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Bolivia’s distinct characteristics and aspirations are a key for understanding its development trajectory. Bolivia is one of the countries with the highest share of indigenous population, representing a tapestry of different groups with different historical, cultural and economic features, with a significant influence in policy decision making. The country is landlocked and one of the most sparsely populated in the world. As a result, long distances to the nearest seaports and markets and a challenging topography pose important natural constraints to economic expansion, and hamper broad-based and inclusive growth. Bolivia is also wealthy in natural resources, not only in hydrocarbon and in mining but in forestry and arable land, with high potential for growth, which make it vulnerable to commodity price shocks. In addition, in the last decade, the country has experienced a profound economic and political paradigm shift, enshrined in the 2009 Constitution, which has been predominantly driven by a state-led development model geared at addressing the social aspirations of Bolivians. The Agenda Patriótica provides the overall policy vision to 2025 and includes 13 strategic pillars. The PDES contains a five-year rolling plan with policy actions and budgets to operationalize the Agenda Patriótica. The overarching development agenda of the Government is still, by and large, based on an economic model that emphasizes state-led public investment, but which is increasingly opening up to private investment in important areas.

International supply chains require the coordination of numerous activities across multiple countries and firms. This paper develops a theoretical model of supply chains in which the measure of tasks completed within a firm is determined by parameters that define transaction costs and the cost of coordinating more activities within the firm. The structural parameters that govern these costs explain variation in supply chain length as well as cross-country variation in gross-output-to-value-added ratios. The structural parameters are linked to comparative advantage along and across supply chains. The paper provides an analytical treatment of trade and welfare responses to trade cost change in a simple two-country model. To explore the models implications in a richer setting, the model is calibrated to match key observables in East Asia, and the calibrated model is used to evaluate implications of changes in model parameters for trade, welfare, the length of supply chains, and countries relative position within them.

This Country Partnership Framework (CPF) sets out the World Bank Group (WBG) program for Albania for the period FY15-19, aimed at supporting Albanias aspiration to achieve equitable growth and integration into the European Union. Albania emerged from the collapse of isolationist communism in the early 1990s as one of the poorest countries in Europe. The country then experienced rapid growth of nearly 6 percent per annum, rising into the ranks of middle income countries by 2008. The global and Eurozone crises in 2008 brought Albanias growth to a near stand-still by 2012, and the country is struggling to recover, particularly given its historic ties to Europes poorer performing economies. The CPF reflects selectivity based on the fundamental priorities of the System Country Diagnostic (SCD) that allows for ramping up support from the World Bank Group. The CPF selectively chooses only five of the twelve SCD priorities, and builds a program of support around this subset of priorities on the basis of additional selectivity filters. These five fundamental priorities include: 1) restoring fiscal sustainability and maintaining financial stability; 2) establishing a high quality business environment; 3) providing clean, efficient, equitable and financially sustainable energy; 4) formalizing and enhancing inclusiveness and sustainability of land markets; and 5) enhancing governance, transparency and accountability of government.

For more than a decade, Africa has enjoyed a mineral boom. is the growth mostly happening in isolated places, sectors and periods? The approach adopted in this study is two-pronged. First, through case studies, including the results of fieldwork, mining’s impacts are examined in a country-specific context for each of three countries, Ghana, Mali, and Tanzania; and second, a statistical analysis is used to test whether the indicators of welfare improve with proximity to a mine.

The expansion of international trade has been essential to development and poverty reduction. Todays economy is unquestionable global. Trade as a proportion of global GDP has approximately doubled since 1975. Markets for goods and services have become increasingly integrated through a fall in trade barriers, with technology helping drive trade costs lower. But trade is not an end in itself. People measure the value of trade by the extent to which it delivers better livelihoods, through higher incomes, greater choice, and a more sustainable future, among other benefits. For the extreme poor living on less than $1.25 a day, the central value of trade is its potential to help transform their lives and those of their families. In this way, there is no doubt that the integration of global markets through trade openness has made a critical contribution to poverty reduction. The number of people living in extreme poverty around the world has fallen by around one billion since 1990. Without the growing participation of developing countries in international trade, and sustained efforts to lower barriers to the integration of markets, it is hard to see how this reduction could have been achieved.

The Tunisia Systematic Country Diagnostic (SCD) seeks to identify the challenges and opportunities to achieve the twin goals of reducing poverty and boosting shared prosperity in a sustainable way. This SCD takes into account Tunisia’s historical sociopolitical context and the political economy of past reforms to provide the context for the challenges and opportunities that exist today to make progress toward the twin goals. The economic policies of the two decades preceding the 2011 revolution delivered widely recognized achievements, including growth rates above the regional average, impressive progress in human development indicators and reduced poverty. However, they failed to address, and even exacerbated, the deep-rooted distortions in the economy that closed the channels, in particular, productive employment and job creation, for a more equal and inclusive society. These distortions were also grounded in a tightly controlled social and political space that favored the elite while repressing others. This development model proved to be economically and socially unsustainable. With a new constitution adopted in 2014 and a democratically-elected government established in 2015, there is today an unprecedented window of opportunity for Tunisia to embark on deep structural reforms to open the channels conducive to a more equal and inclusive society and put the country on a path of more sustainable development. The SCD identifies key opportunities to build on Tunisia’s multiple strengths and economic potential to help guide future development policies. It highlights the importance of social and political stability (as well as domestic security) as prerequisites for critical reforms to be undertaken, as well as the importance of voice, transparency, and accountability in all economic and institutional spheres for those reforms to be sustainable.

The main message of this report is that if Kazakhstan wants to take advantage of global integration and diversification opportunities, the government needs to improve its trade policy framework, its management, and its regulations. It is also finalizing accession to the World Trade Organization (WTO) while its trade strategy includes a number of free trade agreements to be negotiated. It is an active member of the Central Asia Region Economic Cooperation (CAREC). This report is composed of three policy notes that discuss how to improve the trade policy framework, management, and regulations: note one is on the trade policy framework and recommends joining the WTO on a tariff schedule that is more liberal than Russia’s; note two postulates that to benefit more fully from the WTO membership and future regional or bilateral agreements, the institutional framework for trade policy management will need a clearer strategic vision, better coordination within the government and with private sector, and enhanced human capacity; and note three suggests that for the private sector to benefit from global integration and diversification, the government should ease the burden of regulations that affect trade (non-tariff measures (NTMs)).

This paper views tariff-cutting formulas as a potential solution to the free-rider problem that arises when market opening is negotiated bilaterally and extended on a most-favored-nation basis. The negotiators in the Doha Agenda chose formulas that are ideal from an economic efficiency viewpoint in that they most sharply reduce the highest and most economically-costly tariffs. When the political support that gave rise to the original tariffs is considered, however, this approach appears to generate very high political costs per unit of gain in economic efficiency. The political costs associated with the formulas appear to have led to strong pressure for many, complex exceptions, which both lowered and increased uncertainty about members’ market access gains. Where tariff cuts focus on applied rates, it seems likely that a proportional cut rule would reduce the political costs of securing agreements. However, detailed examination of the Doha proposals with their product exceptions suggests that negotiators are likely to find cuts with exceptions politically attractive but economically costly when cuts are based on bound tariffs with different degrees of binding overhang.

The objective of this Systematic Country Diagnostic (SCD) is to identify the priority constraints Bolivia faces in sustaining its gains on reducing poverty and enhancing shared prosperity over the next years. It will analyze the dynamics behind the progress achieved in the past decade on inclusive growth, and identify a number of key constraints for sustaining and consolidating this progress. The SCD begins, in Chapter two, with a presentation of four characteristics that make Bolivia special, including its State‐led development strategy, large natural resource wealth, difficult geography and landlocked condition, and rich ethnic diversity. In chapter three, this SCD presents an in‐depth evaluation of the generally positive evolution in growth and in the reduction of poverty and inequality over the past decade. An assessment of the recent past and current context concludes that there is a need for enabling new inclusive growth engines, particularly through increased private investment and higher productivity. Chapter four makes a case for rebalancing the path of inclusive growth, and presents three main challenges in this sense: sustaining macroeconomic and fiscal stability, developing non‐extractive sectors with higher productivity and a lower environmental footprint, and reducing gaps and disparities in access to opportunities. The discussion of these challenges reveals a number of priority constraints, a key input for the prioritization exercise. Finally, in chapter five the SCD presents the findings of a prioritization exercise aimed at producing a restricted list of prioritized constraints, as well as a list of knowledge gaps identified in the different parts of the analysis.

This Systematic Country Diagnostic (SCD) aims to identify the major constraints on and opportunities for sustaining poverty reduction and shared prosperity in Serbia. The SCD serves as the analytic foundation on which the World Bank Group and the Government of Serbia will define a new Country Partnership Framework for FY2016 to FY2020. It is based on the best possible analysis, drawing on available evidence, and not limited to areas where the World Bank Group is currently engaged. The SCD is structured as follows: Chapter 2 presents the political and economic context. The economic context describes recent trends in growth, shared prosperity, and poverty reduction and briefly discusses factors behind them. Chapter 3 discusses pre-crisis patterns of growth and opportunities for future growth and inclusion in Serbia. Chapter 4 presents drivers of economic growth in Serbia and the principal constraints on growth and competitiveness. Chapter 5 discusses drivers of and constraints to economic inclusion. Chapter 6 outlines risks to sustainable shared prosperity and poverty reduction. Chapter 7 presents priorities for action.

This paper provides a quantitative evaluation of the welfare effect of the introduction of proportional taxation in Bulgaria in 2008, an effect that operates through the grey economy channel. Using a general-equilibrium model, augmented with informal sector, a computational experiment is performed to evaluate the welfare gain from the adoption of proportional taxation. The lower effective tax burden in the new tax regime produces a relocation of people into the official sector, stimulates investment, and increases output and consumption. Finally, under the flat tax regime, the size of the informal sector is smaller, and quantitatively consistent with OECD (Is informal normal? Towards more and better jobs in developing countries. OECD, Paris, 2009) and European Commission (Tax reforms in EU member states, Official Publications of the European Communities, Luxembourg, p 2012, 2012) figures.

This paper is a first attempt to provide a quantitative evaluation of the welfare gains resulting from the introduction of flat income taxation in Bulgaria in 2008. Using a calibrated micro-founded endogenous growth model with physical and human capital accumulation to Bulgarian data, a computational experiment is performed to quantify the dynamic welfare effect of progressive income taxation vis-a-vis flat income taxation. The model demonstrates that significant welfare gains, measured in terms of per-period consumption, can be realized with the introduction of flat income taxation. In addition, these welfare gains increase proportionally with the length of the time horizon considered. Finally, sensitivity analysis was performed to demonstrate that the results obtained are robust. this is the accepted version of the article that appeared in Eastern European Economics

This article is concerned with the interaction of regulated efficiency and World Trade Organization (WTO) accession and its impact on China's motor vehicle sector. The analysis is conducted using a 23 sector-25 region computable general equilibrium model. Regulatory reform and internal restructuring are found to be critical. Restructuring is represented by a cost reduction following from consolidation and rationalization that moves costs toward global norms. Without restructuring, WTO accession means a surge of final imports, though imports of parts could well fall as production moves offshore. However, with restructuring, the final assembly industry can be made competitive by world standards, with a strengthened position for the industry.

In Andhra Pradesh, rice, maize, cotton and groundnut are the major crops. There are significant changes in the competitiveness and policy environment and its implications for crop competitiveness in post-WTO regime. This paper examines the trends in area, production and yield and competitiveness of major crops in pre- and post-WTO period and its implications on the producer, consumer surplus and social cost benefits at state level. Rice, maize and cotton registered impressive growth in production in post-WTO period. Trade competitiveness of rice showed that the state had improved competitiveness in rice production as shown by domestic resource cost (DRC) and nominal protection coefficient (NPC) levels. The effective protection coefficient (EPC) shows that rice production was fairly protected by the government. In case of maize NPC values shows non-competitiveness and EPC results revealed inefficiency in production. Growth rate of production of groundnut is lower during post-WTO period, even though it is efficient and competitive producer mainly due to the high fluctuations in prices and yields. The state is an efficient and competitive producer of cotton and its area increased steeply. Welfare gains in all crops were much larger than the respective welfare losses due to liberalisation. Welfare gain was high in case of cotton, followed by rice, groundnut and maize. The net effect to the economy of the state due to liberalisation was substantial in rice and maize.

In this paper I quantify the welfare gains of the 2004 EU enlargement as a result of the abolition of border controls, both for incumbents and for new members. I build a multi-sector Ricardian model, allowing for linkages across sectors, similar to the one in Caliendro and Parro (2011). As with a large number of quantitative trade models, the gains crucially depend on one key parameter, the dispersion of productivity. I extend the estimation methodology of Costinot et al. (2012) to a richer modeling setting and compute the dispersion in a way consistent with the underlying theoretical model. Within the model, I compare the welfare changes for 23 countries between 2003 and 2006. I find that new entrants gained significantly more than old members from enlargement. However, the overall changes in real income are rather small, measured in single digits for new entrants and fractions of a percent for old members. I also break down total gains by source and find that allowing for interconnectedness across sectors amplifies the changes in welfare.

Bu tezde, Eaton ve Kortum (2002)'nin Ricardocu ticaret modelini tahminederken ulkelerin verimlilik daglmn gostermede Frechet daglmn almakyerine diger uc deger daglm olan Weibull daglmn kullandk. Eaton ve Ko-rtum (2002) modelinde de oldugu gibi, analitik kolaylk nedeniyle, verimlilikdaglmnn Frechet daglmn izledigini varsaymak artk uluslararas ticaretliteraturunde yaygn bir gelenek olmustur. Ancak, son calsmalar tahminsonuclarnn bu parametrelemeye duyarl oldugunu gostermistir. Bu goruskarssnda, Eaton ve Kortum (2002) modeli verimlilik daglm icin Weibulluc deger daglmn kullanarak tahmin yaptk ve farkl daglm kullanldgndatahmin edilen degerlerin degistigini gosterdik.Anahtar Kelimeler: Ticaret, teknoloji, cografya, refah arts, uc deger daglmlar,verimlilik. In this thesis, we estimate the Ricardian trade model of Eaton and Kortum(2002) using a dierent extreme value distribution for the productivity distri-butions of countries. Due to its analytical convenience, it is now a commontradition in international trade literature to assume that the distribution ofproductivities follows a Frechet distribution, which is the case for Eaton andKortum (2002) model as well. However, recent studies have shown that theestimation results are sensitive to this parametrization. In view of this, weestimate the Eaton and Kortum (2002) model where Weibull distribution isused for the distribution of productivities and show that estimated resultschange when we use another distribution.Keywords: Trade, technology, geography, welfare gains, extreme value distri-butions, productivity 102

The Central America region is a small market. The region contains around 43 million inhabitants (0.6 percent of total world population) who generate around 0.25 percent of the world's Gross Domestic Product (GDP). While the region has successfully embarked on a regional integration agenda and has strong commercial links with the US, extra-regional trade-mainly with large fast-growing emerging economies-remains a challenge. Export performance is analyzed along three dimensions that, together, give a fairly comprehensive picture of competitiveness: 1) the composition, orientation and growth of the export basket; 2) the degree of export diversification across products and markets; and 3) the level of sophistication and quality of their main exports. This analysis allows exports dynamics at the different margins of trade (intensive, extensive, and quality) to be evaluated and individual countries' to be benchmarked with peers in the Central American region. The results of this report allow policy makers to identify key areas to explore in the overall discussion of export competitiveness in the Central American region. This paper relates to the literature on challenges and opportunities that trade liberalization can bring to the Central American region. Much of the recent literature focuses on the role of the free trade agreement negotiated by Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua, with the US.

We analyze the e¤ects of capital mobility on the speed of convergence and welfare. Using a two-sector endogenous growth model, the speed of convergence is determined primarily by the gap in rates of return between physical and human capital. In a closed economy, where we consider a typi- cal situation of having relatively less physical capital than in a steady state, the return on physical capital will be signi cantly large, while the return on human capital will be relatively small. Thus, this gap in rates of return is considerably large when the economy is not at its steady state. In an open economy, where human capital is non tradable, the gap in rates of return is small, as it is the gap between the international interest rate (which is less than the closed economy return on physical capital during transition) and the return on human capital. Hence, convergence in open economies will be relatively slow, and convergence in closed economies will be relatively fast, and therefore there is little welfare gains to nancial liberalization. More- over, the result on the speeds of convergence for closed and open economies reverses the conclusion given by the one-sector neoclassical growth model for the same experiment., Fundação para a Ciência e a Tecnologia (FCT), COMPETE, QREN, FEDER

Pakistan’s trade indicators reflect low outward orientation, concentration on low value added activities and an undiversified product mix which out of line with the fastest growing areas of world demand. The export share of Gross Domestic Product (GDP) has remained low and falling—fro

This report examines how green growth and sustainable development policies can be incorporated into structural reform agendas. Indeed, as demonstrated in the report, many of these policies are closely linked and synergistic with the framework policies applied by G20 governments in their efforts to pursue strong and sustainable growth. The report, has been prepared in response to the request from G20 Finance Ministers and Central Bank Governors in their communication of 25-26 February 2012 that asked the Organization for Economic Co-operation and Development (OECD), with the World Bank and the United Nation (UN), to prepare a report that provides options for G20 countries on inserting green growth and sustainable development policies into structural reform agendas, tailored to specific country conditions and level of development. The report will be an input to the G-20 leader's summit in Los Cabos and provides a toolkit of policy options from which countries may draw-upon when designing their own green growth strategies. The G20 development working group has also tasked the International Organizations with the development of a non-prescriptive toolkit of policy options to support inclusive green growth in the context of sustainable development and poverty eradication in developing countries.

The purpose of this paper is to summarize the challenges and the practical successes that a selected number of countries are experiencing in moving towards 'climate-smart' agriculture while also meeting the food requirements of a growing population, broader economic development and green growth objectives. It complements papers prepared in 2010 on technologies and policy instruments, research, and farmers' perspectives. The paper is also intended to provide a broad country perspective to two additional papers produced for a meeting of African Ministers of Agriculture which took place in Johannesburg in September 2011. The main conclusion is that a number of countries have made impressive progress in integrating 'climate-smart agriculture' into broader development and growth programs. Several countries are supporting policy measures and programs to conserve soil and moisture while enhancing productivity and competitiveness, and are addressing the particular concerns of drought-prone semi-arid areas. They are improving agricultural water management and watershed management, and addressing sea-surges, salinity and coastal flooding. Some countries are also including climate-smart agriculture as a core element in broader green growth agendas. The private sector has a key role to play in climate-smart agriculture, especially where the enabling environment has been favorable. Achieving climate-smart agriculture needs an integrated approach, tackling productivity and food security, risk and resilience, and low carbon growth together, but integration and institutional coordination remains a challenge in many countries.

This note synthesizes the experience of three political economy case studies: the water sector in West Bank and Gaza, the bus sector in Dhaka, Bangladesh, and the port sector in Chittagong, Bangladesh. The objective is to describe: the process of conducting these types of studies, and how recommendations which have a higher chance of feeding into reforms or operations can be developed. It is hoped that these insights will be useful for development practitioners and operational teams who are considering conducting political economy studies. It is increasingly accepted that better understanding and management of the political economy of policy reforms can help development agencies, including the World Bank, refine policy advice and operational support in partner countries. Support of reforms which are technically feasible and politically acceptable, while simultaneously promoting a poverty reduction agenda, remain a core challenge for the World Bank. It is anticipated that the additional time and effort put into political economy work will often translate into improved design and implementation of sector reforms and operations, and thus increase their effectiveness. It illustrates lessons for operational teams and development practitioners on conducting political economy work. Finally, it shows that certain obstacles need to be anticipated when translating political economy recommendations into design of operations and illustrates, through the case studies, how they can be addressed.

The issue of measuring product variety has received relatively little attention due to its inherent difficulty. In the language of index numbers, an expansion in the range of inputs or outputs is a 'new goods' problem: a good that is newly available will have an observed price and quantity, but no corresponding price or quantity the year before. The availability of this new good will yield a welfare gain to consumers, as well as a productivity gain to firms buying the new input. In this paper we show how product variety can be measured in the case of a CES aggregator function. This paper is organized as: after reviewing the literature on the 'new goods' problem in section two, then discuss how to measure export variety in section three. In sections four and five discuss the empirical applications to export variety growth in Mexico and China. Regression results relating trade liberalization to industry export variety are presented in section six, and conclusions are given in section seven.

Current international financing (primarily ODA) for environmental services in developing countries is very roughly estimated to be upwards of $21 billion annually (not including climate change financing), but additional resources on the order of tens, if not hundreds, of billions of dollars are needed. In 2009, environmental ODA was estimated at $18 billion with a few billion more delivered through philanthropic and market-based financing channels. Although there are only a few studies of the additional financing needed, and those are relatively narrow in scope, the estimates that are available clearly indicate that significantly higher levels of finance still need to be reached. Additionally, the impacts of environmental finance on environmental sustainability and development objectives are poorly understood. Systematic reviews of previous experience, and standardized monitoring in the future, would support the countries and projects monitored, while also providing important lessons for the broader development and environment communities.

EPAs between the EU and ACP countries can be viewed as being anti mercantilist and there has been a lot of speculations about their outcome. The aim of the study is to determine the effects of the Economic Partnership Agreements (EPAs) between the European Union (EU) and the Southern African Customs Union (SACU) members using Global Trade Analysis Project (GTAP) version 7. Two scenarios are analysed: first when the other SACU member states sign the EPAs with the EU excluding South Africa and secondly when the entire SACU member states including South Africa sign a full EPA with the EU. Results show that South Africa does stand to lose when the other member states sign. However, signing of the EPA of the SACU as a bloc, including South Africa result in welfare gain in the region. Significantly, there is an increased export of livestock and processed foods to the EU from SACU region meaning that the region stands to gain in promoting these industries after an EPA. Besides these two sectors, most of the other sectors tend to lose out. It should be noted that full benefits of trade liberalisation agreements depend on speed of industry reform and therefore can only be realised in the long run.

This paper assesses the welfare impact of trade and technology diffusion as well as the change in the cross-country distribution of GDP due to removal of trade costs and diffusion barriers. The model extends the multi-country Ricardian trade model of Alvarez and Lucas (2007) to include technology diffusion with diffusion barriers. A key feature of the model is that some countries export goods produced by foreign technology via diffusion. The model is calibrated to match the world GDP distribution, the merchandise trade and technology diffusion shares of GDP, and real GDP per capita for a sample of 31 countries. Data on international trade in royalties, license fees, and information intensive services are used as proxies for international technology diffusion. There are three key findings. First, the welfare gains from removing diffusion barriers are 4--60% across countries, generally larger than the gains from removing trade costs (8--40%). The main reason is that diffusion has a larger impact on the nontradable sector due to the substitutability between trade and diffusion in the tradable sector. Another reason is that diffusion barriers are generally larger than trade costs. Second, removing trade costs and diffusion barriers has little impact on reducing the dispersion of real GDP per capita (measured by Gini index) across countries. Compared to the benchmark, free diffusion decreases the Gini by 4%, and free trade decreases the Gini by 2%. Third, removing diffusion barriers increases trade, which indicates that diffusion may enhance trade.

This paper analyzes the economic effects of agricultural price and merchandise trade policies around the world as of 2004 on global markets, net farm incomes, and national and regional economic welfare and poverty, using the global economy wide Linkage model, new estimates of agricultural price distortions for developing countries, and poverty elasticity's approach. It addresses two questions: to what extent are policies as of 2004 still reducing rewards from farming in developing countries and thereby adding to inequality across countries in farm household incomes? Are they depressing value added more in primary agriculture than in the rest of the economy of developing countries, and earnings of unskilled workers more than of owners of other factors of production, thereby potentially contributing to inequality and poverty within developing countries (given that farm incomes are well below non-farm incomes in most developing countries and that agriculture there is intensive in the use of unskilled labor)? Results are presented for the key countries and regions of the world and for the world as a whole. They reveal that, by moving to free markets, income inequality between countries will be reduced at least slightly, all but one-sixth of the gains to developing countries will come from agricultural policy reform, unskilled workers in developing countries the majority of whom work on farms will benefit most from reform, net farm incomes in developing countries will rise by 6 percent compared with 2 percent for non-agricultural value added, and the number of people surviving on less than US$1 a day will drop 3 percent globally.

This paper analyzes the poverty and inequality implications of removing agricultural and non-agricultural price distortions in the domestic market of the Philippines and abroad. Liberalization in the rest of the world is poverty and inequality reducing, whereas full domestic liberalization increases national poverty and inequality. Poverty declines while inequality increases marginally in the combined scenario of both global and domestic agriculture reform. Although the reduction in the national poverty headcount is small in the latter scenario, the poorest of the poor, particularly those living in the rural areas, emerge as 'winners', given their strong reliance on agricultural production and unskilled labor wages.

The Doha round of multilateral trade negotiations stalled in 2008 owing in no small degree to a lack of agreement on the terms of substantially reducing trade-distorting support for agricultural products and to what extent this will be beneficial to developing countries. Nicaragua presents an interesting case in point, being one of the poorest economies in Latin America with still a relatively large agricultural sector and high degrees of rural poverty. In 2005, the country signed a free trade agreement with the United States. This chapter provides a quantitative analysis addressing that question. It does so using a computable general equilibrium (CGE) model for Nicaragua coupled with a micro-simulation methodology. The first section provides background information on trade reform policies and macroeconomic trends in Nicaragua, with special reference to the agricultural sector and rural poverty. The section that follows describes the main features of the CGE model and the micro-simulation methodology used to assess the impact on poverty and inequality. The author then lay out the model scenarios considered, which include liberalizations of agricultural and all merchandise goods trade by the rest of the world and by Nicaragua itself. That is followed by a summary analysis of results. This analysis includes tests for the sensitivity of the results with respect to assumptions regarding the responsiveness of trade to price liberalization, as identified through the relevant trade elasticities. The final section provides conclusions and possible policy implications.

While in principle, international payments could be carried out using any currency or set of currencies, in practice, the U.S. dollar is predominant in international trade and financial flows. The dollar acts as a "vehicle currency" in the sense that agents in nondollar economies will generally engage in currency trade indirectly using the U.S. dollar rather than using direct bilateral trade among their own currencies. Indirect trade is desirable when there are transactions costs of exchange.> ; This paper constructs a dynamic general equilibrium model of a vehicle currency. We explore the nature of the efficiency gains arising from a vehicle currency, and show how this depends on the total number of currencies in existence, the size of the vehicle currency economy, and the monetary policy followed by the vehicle currency's government. We find that there can be very large welfare gains to a vehicle currency in a system of many independent currencies. But these gains are asymmetry weighted towards the residents of the vehicle currency country. The survival of a vehicle currency places natural limits on the monetary policy of the vehicle country.

The objectives of this paper are: first, to quantify the stabilization welfare gains from commitment; second, to examine how commitment to an optimal rule can be sustained as an equilibrium and third, to find a simple interest rate rule that closely approximates the optimal commitment one. We utilize an influential empirical micro-founded DSGE model, the euro area model of Smets and Wouters (2003), and a quadratic approximation of the representative household’s utility as the welfare criterion. Importantly, we impose the effect of a nominal interest rate zero lower bound. In contrast with previous studies, we find significant stabilization gains from commitment: our central estimate is a 0.4 - 0.5% equivalent permanent increase in consumption, but in a variant with a higher degree of price stickiness, gains of over 2% are found. We also find that a simple optimized commitment rule with the nominal interest rate responding to current inflation and the real wage closely mimics the optimal rule.

The proliferation of preferential trade liberalization over the last 20 years has raised the question of whether it slows multilateral trade liberalization. Recent theoretical and empirical evidence indicates that this is the case even for unilateral preferences that developed countries provide to small and poor countries, but there is no estimate of the resulting welfare costs. This stumbling block effect can be avoided by replacing the unilateral preferences with a fixed import subsidy, which generates a Pareto improvement. More importantly, this paper presents the first estimates of the welfare cost of preferential liberalization as a stumbling block to multilateral liberalization. Recent estimates of the stumbling block effect of preferences with data for 170 countries and more than 5,000 products are used to calculate the welfare effects of the European Union, Japan, and the United States switching from unilateral preferences for least developed countries to an import subsidy scheme. In a model with no dynamic gains to trade, the switch produces an annual net welfare gain for the 170 countries that adds about 10 percent to the estimated trade liberalization gains in the Doha Round. It also generates gains for each group: the European Union, Japan, and the United States ($2,934 million), least developed countries ($520 million), and the rest of the world ($900 million).

In a two-country model with trade driven by comparative advantages, it is considered how imperfectly competitive labour markets are affected by lower frictions in international goods trade. Easier goods trading is equivalent to increased mobility of employment across countries and thus a change in the trade-off between wages and employment faced by wage setters. While the effects of product market integration on the trade-off between wages and employment in general is ambiguous, it is shown that product market integration works like a general improvement in productivity via the specialization it allows through trade. Unambiguously, real wages and employment and welfare improve upon reductions in trade frictions, and therefore workers are better off irrespective of whether the market power of unions is enhanced or muted.

This housing policy in developing countries, conjectures and refutations article discusses housing policy in developing economies. It examines recent research findings in light of earlier arguments as to the benefits of more market-oriented approaches. It also looks at whether the recommendations of earlier work have been refuted or developed in subsequent analyses and policy measures. In particular, it reviews the empirical analysis of the effects of policy on housing supply, the richer understanding of the effects that land market regulations have on housing affordability and the functioning of urban areas, and the alleged mysterious effects that researchers claim effective property rights have on housing policy and on development more generally. It also examines the effects of the increased emphasis on community participation, showing how it helps to more fully reconcile the incentives faced by beneficiaries of housing policy and donors. Finally, it examines recent literature on the welfare effects of rent control. The article shows that some of the conjectures as to the likely benefits of more market-based policy have been refuted, but large welfare gains for poor people can still be realized by adapting this approach. Furthermore, this approach appears to be gaining ground as the consensus approach to effective housing policy.

The effective market access granted to textiles and apparel under the North American Free Trade Agreement (NAFTA) is estimated, taking into account the presence of rules of origin. First, estimates are provided of the effect of tariff preferences combined with rules of origin on the border prices of Mexican final goods exported to the United States (U.S.) and of U.S. intermediate goods exported to Mexico, based on eight-digit harmonized system tariff-line data. A third of the estimated rise in the border price of Mexican apparel products is found to compensate for the cost of complying with NAFTA's rules of origin, and NAFTA is found to have raised the price of U.S. intermediate goods exported to Mexico by around 12 percent, with downstream rules of origin accounting for a third of that increase. Second, simulations are used to estimate welfare gains for Mexican exporters from preferential market access under NAFTA. The presence of rules of origin is found to approximately halve these gains.

This article assesses the impact of the world price-depressing effect of agricultural subsidies and border protection in Organization for Economic Co-operation and Development (OECD) countries on developing economies' exports, imports, and welfare. Developing economy exporters are likely to benefit from reductions in such subsidies and trade barriers, whereas net importers may lose as world prices rise. A simple partial equilibrium model of global trade in commodities that benefit from domestic support or export subsidies is developed to estimate the relevant elasticities. Simulation results suggest that a 50 percent reduction in border protection will have a much larger positive impact on developing economies' exports and welfare than a 50 percent reduction in agricultural subsidies. Although there is significant heterogeneity across developing economies, the results suggest that efforts in the Doha round of World Trade Organization (WTO) negotiations should be directed at substantially reducing border protection.

In this paper, we set up a two-country general equilibrium model where trade unions have wage bargaining power. We show that a decrease in trade distortions inducing further product market integration gives rise to specialization gains as well as a labour market reform effect. The implications of the specialization gains are similar to an increase in labour productivity, whereas the labour market reform effect is similar to an increase in the degree of competition in the labour market. Wages, employment and welfare increase as a result of further product market integration. It is interesting to note that the labour market reform effect of product market integration is achieved despite an increase in the wage level.

In a two-country model with trade driven by comparative advantages, it is considered how imperfectly competitive labour markets are affected by lower frictions in international goods trade. Easier goods trading is equivalent to increased mobility of employment across countries and thus a change in the trade-off between wages and employment faced by wage setters. While the effects of product market integration on the trade-off between wages and employment in general is ambiguous, it is shown that product market integration works like a general improvement in productivity via the specialization it allows through trade. Unambiguously, real wages and employment and welfare improve upon reductions in trade frictions, and therefore workers are better off irrespective of whether the market power of unions is enhanced or muted.

This article uses a multi sector, multi county, computable general equilibrium model to examine Chile's strategy of 'additive regionalism' negotiating bilateral free trade agreements with all of its significant trading partners. Taking Chile regional arrangements bilaterally, only its agreements with Northern partners provide sufficient market access to overcome trade diversion costs. Due to preferential market access, however, additive regionalism is likely to provide Chile with gains that are many multiples of the static welfare gains from unilateral free trade. At least one partner country loses from each of the regional agreements considered, and excluded countries as a group always lose. Gains to the world from global free trade are estimated to be vastly larger than gains from any of the regional arrangements.

We argue that since there are several impediments to international risk sharing, the welfare gains from full international risk sharing, which have been the object of analysis in the previous literature, are not suggestive. Instead, we study the gains from feasible risk sharing and find that they are considerable (0.5% increase in permanent consumption). Marginal benefits from further risk sharing are low, which indicates that feasible risk sharing can achieve most of the benefits from international risk sharing. Surprisingly, we find that sharing short-term consumption risk lowers welfare. On the basis of the results we make suggestions on how to improve existing international risk sharing systems.

We consider the effects on Croatia of several important trade policy reforms using a quantitative, multi-regional, general equilibrium framework. A complete trade agreement with the European Union requires that some intermediate reforms occur, such as Croatia joining the World Trade Organization and liberalizing its trade policies. We evaluate the current trade regime of Croatia to assess what impacts those reforms will have. We then employ a quantitative simulation model to measure the efects on welfare of the intermediate reforms as well as the complete reform. We find that Croatia may suffer some short-term reductions in welfare as it starts out on the path to liberalization, but that there are welfare gains from complete liberalization. It is therefore important that the initial policy reforms be seen as one step along a path that will eventually provide demonstrable welfare gains, rather than as an end in themelves. Our approach is also designed to provide a formal simulation model that can be used to re-examine these issues as the reforms proceed, as they are modified, and as better data becomes available.

We argue that since there are several impediments to international risk sharing, the welfare gains from full international risk sharing, which have been the object of analysis in the previous literature, are not suggestive. Instead, we study the gains from feasible risk sharing and find that they are considerable (0:5% increase inpermanent consumption). Marginal benefits from further risk sharing are low, which indicates that feasible risk sharing can achieve most of the benefits from internationalrisk sharing. Surprisingly, we find that sharing short term consumption risk lowers welfare. On the basis of the results we make suggestions on how to improve existing international risk sharing systems.

The core part of our work is a design of the Croatian CGE model, using version 4 of the standard GTAP database. Our approach to the data issue is to demonstrate how one can quickly adapt the standard GTAP database to include a country not previously included in the database, utilizing a transparent process whereby the available data on Croatia is merged into the existing GTAP database, followed by simulations of trade policy options: Stage 1 - Croatia joining WTO; Stage 2 - Croatia joins CEFTA; and Stage 3 - Croatia joins the European Union on top of membership of CEFTA and WTO accession. Our results indicate that Croatia will suffer virtually no substantial welfare losses as it undertakes transitional steps to EU accession. Moving towards the WTO tariffs is a necessary step in that transition, and while there are some initial welfare losses these are small and are more than made up for by the eventual welfare gains. Our simulation results also show where the production and trade structure of the Croatian economy might be expected to change. It is important to note that some sectors may decline or expand during the earlier stages of the transition, only to find those changes offset as the reforms continue.

Major changes are needed if Africans and their children are to claim the 21st century. With the rapidly growing population, 5 percent annual growth is needed simply to keep the number of poor from rising. Halving severe poverty by 2015 will require annual growth of more than 7 percent, along with a more equitable distribution of income. Trends in Africa will need to change radically for a catch-up process to materialize. This will require determined leadership within Africa. It will require better governance developing stable and representative constitutional arrangements, implementing the rule of law, managing resources transparently, and delivering services effectively to communities and firms. It will require greater investment in Africas people as well as measures that encourage private investment in infrastructure and production. And it will require better support and perhaps more support from the international development community. In facing these challenges, Africa has enormous potential including the potential of its women, who now provide more than half of the regions labor but lack equal access to education and factors of production. This report brings together the recent body of work particularly that emanating from Africa itself to show how some African countries are approaching common issues. African economies and sub-regions are diverse and each will have to find its way to address the challenges of the 21st century.

Discussions of competition and regulatory reform typically focus on price and quantity effects. But improving certain infrastructure services can also stimulate entry, and competition in user industries downstream, allowing new firms to enter, incumbent users to offer new products, and rivalry to intensify. The authors present a case study of how innovations in road freight services affect selected downstream users of those services after regulatory reform. After a period of rigid regulation, and heavy government interference, Mexico in 1989 developed a new policy framework for road transport, with free entry, and market-based price setting. The result: faster, more reliable trucking has allowed user companies to offer new, previously unavailable products, and to reach new areas with existing products. Cheaper, more customer-responsive trucking services have allowed logistical innovations in user firms, and some user firms have decided not to keep their own fleets of trucks, but to outsource trucking services on the open market, thereby converting fixed costs to variable costs. For one fertilizer company, the benefits of reform included a ten percent improvement in operating margin. Successful reform requires careful planning and execution, and political support at high levels. Regulatory reform also profoundly changes the sectoral institution formerly responsible for the regulation. Enough resources should be provided to help organizations in the reformed industry make the transition to the post-reform environment - helping with such tasks as defining the organizations new role, and facilitating the redeployment of staff. The national competition agency can help greatly in laying the groundwork for reform by making a compelling case for the reforms expected benefits. After reform, the competition agency should also help with enforcement, to ensure that the cozy, cartel-like behavior stimulated by tight entry restrictions does not persist. In Mexico, three strong interventions were required to discipline attempted anti-competitive practices in the trucking industry in the years following reform.

In the late 1980s, Chile planned to privatize Santiago's sanitary works enterprise (EMOS) but instead reformed it under public ownership. It did so through a regulatory framework that mimicked the design of a concession with a private utility, setting tariffs that ensured at least a seven percent return on assets, creating a neutral regulator independent of ministry intervention, and giving EMOS the right to appeal the regulator's tariff decisions. This reform of Santiago's water system is often cited as a case of successful reform under public management. Comparing a comprehensive measure of welfare with a counterfactual example, the authors show surprisingly large gains from Santiago's reform, given the relatively good initial conditions. (The gains accrued largely to government and employees, but consumers benefited from improved service and coverage). Why did reform in Santiago improve water system performance, when similar reform attempts under public management in other countries failed? 1) Chile has a long tradition of private water rights, shaped by early recognition that water is a scarce and tradable private good. 2) The reformed regulatory framework was designed to attract private investors to the water system and to motivate them to operate efficiently and expand the system. 3) Chile's unique electoral institutions sustained this framework under state operation after democracy was restored. 4) Chile's strong bureaucratic norms and institutions (permitting little corruption), combined with Santiago's relatively low-cost water system, permitted prices that effectively increased quasi-rents for investing in the system while minimizing the risk of inefficiency or monopoly rents. The authors also address the question of why EMOS was reformed but not privatized, and what the costs of not privatizing were. The system was privatized in 1999, but the changes from privatization are likely to be less significant than those introduced in 1989-90.