Tight Money in a Post-Crisis Defense of the Exchange Rate: What Have We Learned?

Critics of the tight monetary policies pursued by some of thecountries hurt by the 1997 Asian financial crisis have questionedthe presumption that tight money can help sustain the valueof a currency. The issue is actually an empirical one becausetheory does not unambiguously predict the effect of tight moneyon the exchange rate under the circumstances faced by the crisiscountries. This article reviews the empirical research and showsthat the evidence does not yet support strong statements aboutpost-crisis links between monetary policy and the exchange rate.Proposed deviations from a sustainable medium-term monetarypolicy stance should thus be viewed with skepticism.      

DEVELOPMENT, THE ENVIRONMENT, AND THE SOCIAL RATE OF DISCOUNT

This article examines the role of the discount rate in makingdecisions that will have significant implications for the environment.The authors begin by providing a rationale for discounting ingeneral and by describing the main factors that determine thediscount rate. These factors—the private and social ratesof time preference, the opportunity cost of capital, risk anduncertainty, and the interests of future generations—allhave an environmental dimension. The article goes on to examinethat dimension and to explore the connections between the choiceof the discount rate and environmental concerns, such as excessiveexploitation of natural resources, inadequate investment inconservation, and insufficient attention to the irreversibleloss of certain environmental resources. The authors conclude that, in general, environmental concernsare not best addressed by lowering the discount rate—anaction that might have both benefits and costs for the environment.A more promising course would be to incorporate a criterionof sustainability into certain aspects of decisionmaking. Howsuch a criterion could be made operational is touched upon butnot developed in this article.      

THE DESIGN AND DIFFUSION OF IMPROVED COOKING STOVES

The poorer half of the world's people have long relied for theirenergy needs on woodfuels. Since the oil shocks of the 1970s,pressure on forest resources has increased and the costs oftraditional use of woodfuels have been growing—to thehouseholder, in cash or collection time, and to society in inefficientenergy use, deforestation, and local and global harm to healthand the environment. Modern, efficient stoves can alleviatesome of these problems; programs to design and disseminate themwould seem a worthwhile pursuit for development activity. But do such programs in fact warrant the investment? Why haveso many failed to catch on as expected? The authors find thatprograms have been most successful when targeted to specificareas where woodfuel prices or collection times are high. Fieldtesting, consumer surveys, and involvement of local artisansfrom the outset have been critical to the ultimate adoptionof the stoves. With these elements in place, external supportfrom governments and donors can be useful; lacking them, subsidiesmay succeed only in distributing stoves that ultimately molderaway unused. This article's review of what makes for successand failure is instructive for the design of stove programsin particular, and of development projects that propagate improvedmethods and technologies in general.      

Is There a Case for Industrial Policy? A Critical Survey

What are the underlying rationales for industrial policy? Doesempirical evidence support the use of industrial policy forcorrecting market failures that plague the process of industrialization?This article addresses these questions through a critical surveyof the analytical literature on industrial policy. It also reviewssome recent industry successes and argues that public interventionshave played only a limited role. Moreover, the recent ascendanceand dominance of international production networks in the sectorsin which developing countries once had considerable successimplies a further limitation on the potential role of industrialpolicies as traditionally understood. Overall, there appearsto be little empirical support for an activist government policyeven though market failures exist that can, in principle, justifythe use of industrial policy.      

SOME LESSONS FROM THE EAST ASIAN MIRACLE

The rapid economic growth of eight East Asian economies, oftencalled the "East Asian miracle, " raises two questions: Whatpolicies and other factors contributed to that growth? And canother developing countries replicate those policies to stimulateequally rapid growth? This article, based on case studies, econometric data, and economictheory, offers a list of the ingredients that contributed tothat success. But it is the combination of these ingredients,many of which involve government interventions acting together,that accounts for East Asia's success.      

Formal Water Markets: Why, When, and How to Introduce Tradable Water Rights

In most countries the state owns the water resources and thehydraulic infrastructure, and public officials decide who getsthe water, how it is to be used, and how much will be chargedfor it. But costly inefficiencies in the supply and use of watersupport a shift from government provision to a market-basedapproach that is more effective and less wasteful. Markets can allow rapid changes in allocation in response tochanging demands for water and can stimulate investment andemployment as investors are assured of access to secure suppliesof water. Because of water's unique characteristics, such marketsdo not work everywhere; nor do they resolve all water-relatedissues. By designing appropriate water laws and regulationsand by strengthening private and public institutions to administerthem, formal water markets can effectively address rising demandsfor groundwater and for water found in rivers, lakes, and canals.Lessons from Chile's experience demonstrate that formal watermarkets can improve the economic efficiency of water use andstimulate investment.      

Public Debt Management and Macroeconomic Stability: An Overview

Recent research suggests that management of the public sector’sdebt can have important effects on a country’s macroeconomicperformance. This article provides an overview of the factorsthat the recent literature has identified as important in determiningthe optimal composition of the public debt. Based on this analysis,it attempts to establish general guidelines for public debtmanagement in emerging economies. To retain market access andpromote domestic financial market development, governments shouldgenerally finance themselves at market rates using a wide varietyof securities. Beyond this general principle, the optimal compositionof the public debt involves a tradeoff between enhancing thegovernment’s anti–inflationary credibility and reducingthe vulnerability of its budget to macroeconomic shocks. Consequently,the optimal composition of the debt depends on a country’scircumstances. Debt should be heavily weighted toward long-termnominal securities for governments that have anti–inflationarycredibility and toward long-term indexed debt for those thatdo not.      

What Should the World Bank Think about the Washington Consensus?

The phrase "Washington Consensus" has become a familiar termin development policy circles in recent years, but it is nowused in several different senses, causing a great deal of confusion.In this article the author distinguishes between his originalmeaning as a summary of the lowest common denominator of policyadvice addressed by the Washington-based institutions (includingthe World Bank) and subsequent use of the term to signify neoliberalor market-fundamentalist policies. He argues that the latterpolicies could not be expected to provide an effective frameworkfor combating poverty but that the original advice is stillbroadly valid. The article discusses alternative ways of addressingthe confusion. It argues that any policy manifesto designedto eliminate poverty needs to go beyond the original versionbut concludes by cautioning that no consensus on a wider agendacurrently exists.      

Agricultural Extension: Good Intentions and Hard Realities

What considerations lead policymakers to invest in agriculturalextension as a key public responsibility, and what factors andagency incentives explain differences in extension system performance?To help answer these questions, this article provides a frameworkoutlining farmers' demand for information, the public goodscharacter of extension services, and the organizational andpolitical attributes affecting the performance of extensionsystems. This conceptual framework is used to analyze severalextension modalities and their likely and actual effectiveness.The analysis highlights the efficiency gains that can come fromlocally decentralized delivery systems with incentive structuresbased on largely private provision, although in most poorercountries extension services will remain publicly funded.      

THE EARMARKING OF GOVERNMENT REVENUE: A Review of Some World Bank Experience

Economic theory provides some justification for earmarking.Some economists argue that by assigning revenue from specificsources to specific purposes, a government can facilitate agreementabout increasing both revenue and expenditure in cases in whichthere would be no consensus about raising either separately.Earmarking may also protect high-priority programs from shiftingmajorities, inefficiency, and corruption. Most economists, however, have been skeptical about earmarking.In practice, it is difficult to achieve pricing and taxationarrangements that will allocate resources appropriately forthe service in question and yet require few administrative decisions.Often, efficient pricing and taxing lead to unbalanced budgetsfor the earmarked fund and hence to interdependence with thegeneral budget. The independence of earmarked funds is furthercompromised because they so often depend on the government foradditional, non-earmarked sources of funding, or for reiteratedendorsement of decisions about prices or taxes for the earmarkedsources. Governments also frequently withhold the allotted funds,fail to make necessary changes in prices or taxes, or simplysuspend the earmarking arrangements. This article looks at the arguments for and against earmarkingand goes on to illustrate the discussion with case studies fromWorld Bank experience. The lessons from the real world appearto bear out the skepticism of the majority about earmarking:in general, it has not worked very well. The article, therefore,concludes by cautioning against the practice except under certaindefined and restrictive conditions.      

Evaluating Recipes for Development Success

This article offers a provocative critique of the ability ofresearch on the impact of institutions on growth to offer immediateand practical recommendations for reforming and redesigninginstitutions in developing countries and transition economies.The literature traces the sources of growth to unalterable historicaland geographic features. It contains equally plausible recommendationsfor opposite courses of action. It is sometimes driven by fadsor recommends imitation of the latest success story. Some recommendationsare too vague or too general to constitute practical advice.The article suggests a Bayesian diagnostic procedure to identifythe causes of economic failure in an individual country as afirst step toward remedying the failure. JEL codes: O43, O17, O20, P30, P48     

MACROECONOMIC ADJUSTMENT TO CAPITAL INFLOWS: LESSONS FROM RECENT LATIN AMERICAN AND EAST ASIAN EXPERIENCE

Capital inflows to some developing countries have increasedsharply in recent years. Impelled by better economic prospectsin those countries, lower international interest rates, anda slowdown of economic activity in the capital-exporting countries,the inflows have furnished financing much needed to increasethe use of existing capacity and to stimulate investment. Butcapital inflows can bring with them their own problems. Typicalmacroeconomic repercussions have been appreciation of the realexchange rate, expansion of nontradables at the expense of tradables,larger trade deficits, and, in regimes with a fixed exchangerate, higher inflation and an accumulation of foreign reserves. Should government intervene to limit some of these side effects—andif so, how? The question is especially pressing in the wakeof the Mexican crisis of December 1994. This article looks foranswers in the experience of four Latin American and five EastAsian countries between 1986 and 1993, examining the effectsof the capital inflows on the economy and comparing the differentways in which these countries responded to the problem of "toomuch" capital.      

我国商业银行人力资源需求选择的微观行为决策

组织是不同的个体基于共同的利益而结成的团体.组织行为表现为个人行为的综合;领导者的理念对组织行为影响尤其巨大;组织应该以其利益最大化为追求目标.商业银行作为经济组织,其行为决策必须符合"集体行动的逻辑".反映在我国商业银行的人力资源需求选择上,主要表现为:外在的表象性因素是强约束条件;现实的和潜在的能力是重要的考虑因素;人情与地缘影响仍然存在;对员工个人品行和素质有特殊的要求.由此,优化我国商业银行人力资源选择的行为决策,必须坚持"适用和恰当"原则,规范程序,淡化个人意志,进一步强化成本-收益比较,以适应新形势的要求.     

FINANCIAL MARKETS, PUBLIC POLICY, AND THE EAST ASIAN MIRACLE

Many factors contributed to the rapid growth of the economiesof East Asia in the past quarter century. This article examinesone important aspect of that growth—commonly referredto as the "East Asian miracle"—public policies affectingthe financial markets. East Asian governments intervened extensivelyin financial markets at all stages of their development. Whatsets their actions apart from those of other developing countriesthat have not fared as well? We do not have the informationto answer conclusively what effect particular actions had (thatrequires a counterfactual test of what growth would have beenwithout the particular intervention). But we can identify themarket failures the East Asian governments addressed, assesssome of the theoretical reasons why each policy might be growthenhancing, and provide some data attesting to the impacts ofthe policy. Several characteristics of financial sector interventionsin East Asia stand out: they incorporated design features thatimproved the chances of success and reduced opportunities forabuse; interventions that did not work out were dropped unhesitatingly;and policies were adapted to reflect changing economic conditions.      

The Policymaking Uses of Multitopic Household Survey Data: A Primer

Household surveys are a valuable tool for policymakers decidingamong policy options. This article illustrates the kinds ofissues typically addressed in these surveys and shows how detailedanalyses of the data can feed into the decisionmaking process.It outlines the general virtues and limitations of householdsurvey data and provides a brief sample of the kind of dataanalysis that is relevant to policymaking. It also discussesthe benefitcost ratios that are likely to apply to survey-basedpolicy analysis.      

THE MARKET FOR DEVELOPING COUNTRY DEBT: The Nature and Importance of Its Shortcomings

There are two problems in the market for developing countrydebt: one is the immediate crisis. What do we do about the largevolume of outstanding debt? A more subtle but no less importantproblem is that because contracts are un-enforceable and lendershave incomplete information about risk, capital is mis-allocated.This article examines the latter problem and reviews the natureand causes of the unenforceability. It shows that unenforceabilityresults in higher interest rates on smaller and shorter-termloans than would otherwise be available and discourages investmentin developing countries. Similarly, unenforce-ability can explainthe perverse timing of capital flows to developing countries,causing credit to flow into the country when income is high,and out when income is low. The article then analyzes the riskassociated with three types of information asymmetries: informationabout the borrowers' ability to repay, willingness to repay,and use of the loan proceeds. These asymmetries, the authorargues, reinforce the effects of unenforceability. The prospectsfor remedying the immediate crisis are discussed, as is theneed to be certain that the proposed solutions do not aggravatethese problems.      

Reassessing Conditional Cash Transfer Programs

During the past decade, the use of conditional cash transferprograms to increase investment in human capital has generatedconsiderable excitement in both research and policy forums.This article surveys the existing literature, which suggeststhat most conditional cash transfer programs are used for essentiallyone of two purposes: restoring efficiency when externalitiesexist or improving equity by targeting resources to poor households.The programs often meet their stated objectives, but in someinstances there is tension between the efficiency and equityobjectives. The overall impact of a program depends on the gainsand losses associated with each objective.      

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.      

Creating a Legal Framework for Economic Development

A modernizing nation's economic prosperity requires at leasta modest legal infrastructure centered on the protection ofproperty and contract rights. The essential legal reform requiredto create that infrastructure may be the adoption of a systemof relatively precise legal rules, as distinct from more open-endedstandards or a heavy investment in upgrading the nation's judiciary.A virtuous cycle can arise in which initially modest expenditureson law reform increase the rate of economic growth, in turngenerating resources that will enable more ambitious legal reformsto be undertaken in the future.      

Who is Not Poor? Dreaming of a World Truly Free of Poverty

When the World Bank dreams of "a world free of poverty," whatshould it be dreaming? In measuring global income or consumptionexpenditure poverty, the World Bank has widely adopted the $1a day standard as a lower bound. Because this standard is basedon poverty lines in the poorest countries, anyone with incomeor expenditures below this line will truly be poor. But thereis no consensus standard for the upper bound of the global povertyline: above what level of income or expenditures is someonetruly not poor? This article proposes that the World Bank computeits lower and upper bounds in a methodologically equivalentway, using the poverty lines of the poorest countries for thelower bound and the poverty lines of the richest countries forthe upper bound. The resulting upper bound global poverty linewould be 10 times higher than the current lower bound and atleast 5 times higher than the currently used alternative lowerbound of $2 a day. And in tracking progress toward a world freeof poverty, the World Bank should compute measures of globalpoverty using a variety of weights on the depth and intensityof poverty for a range of poverty lines between the global lowerand upper bounds. For instance, rather than trying to artificiallyforce the global population of 6.2 billion (a billion is 1,000million) into just two categories "poor" and "not poor," withthe new range of poverty lines the estimates would be that 1.3billion people are "destitute" (below $1 a day), another 1.6billion are in "extreme poverty" (above $1 a day but below $2dollar a day), and another 2.5 billion are in "global poverty"(above extreme poverty but below the upper bound poverty line).