Saving in Developing Countries: An Overview

This article reviews the current state of knowledge on the determinantsof saving rates, presenting the main findings and contributionsof the recently completed World Bank research project, ‘SavingAcross the World.’ The article discusses the basic designof the research project and its core database, the World SavingDatabase. It then summarizes the main project results and placesthem in the context of the literature on saving, identifyingthe key policy and nonpolicy determinants of private savingrates. Special attention is paid to the relationship betweengrowth and saving and the impact of specific policies on savingrates. The article concludes by introducing the studies includedin this special issue.     

The Aftermath of Civil War

Using an event-study methodology, the article analyzes the aftermathof civil war in a cross-section of countries. It focuses oncases where the end of conflict marks the beginning of relativelylasting peace. The analysis considers 41 countries involvedin internal wars over the period 1960–2003. To providea comprehensive evaluation of the aftermath of war, a rangeof social areas is considered: basic indicators of economicperformance, health and education, political development, demographictrends, and conflict and security issues. For each indicatorthe post- and pre-war situations are compared and their dynamictrends during the post-conflict period are examined. The analysisis conducted in both absolute terms and relative to controlgroups of countries that are similar except for conflict. Thefindings indicate that even though war has devastating effectsand its aftermath can be immensely difficult, when the end ofwar marks the beginning of lasting peace, recovery and improvementare achieved.     

Openness can be good for growth: The role of policy complementarities

This paper studies how the effect of trade openness on economic growth may depend on complementary reforms that help a country take advantage of international competition. This issue is illustrated with a simple Harris–Todaro model where welfare gains after trade openness depend on the degree of labor market flexibility. The paper then presents cross-country, panel-data evidence on how the growth effect of openness may depend on a variety of structural characteristics. For this purpose, the empirical section uses a non-linear growth regression specification that interacts a proxy of trade openness with proxies of educational investment, financial depth, inflation stabilization, public infrastructure, governance, labor market flexibility, ease of firm entry, and ease of firm exit. The paper concludes that the growth effects of openness may be significantly improved if certain complementary reforms are undertaken.     

The Structural Determinants of External Vulnerability

This article examines empirically how domestic structural characteristicsrelated to openness and product- and factor-market flexibilityinfluence the impact of terms of trade shocks on aggregate output.Applying semistructural vector autoregressions to a panel of88 countries with annual observations for the period 1974–2000,the analysis isolates and standardizes the shocks, estimatestheir impact on GDP, and examines how this impact depends onthe domestic conditions outlined above. The article finds thatgreater trade openness magnifies the output impact of termsof trade shocks, particularly negative ones, while financialopenness reduces their impact. Flexibility of labor and firm-entryare beneficial, with labor flexibility dampening the impactof negative shocks and ease of firm-entry magnifying positiveones only. Domestic financial depth has a more nuanced rolein stabilizing the economy. Analysis of interactions acrossstructural determinants reveals complementarities among macroeconomicconditions (trade and financial openness and depth) and, separately,among microeconomic conditions (flexibility of labor marketsand ease of firm-entry). Variables across these groups tendto behave as substitutes for each other.     

Is Irrigation Rehabilitation Good for Poor Farmers? An Impact Evaluation of a Non‐Experimental Irrigation Project in Peru

This paper analyses the effect of a set of irrigation rehabilitation projects conducted over the last 10 years in Peru. The projects were conducted without the aim or the tools for a full‐fledged impact evaluation. Nevertheless, this paper attempts an evaluation through the use of alternative data sources such as household surveys and geographic information, a strategy of identification of beneficiaries and control households based on spatial proximity to the projects’ sites, and an econometric approach consisting of a double‐differencing technique. The empirical analysis is guided and interpreted with the help of a theoretical model that considers the effects of an irrigation project on the distribution of production, employment and income for different types of landowners. The paper concludes that the irrigation projects implemented in Peru had a positive impact on intended beneficiary households, but not in the way it could have been simplistically expected. The project did benefit the poor but not by increasing production in their own small plots but by providing them with better employment opportunities in larger farms.     

ACCOUNTABILITY AND CORRUPTION: POLITICAL INSTITUTIONS MATTER

This study uses a cross-country panel to examine the determinants of corruption, paying particular attention to political institutions that increase accountability. Even though the theoretical literature has stressed the importance of political institutions in determining corruption, the empirical literature is relatively scarce. Our results confirm the role of political institutions in determining the prevalence of corruption. Democracies, parliamentary systems, political stability, and freedom of press are all associated with lower corruption. Additionally, common results of the previous empirical literature, related to openness and legal tradition, do not hold once political variables are taken into account.