While the empirical literature on the direction and magnitude of the impact of public spending on growth is mixed, there is growing evidence that, at the macroeconomic and microeconomic levels, public expenditure can impact development. Public investment focused on areas where there are market failures and public good externalities have a highly positive rate of return and yield benefits that substantially outweigh the costs. In contrast, poorly-implemented efforts in activities that are better suited to private activities can be counter-productive.
In the literature on growth, several empirical studies have focused on both the traditional and new channels through which different types of public spending can affect growth.2 A direct effect relates to an increase in the economy’s capital stock (physical or human) reflecting higher flows of public funds, especially when they are complementary to those privately financed. Public investment can also contribute to growth indirectly by increasing the marginal productivity of both publicly and privately supplied production factors. For example, public expenditure on agriculture research and development (R&D) can promote higher productivity by improving the interaction between physical and human capital production inputs. Other components of public spending, related for instance to the enforcement of land property rights, can also exert a positive indirect effect on growth by contributing to better use of existing assets. There is also growing evidence suggesting that, in developing countries, externalities associated with infrastructure public spending may be more important than commonly thought by having a sizable impact on human capital as well.
There are limits to the positive impact that public spending may have on growth. Regarding the total level of public spending, an implicit common result in recent empirical studies seems to support an inverse U-shaped relationship theory, according to which public spending may affect growth positively (after controlling for the negative effects associated with its financing) up to a certain point, above which additional spending may lead to negative growth as the needs for additional (and likely distortionary) financing increase. This caveat on the limits to government intervention should inform policy analysis regarding the likely impact of public spending on growth, as increasing the size of the budget beyond a certain threshold may be associated with efficiency losses.
Both the composition as well as the level of spending matter for growth. Regarding the composition of public spending, some items can trigger a complementary effect by either stimulating private spending or providing additional counterpart funding for growing private sector investments, such as safe roads, and reliable communications and energy supply. On the contrary, some other budget items can crowd out private spending, either by reducing incentives for private investors entering in a particular market or sector, or by triggering higher public deficits and accumulated public debt in need of financing, which reduces the credit available for the private sector and, in the long run, leads to higher interest rates.
Several empirical studies find that, whilst controlling formally for the government budget constraint, under certain fiscal policy conditions (for example, fiscal stability and a relatively small government budget size), at least some categories of public expenditures do exhibit positive growth effects.7 In particular some authors (Gemmel, 2007; Moreno-Dodson, 2008), provide empirical support for the view that in a developing country context, “productive” public expenditure triggers a growth-enhancing effect.
World Bank.Author: Armas,Enrique Blanco; Osorio, Camilo Gomez; Moreno-Dodson, Blanca; Abriningrum, Dwi Endah. Document Date: 2012/02/01. Document Type: Policy Research Working Paper.Report Number: WPS5977
Electronic News
Showing posts with label Indonesia. Show all posts
Showing posts with label Indonesia. Show all posts
Monday, March 5, 2012
Wednesday, January 4, 2012
Severance pay compliance in Indonesia
This paper contributes new evidence from two large household surveys on the compliance of firms with severance pay regulations in Indonesia, and the extent to which changes in severance pay regulations could affect employment rigidity. Compliance appears to be low, as only one-third of workers entitled to severance pay report receiving it, and on average workers only collect 40 percent of the payment due to them. Eligible female and low-wage workers are least likely to report receiving payments. Widespread non-compliance is consistent with trends in employment rigidity, which remained essentially unchanged following the large increases in severance mandated by the 2003 law. These results suggest that workers may benefit from a compromise that relaxes severance pay regulations while improving enforcement of severance pay statutes, and possibly establishing a system of unemployment benefits.
The financial crisis that emerged in the United States in mid-2007 quickly transformed into a global credit crunch that sharply reduced global trade flows. Many countries were affected by the severe global recession that followed, and millions of individuals throughout the world lost jobs, leading to increased informality and working poverty. In the aftermath of the crisis, policymakers throughout the world are questioning whether existing labor market regulations successfully balanced the competing goals of maintaining flexibility and protecting workers.
While discussions over the scope of labor market regulations are often heated, views are typically based either on the predictions of theoretical models or anecdotes. The lack of evidence is particularly acute for developing countries, where hard data are rare and mechanisms for enforcing regulations tend to be limited. Lack of enforcement is a particularly serious concern, given that significant portions of workers report earning wages that fall below the statutory minimum.2 No systematic evidence, however, exists regarding compliance with other labor regulations, making it difficult to make an informed assessment of the costs and benefits of regulatory reform.
This paper contributes new evidence on the compliance of firms with severance pay regulations in Indonesia, and the extent to which changes in severance pay regulations could affect employment rigidity. This evidence sheds light on a vigorous policy debate that arose in Indonesia prior to the onset of the global financial crisis, following the passage of a 2003 labor law that increased employment protection and severance pay. The debate pitted the business community, which warned that increases in severance pay regulations would reduce employment, against organized labor, which argued that severance pay makes an important contribution to income security.
Author: Brusentsev, Vera ; Newhouse, David ; Vroman, Wayne; Document Date: 2012/01/01.Document Type: Policy Research Working Paper.Report Number: WPS5933
For more information about Projects in Indonesia see South-Eastern Asia Projects
Saturday, December 3, 2011
Green the new color of rice as the worlds most important food crop gets sustainability targets
"There are many different sustainable technologies and practices for rice, the world's most important food crop that feeds half the planet," said James Lomax, from UNEP, which initiated the Sustainable Rice Platform.
"The challenge is to find a mechanism for scaling up these practices and their delivery in many countries," said Mr. Lomax. "The Sustainable Rice Platform provides opportunities for promoting resource use efficiency and sustainable trade flows throughout the value chain of the global rice sector and deliver real results to the lives of rice farmers."
The Sustainable Rice Platform will draw relevant lessons from established commodity initiatives that promote sustainability, such as for sugarcane, cotton, and coffee, and apply them to rice. It will set sustainability targets, develop and promote regional and global standards of best practices for rice production, and support rice farmers to adopt these practices. It will also identify criteria to assess how well the sustainability targets are being met and if farmers are implementing the practices.
"For example, we will harness our know-how to set standards to better manage insect pests in rice to reduce the unsafe and ineffective use of pesticides, which can damage the environment and the health of farmers," said Bas Bouman, who will lead the work at the International Rice Research Institute (IRRI) ; one of the project partners.
"We can also develop and promote the use of specialized field calculators to determine the environmental footprint of water, carbon, greenhouse gas emissions, or chemical use," he added.
Rice presents a unique challenge for any quality control system because it is mostly grown by hundreds of thousands of poor farmers who have only very small farms of less than one hectare each. Moreover, 90 percent of rice is grown in developing countries in Asia where access to knowledge and support is limited.
National government agricultural departments will explore and test management practices to make them nationally relevant and to promote them to rice farmers. Non-government organizations and companies will assist to develop the sustainability criteria to help safeguard or improve environmental health.
Rice farmers, production, processing, or trade organizations and businesses, will use the Sustainable Rice Platform to secure a sustainable rice system and crucially explore incentive mechanisms for farmers to grow rice more sustainably.
"Rice is an extremely important food crop, both for Kellogg Company and the world. We are therefore delighted to support UNEP in the mass adoption of better and more sustainable rice-growing practices to improve the world's food supply and the lives of the farmers and the communities who produce it," Chief Sustainability Officer at Kellogg Company, Diane B. Holdorf.
"In addition to financial support," she added. "We intend to fast track sustainable techniques into our contract growing programs as soon as 2012. We'll share the results with the Sustainable Rice Platform and use them to inform our global rice policies and direction."
Fast facts
The Sustainable Rice Platform will set management standards for rice production that will ensure it is grown in an environmentally-sustainable and socially-responsible way;
Poverty will reduce as farmers stand to gain by higher incomes through reduced input costs, higher production, and/or getting a premium on their rice;
Consumers and processors purchasing rice grown on the Sustainable Rice Platform will be assured it is good for the environment and farmer welfare.
Contacts
Moira O'Brien-Malone, Head, DTIE Communications, UNEP Paris, tel: + 33 1 44 37 76 12, mob: +33 6 82 26 93 73, moira.obrien-malone@unep.org
s
Wednesday, November 30, 2011
East Asia and Pacific Economic Update.Navigating Turbulence,Sustaining Growth
Domestic demand in East Asian economies has also been softening, driven by the normalization of fiscal and monetary policy, although it remained robust and the largest contributor to growth. We project that real GDP in developing East Asia will increase by 8.2 percent in 2011 (4.7 percent excluding China), while growth will slow to 7.8 percent in 2012. Risks are on the downside, however. Based on the still robust current growth projections, the proportion of people living on less than US$2 a day indeveloping East Asia is expected to decrease to about 24 percent in 2011, down two percentage points from 2010, and an estimated 38 million people are projected to move out of poverty. However, poverty reduction efforts would be hampered in the event of another sudden increase in food prices against a backdrop of slowing income growth.
The growth slowdown was particularly pronounced in industrial production. Exports of major regional industrial supply chains, especially electronics, have started to decline. Demand for commodities and raw materials remained strong, helping resource-rich economies maintain high levels of export and GDP growth. East Asia, and China in particular, is gaining importance as a source of global demand, while rising consumer goods imports in China are benefiting the region’s manufacturing exporters.
In the short- to medium-term, East Asia’s growth prospects are constrained by global uncertainty and by the impact of natural disasters. The slow progress towards resolution of debt problems in the Eurozone intensified investors’ concerns over global growth and stability. As capital flowed out of emerging markets into relatively safer havens, portfolio investments reversed and stock markets lost value in East Asia. Markets remain jittery, even after the Eurozone countries agreed on a solution for the sovereign debt and banking problems. Fiscal and financial consolidation in the Eurozone is likely to reduce growth in Europe, and could lead to renewed financial outflows from East Asia as banks shore up their capital coverage. Credit outstanding from European banks to developing East Asia amounts to US$427 billion, or six percent of GDP. But high reserves and current account surpluses protect most East Asian countries against the impact of possible renewed financial stress.
The effects of flooding in several countries are likely to take a toll on growth this year. Because of widespread flooding, Thailand’s GDP growth for 2011 was revised down to 2.4 percent, although the final tally of the damage done is yet to be made. Losses in production are being felt in the entire region, as the impact of the disaster is spreading through the industrial supply chains. While reconstruction after the flood in 2012 is likely to contribute to growth, the resilience of East Asia’s production networks is being tested once more. Earlier in the year, after the March 11 earthquake and tsunami in Japan, East Asian countries suffered production losses from disrupted supply chains in electronics and automotive industries. However, these returned to their pre-disaster growth rates and production levels shortly after Japanese industry recovered in June. This time, recovery of production to pre-disaster levels in the region will also depend on the strength of global demand for electronics and cars.
With growing recognition that the current global economic slowdown could continue into the long-term, policymakers in East Asia are rethinking their policy options. With a few exceptions, notably Vietnam and Mongolia, the emphasis navigating turbulence, sustaining growth has shifted from fighting inflation and dealing with excess capital inflows to sustaining growth, now the dominant concern.
In the short-term, striking a balance between stimulating growth and fighting the effects of global uncertainty is the primary challenge. Policymakers are likely to hold off further policy tightening and stand ready to act should furthernegative shocks to growth occur or in the extreme case of a disorderly resolution of the Eurozone debt problem.
Monetary policy normalization has already been on hold in most countries in recent months and some central banks have started to cut official interest rates. In countries where the recent financial turbulence resulted in significant pressures on exchange rates, policymakers have also intervened in the currency markets. In this scenario it will also be important to take precautionary steps against financial risks arising from sudden downward movements in asset prices. Fiscal positions, while not as strong as before the 2008 crisis, leave sufficient space for fiscal stimulus in most middle-income countries should this become necessary.
Stimulus alone will not be enough to address the likely prolonged weakness in the global economy. Slow global growth presents an opportunity for East Asian governments to refocus on reforms that will enhance growth in the mediumand long-term. Increasing productivity and moving toward higher value-added production can be achieved through higher investment, including in productive infrastructure, education, and in building social security systems in most countries. Where levels of investments are already high, increasing the quality and efficiency of these investments should be the first priority alongside rebalancing growth towards domestic consumption. Improvements in public investment programs and regulatory frameworks will improve the quality of investments and increase investment rates. Further investment in disaster management and prevention is also becoming increasingly important for the region. Any fiscal stimulus should promote these structural reforms that support rebalancing and domestic sources of growth.
Once volatility in global financial markets recedes, capital flows are likely to return to East Asia. When that happens, a concerted effort in the region to use exchange rate flexibility to gain more independence in monetary policy, as well as to shift demand towards domestic sources, could become an option yet again. Efforts to deepen regional integration through existing regional initiatives can boost regional trade and demand and help establish the East Asia and Pacific region’s new role in leading the global economy.
KEY FINDINGS
Real GDP in developing East Asia is projected to increase by 8.2 percent in 2011 (4.7 percent excluding China), while growth will slow to 7.8 percent in 2012.
In 2011, an estimated 38 million people will move out of poverty, and the proportion of people living on less than US$2 a day is expected to decrease to about 24 percent, down two percentage points from 2010.
Growth in developing East Asia in the second half of 2011 continued to moderate, mainly due to weakening external demand. Domestic demand in East Asian economies remained the largest contributor to growth, although it is easing driven by the normalization of fiscal and monetary policy.
The growth slowdown in East Asia was particularly pronounced in industrial production. Exports of major regional industrial supply chains, especially electronics, have started to decline.
Demand for commodities and raw materials remained strong, helping resource-rich economies maintain high levels of export and GDP growth.
China is gaining importance as a source of global demand as imports held up better than exports. A shift to more consumer goods imports in China is benefiting the region’s manufacturing exporters.
Lower growth in Europe in the course of fiscal austerity and the banks’ needs to increase capital coverage would affect East Asia. Less credit from European banks can also affect capital flows to East Asia.
High reserves and current account surpluses protect most countries in the region against the impact of possible renewed financial stress.
Due to widespread flooding, Thailand’s GDP growth was revised downwards to 2.4 percent, although damage assessments are not complete. Reconstruction after the flood is likely to contribute to growth in 2012.
Impacts of the disaster are spreading through industrial supply chains. Recovery of production to pre-disaster levels in the region will also depend on the strength of global demand for electronics and cars.
In the short-term, striking a balance between stimulating growth and fighting the effects of global uncertainty is the primary challenge for policy makers.
Fiscal positions in most countries, while not as strong as before the 2008 crisis, leave sufficient space for fiscal stimulus if necessary
Fiscal positions in most countries, while not as strong as before the 2008 crisis, leave sufficient space for fiscal stimulus if necessary
Slow global growth presents an opportunity for governments to refocus on reforms that will enhance growth in the medium- and long-term.
Higher investment, including in productive infrastructure, education, and in building social security systems, can help countries increase productivity and move toward higher value-added production.
Where levels of investments are already high, increasing the quality and efficiency of these investments should be the first priority alongside rebalancing growth towards domestic consumption.
Given the outlook for protracted low global growth, any possible stimulus should be fiscally sustainable, well-targeted, and directed at promoting the structural transformation needed to sustain stronger, domestically driven growth.
Further investment in disaster management and prevention is also becoming more important for the region.
Full report
Summary
Chapter 1: Weak External Demand Slows Growth
Chapter 2: Policies Refocus on Sustaining Growth
Chapter 3: New Risks Add to Old Challenges
Country sections
Appendixes
Summary
Chapter 1: Weak External Demand Slows Growth
Chapter 2: Policies Refocus on Sustaining Growth
Chapter 3: New Risks Add to Old Challenges
Country sections
Appendixes
a
Wednesday, November 9, 2011
Average and marginal returns to upper secondary schooling in Indonesia
This paper estimates average and marginal returns to schooling in Indones using a non-parametric selection model estimated by local instrumental variables, and data from the Indonesia Family Life Survey.
The analysis finds that the return to upper secondary schooling varies widely across individual: it can be as high as 50 percent per year of schooling for those very likely to enroll in upper secondary schooling, or as low as -10 percent for those very unlikely to do so. Returns to the marginal student (14 percent) are well below those for the average student attending upper secondary schooling (27 percent).
Author: Carneiro,Pedro;Lokshin,Michael;Ridao-Cano,Cristobal;Umapathi, Nithin. Document Date: 2011/11/01.Document Type: Policy Research Working Paper.Report Number: WPS5878. Volume No: 1 of 1. Country:Indonesia.Disclosure Date: 2011/11/01
| Official version of document (may contain signatures, etc) | |||
 PDF |
40 pages | Official Version | [2.8 mb] |
 Text |
Text Version* | ||
Subscribe to:
Posts (Atom)