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91. A Short Note on the Theme of Too Many Instruments

Author:
David Roodman
Publication Date:
08-2007
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
The “difference” and “system” generalized method of moments (GMM) estimators for dynamic panel models are growing steadily in popularity. The estimators are designed for panels with short time dimensions (T), and by default they generate instruments sets whose number grows quadratically in T. The dangers associated with having many instruments relative to observations are documented in the applied literature. The instruments can overfit endogenous variables, failing to expunge their endogenous components and biasing coefficient estimates. Mean while they can vitiate the Hansen J test for joint validity of those instruments, as well as the difference-in-Sargan/Hansen test for subsets of instruments. The weakness of these specification tests is a particular concern for system GMM, whose distinctive instruments are only valid under a non-trivial assumption. Judging by current practice, many researchers do not fully appreciate that popular implementations of these estimators can by default generate results that simultaneously are invalid yet appear valid. The potential for type I errors—false positives—is therefore substantial, especially after amplification by publication bias. This paper explains the risks and illustrates them with reference to two early applications of the estimators to economic growth, Forbes (2000) on income inequality and Levine, Loayza, and Beck (LLB, 2000) on financial sector development. Endogenous causation proves hard to rule out in both papers. Going forward, for results from these GMM estimators to be credible, researchers must report the instrument count and aggressively test estimates and specification test results for robustness to reductions in that count.
Topic:
Development, Economics, Political Economy, and Third World

92. The role of freight transport in economic development: An analysis of the interaction between global value chains and their associated transport chains

Author:
Poul Ove Pedersen
Publication Date:
07-2007
Content Type:
Working Paper
Institution:
Danish Institute for International Studies
Abstract:
The purpose of this paper is first to discuss the paradox that freight transport, which so clearly is an important prerequisite for the processes of regional development and economic internationalisation and globalisation, since the 1970s has almost vanished from mainstream economic geography and development studies, and is most often hardly mentioned in studies of international industrial development and global commodity or value chains. Secondly, the paper discusses the consequences of leaving freight transport out of the value chain analyses and argues that it has had serious consequences for economic development especially in the peripheral parts of the world, not least in Africa, and for our understanding of rural poverty.
Topic:
Development, Economics, Globalization, and Third World
Political Geography:
Africa

93. The changing context for small farms and implications for their future

Author:
Peter Hazell
Publication Date:
06-2007
Content Type:
Working Paper
Institution:
Danish Institute for International Studies
Abstract:
The majority of farms in the developing world are small (less than 2 hectares) and they are home to the majority of the rural poor. Their future will have an important bearing on whether poverty and hunger can be halved by 2015. However, small farms are seriously challenged today in ways that make their future precarious. Globalization and rising per capita incomes in many countries are changing the nature and composition of demand for agricultural products. At the same time, marketing chains are changing and are becoming more integrated and more demanding of quality and food safety. This is creating new opportunities for higher value production for farmers who can compete and link to these markets, but for many other small farms the risk is that they will simply be left behind. In developing countries, small farmers also face unfair competition from rich country farmers in many of their export and domestic markets, and they no longer have adequate support in terms of basic services and farm inputs. And the spread of HIV/AIDS is further eroding the number of productive farm family workers, and leaving many children as orphans with limited knowledge about how to farm. Left to themselves, these forces will curtail opportunities for small farms, overly favor large farms, and lead to a premature and rapid exit of many small farms. If most small farmers are to have a viable future, then there is need for a concerted effort by governments, NGOs and the private sector to create a more equitable and enabling economic environment for their development. This must include assistance in forming effective marketing organizations, targeted agricultural research and extension, revamping financial systems to meet small farm credit need s, improved risk management policies, better education and training for nonfarm jobs and where all else fails, targeted safety net programs. These interventions are possible and could unleash significant benefits in the form of pro-poor agricultural growth. For many countries, the alternative is a dramatic increase in rural poverty and waves of migrants to urban areas that could overwhelm available job opportunities, urban infrastructure and support services.
Topic:
Agriculture, Development, Globalization, and Third World

94. Staff Management and Organisational Performance in Tanzania and Uganda: Public Servant Perspectives

Author:
Ole Therkildsen and Per Tidemand
Publication Date:
03-2007
Content Type:
Working Paper
Institution:
Danish Institute for International Studies
Abstract:
How can a government in a poor country with a limited budget increase the performance of its public sector organizations through better Human Resources Management practices (HRM)? And how may donors assist? These questions are addressed in this comparative study of HRM practices and organisational performance in public sector organizations in Tanzania and Uganda. Specifically, as stated in the terms of reference (appendix D), the study aims to: Enhance knowledge about the rules and practices of hiring, firing, transfers and promotion. (HFTP) in central and local government, including executive agencies, in the two countries – as seen from the perspective of public servants themselves. Assess how and how much HFTP-practices affect motivation at individual and organisational level. Contribute to inform policy making on non-pay incentives among development partners. Suggest relevant further work.
Topic:
Development, Regional Cooperation, and Third World
Political Geography:
Uganda and Africa

95. Regional Monetary Integration among Developing Countries: New Opportunities for Macroeconomic Stability beyond the Theory of Optimum Currency Areas?

Author:
Laurissa Muhlich and Barbara Fritz
Publication Date:
12-2006
Content Type:
Working Paper
Institution:
German Institute of Global and Area Studies
Abstract:
Optimum Currency Area (OCA) approaches turn to be inadequate in the analysis of the new regional monetary integration schemes that have sprung up among developing and emerging market economies. Instead, in accordance with the concept of 'original sin' (Eichengreen et al.) we argue that regional monetary South-South integration schemes that, unlike North-South arrangements, involve none of the international reserve currencies, have specific monetary constraints and implications which need to be duly considered. A first comparative analysis of three cases of monetary South-South cooperation in South Africa (CMA), East Asia (ASEAN) and Latin America (Mercosur) shows that these can indeed provide macroeconomic stability gains but that this strongly depends on the existence of economic hierarchies within these integration schemes.
Topic:
Development, Economics, Foreign Exchange, and Third World
Political Geography:
East Asia, South Africa, and Latin America

96. Measuring the Capability to Raise Revenue. Process and Output Dimensions and Their Application to the Zambia Revenue Authority

Author:
Christian von Soest
Publication Date:
12-2006
Content Type:
Working Paper
Institution:
German Institute of Global and Area Studies
Abstract:
The worldwide diffusion of the good governance agenda and new public management has triggered a renewed focus on state capability and, more specifically, on the capability to raise revenue in developing countries. However, the analytical tools for a comprehensive understanding of the capability to raise revenue remain underdeveloped. This article aims at filling this gap and presents a model consisting of the three process dimensions 'information collection and processing', 'merit orientation' and 'administrative accountability'. 'Revenue performance' constitutes the fourth capability dimension which assesses tax administration's output. This model is applied to the case of the Zambia Revenue Authority. The dimensions prove to be valuable not only for assessing the how much but also the how of collecting taxes. Theycan be a useful tool for future comparative analyses of tax administrations' capabilities in developing countries.
Topic:
Development, Economics, and Third World
Political Geography:
Africa, Zambia, and Holland

97. Poor Countries Need Relief from the World Bank's 'Help' on Malaria.

Author:
Roger Bate
Publication Date:
10-2006
Content Type:
Working Paper
Institution:
American Enterprise Institute for Public Policy Research
Abstract:
The World Bank attempts to improve health in poor countries by providing advice in health financing and infrastructure development, as well as grants and loans to poor countries. This is a formidable mission given that the greatest difficulty poor countries have in carrying out public health programs is their lack of infrastructural, managerial and clinical capacity. Its efforts to this end have been diluted by irresponsible forays into disease control financing without a commensurate increase in institutional competence with only limited technical staff capacity. Instead of deferring to the World Health Organization for technical advice on malaria control, Bank staff members have promoted ineffectual malaria prevention and treatment, causing countries to move away from best practices in disease control. The Bank has been criticized in the Lancet medical journal, and its senior staff claim that changes have been made. This working paper reviews the most recent performance from the Bank, which demonstrates the continuing failure of its malaria work. The Bank should stick to its core mission of funding health systems and get out of the disease control business.
Topic:
International Relations, Debt, Economics, and Third World

98. Tariffs, Corruption and Other Impediments to Medicinal Access in Developing Countries

Author:
Roger Bate, Kathryn Boateng, Lorraine Mooney, and Richard Tren
Publication Date:
08-2006
Content Type:
Working Paper
Institution:
American Enterprise Institute for Public Policy Research
Abstract:
There are many factors which hamper health care delivery in the developing world. These factors include tariffs, taxes, corruption, such as bribes and other local price inflators on medicines and medical products. Non-tariff barriers, such as lengthy registration periods for medicines and onerous requirements to clear customs, also restrict the availability of medication in the developing world. According to the World Health Organization, approximately one-third of the world's population lacks access to essential medicine and proper medical treatment. Drawing upon extensive evidence from surveys and accounts from the field, this paper examines the impact of tariffs, taxes and other markups on imported medicines and medical products provided to lesser developed countries by pharmaceutical companies, not-for-profit groups, for-profit corporations, multilateral and bilateral aid and health agencies. The paper discusses how these regulatory barriers affect access to medication. The authors conclude that although efforts to reform the current system of government revenue generation through tariffs collection may meet resistance in many developing countries, especially those featuring systemic corruption and those with domestic production, governments which take steps to eliminate tariffs could in fact expedite health care delivery and consequently improve the well-being of their people.
Topic:
Corruption, Economics, Health, and Third World

99. Automating Public Financial Management in Developing Countries

Author:
Stephen Peterson
Publication Date:
10-2006
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
The principal recommendation to developing countries for automating their financial systems is to adopt off ‐ the ‐ shelf integrated financial information system s (IFMISs). The recommendation to adopt an IFMIS goes beyond a strategy of automation. IFMISs are often viewed as the driver of financial reform in developing countries. Experience shows that these systems usually fail or under perform yet research to date has not adequately explained their poor performance. This paper presents two frameworks and a case study from Ethiopia which illustrates an approach to automating financial systems that has worked. The first framework distinguishes between business process innovation (reengineering) and process change. Process innovation is a comprehensive change of procedures and organization driven by information technology. Process change is an incremental strategy driven by procedural reform and supported by information technology. Process change is far less risky than process innovation and is a more appropriate approach because the financial systems in most developing countries are relatively sound and thus provide a basis for improvement. The conventional off ‐ the ‐ shelf IFMIS reform is principally process innovation which exceeds the capacity of most public bureaucracies in developing countries. The second framework concerns the three factors of risk to an automation project: scope, schedule and budget. The availability of concessionary aid to many developing countries means there is not a hard budget constraint to automation projects and there is little discipline with schedule and scope. The virtual absence of a financial and social cost ‐ benefit analysis of these large and questionable investments is a serious failing in the use of development assistance and loans. The custom IFMIS developed to support the Ethiopian reform is presented as an example of a successful low risk strategy of automation in a difficult environment. The case illustrates the two frameworks as the reform focused on process change and the automation component was delivered on budget, ahead of schedule and beyond specification. The Ethiopian case demonstrates several lessons about automation in developing countries: the virtue of process change, the role of automation to support not drive financial reform, the virtue of 'optimal obscurity' of automation projects given that high level commitment cannot be assumed, and the value of an incremental development strategy of frequent operational upgrades of information systems.
Topic:
International Relations, Development, International Trade and Finance, and Third World
Political Geography:
Ethiopia

100. After Gleneagles: What role for loans in ODA?

Author:
Helmut Reisen, Pierre Jacquet, and Daniel Cohen
Publication Date:
12-2006
Content Type:
Policy Brief
Institution:
The Organisation for Economic Co-operation and Development
Abstract:
Suppose a DAC donor earmarks $1 billion of taxpayers' money for official development assistance (ODA). The donor may use two instruments as an outright grant or in combination with a market loan to produce a concessional loan of $2 billion with a percentage grant element of 50 per cent. Many nowadays think the choice should be clear: provide grants only, leave loans to the market. The purpose of this Policy Brief is to qualify and inform this choice.
Topic:
International Relations, Debt, Economics, and Third World