AGRICULTURAL DEVELOPMENT IN SUB-SAHARAN AFRICA

Links between land rights and agricultural development providea conceptual framework to analyze land rights systems in Sub-SaharanAfrica. The discussion demonstrates that land rights in Sub-SaharanAfrica evolved in response to changing political, social, andeconomic conditions, often the results of governmental interventionsthat may not have been conducive to efficiency or equity. The evidence dispels some popular misconceptions about landrights systems in Sub-Saharan Africa. There is increasing individualizationof ownership, and in many areas possession has always been individual.Even in areas where communal ownership has been imposed, cultivationand possession remain with individual households and an increasingrange of rights to land are appropriated by the individual household.Existing and indigenous systems are not inherently equitable.Land sales and mortgaging by individuals are observed frequentlyin many areas where such transactions are not recognized underthe formal legal system. The lesson from others parts of the world is that efficiencyultimately requires formal recognition of individual land rights.That stage has not been reached yet in many parts of Sub-SaharanAfrica, but in many other parts the justification for a changein land rights arrangements already exists. The practical problemin such cases is the careful analysis of benefits and costs,including equity considerations.      

HOW WELL CAN METHOD SUBSTITUTE FOR DATA? FIVE EXPERIMENTS IN POVERTY ANALYSIS

No one doubts that good data are essential to sound policymaking.Alas, data are invariably faulty. Methodological solutions todata inadequacies have often been proposed and implemented,but they have been tested only rarely. Yet the methods thatare used may well determine the direction of policy. For example,the particular survey method used—and the way nonsurveydata are interpreted—may be critical in assessing whethera country's strategy for reducing poverty is working. This articleshows how counterfactual experiments can help test the reliabilityof various methods of dealing with common data problems. Well–designedmethods—and they need not be very complicated—canhelp get around the problem, although it appears that substitutingmethod for data is a long way from being perfect.      

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.