Existing methods for assessing latent country or institutional performance can yield deceptive results.

Existing methods for assessing latent country or institutional performance can yield deceptive results.There have been many attempts to infer latent performance attributes of governments (or other institutions) from conditional comparisons that control for observed variables. Success in doing so could greatly improve government performance. Ravallion critically reviews the econometric foundations of the methods used. He argues that latent heterogeneity remains a fundamental but unresolved problem. Locating a benchmark for measuring performance adds a further problem. Current methods do not yield a consistent estimate of even the mean latent performance attribute. An assessment of country performance by these methods could well be wildly wrong.This paper - a product of Poverty and Human Resources, Development Research Group - is part of a larger effort in the group to assess and improve methods for monitoring and assessing country performance. The study was funded by the Bank's Research Support Budget under the research project Policies for Poor Areas (RPO 681-39). The author may be contacted at [email protected].

A higher share of income for the middle class and lower ethnic polarization are empirically associated with higher income, higher growth, more education, better health, better infrastructure, better economic policies, less political instability, less civil war (putting ethnic minorities at risk), more social "modernization," and more democracy.

Under the clean development mechanism, developing countries will be able to produce certified emissions reductions (CERs, sometimes called "offsets") through projects that reduce greenhouse gas emissions below business-as-usual levels. The challenges of setting up offset markets are considerable. Do forestry projects, as a class, have more difficulty than energy projects reducing greenhouse gas emissions in ways that are real, measurable, additional, and consistent with sustainable development?

Abstract: May 2000 - How much a developing country can take advantage of technology transfer from foreign direct investment depends partly on how well educated and well trained its workforce is, how much it is willing to invest in research and development, and how much protection it offers for intellectual property rights. Saggi surveys the literature on trade and foreign direct investment - especially wholly owned subsidiaries of multinational firms and international joint ventures - as channels for technology transfer. He also discusses licensing and other arm's-length channels of technology transfer. He concludes: How trade encourages growth depends on whether knowledge spillover is national or international. Spillover is more likely to be national for developing countries than for industrial countries; Local policy often makes pure foreign direct investment infeasible, so foreign firms choose licensing or joint ventures. The jury is still out on whether licensing or joint ventures lead to more learning by local firms; Policies designed to attract foreign direct investment are proliferating. Several plant-level studies have failed to find positive spillover from foreign direct investment to firms competing directly with subsidiaries of multinationals. (However, these studies treat foreign direct investment as exogenous and assume spillover to be horizontal - when it may be vertical.) All such studies do find the subsidiaries of multinationals to be more productive than domestic firms, so foreign direct investment does result in host countries using resources more effectively; Absorptive capacity in the host country is essential for getting significant benefits from foreign direct investment. Without adequate human capital or investments in research and development, spillover fails to materialize; A country's policy on protection of intellectual property rights affects the type of industry it attracts. Firms for which such rights are crucial (such as pharmaceutical firms) are unlikely to invest directly in countries where such protections are weak, or will not invest in manufacturing and research and development activities. Policy on intellectual property rights also influences whether technology transfer comes through licensing, joint ventures, or the establishment of wholly owned subsidiaries. This paper - a product of Trade, Development Research Group - is part of a larger effort in the group to study microfoundations of international technology diffusion. The study was funded by the Bank's Research Support Budget under the research project Microfoundations of International Technology Diffusion. The author may be contacted at [email protected].

Evaluating design alternatives is a first step in introducing optimal water subsidy schemes. The definition of appropriate targeting criteria and subsidy levels needs to be supported by empirical analysis, generally an informationally demanding exercise. An assessment carried out in Panama revealed that targeting individual households would be preferable to geographically based targeting. Empirical analysis also showed that only a small group of very poor households needed a subsidy to pay their water bill.

As instruments for controlling pollution, how do emissions taxes and emissions trading compare in terms of the incentives they create to adopt cleaner technologies? Emissions taxes may have a slight advantage over emissions trading.