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This paper explores how developmental and regulatory impediments to resource reallocation limit the ability of developing countries to adopt new technologies. An efficient economy innovates quickly; but when the economy is unable to redeploy resources away from inefficient uses, technological adoption becomes sluggish and growth is reduced. The authors build a model of heterogeneous firms and idiosyncratic shocks, where aggregate long-run growth occurs through the adoption of new technologies, which in turn requires firm destruction and rebirth. After calibrating the model to leading and developing economies, the authors analyze its dynamics in order to clarify the mechanism based on firm renewal. The analysis uses the steady-state characteristics of the model to provide an explanation for long-run output gaps between the United States and a large sample of developing countries. For the median less-developed country in the sample, the model accounts for more than 50 percent of the income gap with respect to the United States, with 60 percent of the simulated gap being explained by developmental and regulatory barriers taken individually, and 40 percent by their interaction. Thus, the benefits from market reforms are largely diminished if developmental and regulatory distortions to firm dynamics are not jointly addressed.
Bankruptcy --- Constant returns to scale --- E-Business --- Economic Theory & Research --- Emerging Markets --- Equilibrium --- GDP --- Human capital --- Income --- Income levels --- Industry --- International trade --- Macroeconomics --- Macroeconomics and Economic Growth --- Monopoly --- Political Economy --- Private Sector Development --- Product markets --- Production function --- Production goods --- Production inputs --- Productivity --- Productivity growth --- Random walk --- Regression analysis --- Technology Industry --- Telecommunications --- Total factor productivity
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This paper develops a seven-region comparative static computable general equilibrium model of Russia to assess the impact of accession to the World Trade Organization on these seven regions (the federal okrugs) of Russia. In order to assess poverty and distributional impacts, the model includes ten households in each of the seven federal okrugs, where household data are taken from the Household Budget Survey of Rosstat. The model allows for foreign direct investment in business services and endogenous productivity effects from additional varieties of business services and goods, which the analysis shows are crucial to the results. National welfare gains are about 4.5 percent of gross domestic product in the model, but in a constant returns to scale model they are only 0.1 percent. All deciles of the population in all seven federal okrugs can be expected to significantly gain from Russian World Trade Organization accession, but due to the capacity of their regions to attract foreign direct investment, households in the Northwest region gain the most, followed by households in the Far East and Volga regions. Households in Siberia and the Urals gain the least. Distribution impacts within regions are rather flat for the first nine deciles; but the richest decile of the population in the three regions that attract a lot of foreign investment gains significantly more than the other nine representative households in those regions.
Constant returns to scale --- Debt Markets --- E-Business --- Economic Theory and Research --- Emerging Markets --- Equilibrium --- Exports --- Finance and Financial Sector Development --- Gross domestic product --- Imperfect competition --- Income --- Investment and Investment Climate --- Macroeconomics and Economic Growth --- Open economy --- Private Sector Development --- Productivity --- World Trade Organization --- WTO
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Continuing rapid growth of China and India can be expected to raise incomes in Russia, but also to put adjustment pressure on Russian firms. The impacts of the rapid growth of China and India on the Russian economy are explored by examining a baseline projection using a global general equilibrium model, and then assessing the implications of higher-than-expected growth in China and India. The authors find that a major source of benefits to Russia is likely to be terms-of-trade improvements associated with higher energy prices - a quite different channel of effect from that for many developing countries that benefit primarily through expanded opportunities to trade directly with these emerging giants. Taking into account the likely improvements in the quality and variety of exports from China and India, the gains to Russia increase substantially. The expansion of the energy sector and the contraction of manufacturing and services are a sign of a Dutch disease effect that will increase the importance of policies to encourage adaptation to the changing world environment.
Adverse impacts --- Agricultural output --- Competitiveness --- Constant returns to scale --- Consumers --- Debt --- Economic cooperation --- Economic performance --- Economic Theory and Research --- Emerging Markets --- Export growth --- Exports --- Financial crisis --- Free Trade --- GDP --- Income --- Income levels --- International Economics & Trade --- International trade --- Macroeconomics and Economic Growth --- Markets and Market Access --- Natural resources --- Newly industrialized countries --- Private Sector Development --- Product differentiation --- Productivity growth --- Public Sector Development --- Taxation --- Trade Policy
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Continuing rapid growth of China and India can be expected to raise incomes in Russia, but also to put adjustment pressure on Russian firms. The impacts of the rapid growth of China and India on the Russian economy are explored by examining a baseline projection using a global general equilibrium model, and then assessing the implications of higher-than-expected growth in China and India. The authors find that a major source of benefits to Russia is likely to be terms-of-trade improvements associated with higher energy prices - a quite different channel of effect from that for many developing countries that benefit primarily through expanded opportunities to trade directly with these emerging giants. Taking into account the likely improvements in the quality and variety of exports from China and India, the gains to Russia increase substantially. The expansion of the energy sector and the contraction of manufacturing and services are a sign of a Dutch disease effect that will increase the importance of policies to encourage adaptation to the changing world environment.
Adverse impacts --- Agricultural output --- Competitiveness --- Constant returns to scale --- Consumers --- Debt --- Economic cooperation --- Economic performance --- Economic Theory and Research --- Emerging Markets --- Export growth --- Exports --- Financial crisis --- Free Trade --- GDP --- Income --- Income levels --- International Economics & Trade --- International trade --- Macroeconomics and Economic Growth --- Markets and Market Access --- Natural resources --- Newly industrialized countries --- Private Sector Development --- Product differentiation --- Productivity growth --- Public Sector Development --- Taxation --- Trade Policy
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This paper develops a seven-region comparative static computable general equilibrium model of Russia to assess the impact of accession to the World Trade Organization on these seven regions (the federal okrugs) of Russia. In order to assess poverty and distributional impacts, the model includes ten households in each of the seven federal okrugs, where household data are taken from the Household Budget Survey of Rosstat. The model allows for foreign direct investment in business services and endogenous productivity effects from additional varieties of business services and goods, which the analysis shows are crucial to the results. National welfare gains are about 4.5 percent of gross domestic product in the model, but in a constant returns to scale model they are only 0.1 percent. All deciles of the population in all seven federal okrugs can be expected to significantly gain from Russian World Trade Organization accession, but due to the capacity of their regions to attract foreign direct investment, households in the Northwest region gain the most, followed by households in the Far East and Volga regions. Households in Siberia and the Urals gain the least. Distribution impacts within regions are rather flat for the first nine deciles; but the richest decile of the population in the three regions that attract a lot of foreign investment gains significantly more than the other nine representative households in those regions.
Constant returns to scale --- Debt Markets --- E-Business --- Economic Theory and Research --- Emerging Markets --- Equilibrium --- Exports --- Finance and Financial Sector Development --- Gross domestic product --- Imperfect competition --- Income --- Investment and Investment Climate --- Macroeconomics and Economic Growth --- Open economy --- Private Sector Development --- Productivity --- World Trade Organization --- WTO
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This paper explores how developmental and regulatory impediments to resource reallocation limit the ability of developing countries to adopt new technologies. An efficient economy innovates quickly; but when the economy is unable to redeploy resources away from inefficient uses, technological adoption becomes sluggish and growth is reduced. The authors build a model of heterogeneous firms and idiosyncratic shocks, where aggregate long-run growth occurs through the adoption of new technologies, which in turn requires firm destruction and rebirth. After calibrating the model to leading and developing economies, the authors analyze its dynamics in order to clarify the mechanism based on firm renewal. The analysis uses the steady-state characteristics of the model to provide an explanation for long-run output gaps between the United States and a large sample of developing countries. For the median less-developed country in the sample, the model accounts for more than 50 percent of the income gap with respect to the United States, with 60 percent of the simulated gap being explained by developmental and regulatory barriers taken individually, and 40 percent by their interaction. Thus, the benefits from market reforms are largely diminished if developmental and regulatory distortions to firm dynamics are not jointly addressed.
Bankruptcy --- Constant returns to scale --- E-Business --- Economic Theory & Research --- Emerging Markets --- Equilibrium --- GDP --- Human capital --- Income --- Income levels --- Industry --- International trade --- Macroeconomics --- Macroeconomics and Economic Growth --- Monopoly --- Political Economy --- Private Sector Development --- Product markets --- Production function --- Production goods --- Production inputs --- Productivity --- Productivity growth --- Random walk --- Regression analysis --- Technology Industry --- Telecommunications --- Total factor productivity
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This paper is about micro foundations of productivity and growth. There are several studies on productivity for advanced economies but relatively few for developing countries. Using data from the investment climate surveys of the World Bank, estimation results from 45 developing countries, complemented by extended analysis at firm and industry levels for Brazil and India for the period 2002-05, indicate the following: (i) confirmation of the importance of total factor productivity at firm, industry and national levels, but total factor productivity progressively tapers off at each level of aggregation implying that there is a less than one-to-one relationship between micro-efficiency, sector growth, and macro growth; (ii) capital accumulation is more important at the macro level than the micro level; (iii) productivity at the micro level is driven by research and development, the capacity utilization rate, and adoption of foreign technology (all of which involve management decisions), and is negatively related to corruption and instability, tax, and financial regulations; and (iii) confirmation of the lower contribution of total factor productivity to output growth in developing countries than in developed economies. Management decisions are involved in a lot of day-to-day operations at the firm level and therefore management is an unmeasured input. In developing countries, at the firm level, there is a need to understand the contribution of quality of inputs (management quality, education and labor quality, training, experience of workers, use of computers at work) and also the role of external agglomeration (for example, location in a booming city, competitive pressures from new firms, trade competition, and regulations).
Achieving Shared Growth --- Agriculture --- Constant returns to scale --- E-Business --- Economic Growth --- Economic growth --- Economic Theory & Research --- Foreign competition --- Gross domestic product --- Growth rate --- Human capital --- Increasing returns --- Increasing returns to scale --- International trade --- Labor Policies --- Macroeconomic growth --- Macroeconomics and Economic Growth --- Natural monopolies --- Poverty Reduction --- Private Sector Development --- Production function --- Production functions --- Productivity --- Social Protections and Labor --- Total factor productivity --- Total factor productivity growth --- Trade liberalization --- Trade policies --- Value added
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Rutherford, Tarr, and Shepotylo use a computable general equilibrium comparative static model of the Russian economy to assess the impact of accession to the World Trade Organization (WTO) on income distribution and the poor. Their model is innovative in that they incorporate all 55,000 households from the Russian Household Budget Survey as "real" households in the model. This is accomplished because they develop a new algorithm for solving general equilibrium models with a large number of agents. In addition, they include foreign direct investment and Dixit-Stiglitz endogenous productivity effects in their trade and poverty analysis. In the medium term, the authors find that virtually all households gain from Russian WTO accession, with 99.9 percent of the estimated gains falling within a range between 2 and 25 percent increases in household income. They show that their estimates are decisively affected by liberalization of barriers against foreign direct investment in business services sectors and endogenous productivity effects in business services and goods. The authors use their integrated model to assess the error associated with a "top down" approach to micro-simulation. They find that approximation errors introduced by failing to account for income effects in the conventional sequential approach are very small. However, data reconciliation between the national accounts and the household budget survey is important to the results. Despite the estimated gains for virtually all households in the medium term, many households may lose in the short term because of the costs of transition. So, safety nets are crucial for the poorest members of society during the transition. This paper-a product of the Trade Team, Development Research Group-is part of a larger effort in the group to assess the impact of trade on poverty.
Communities & Human Settlements --- Constant Returns To Scale --- Consumption --- Costs --- Debt Markets --- Development --- Distribution --- E-Business --- Economic Theory and Research --- Economy --- Emerging Markets --- Equilibrium --- Equilibrium Prices --- Finance and Financial Sector Development --- Financial Literacy --- Goods --- Housing and Human Habitats --- Income --- Income Groups --- Investment --- Labor Policies --- Macroeconomics and Economic Growth --- Payments --- Private Sector Development --- Productivity --- Safety Nets --- Social Protections and Labor --- Trade --- Trade Policy --- Welfare --- World Trade Organization --- WTO
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This paper is about micro foundations of productivity and growth. There are several studies on productivity for advanced economies but relatively few for developing countries. Using data from the investment climate surveys of the World Bank, estimation results from 45 developing countries, complemented by extended analysis at firm and industry levels for Brazil and India for the period 2002-05, indicate the following: (i) confirmation of the importance of total factor productivity at firm, industry and national levels, but total factor productivity progressively tapers off at each level of aggregation implying that there is a less than one-to-one relationship between micro-efficiency, sector growth, and macro growth; (ii) capital accumulation is more important at the macro level than the micro level; (iii) productivity at the micro level is driven by research and development, the capacity utilization rate, and adoption of foreign technology (all of which involve management decisions), and is negatively related to corruption and instability, tax, and financial regulations; and (iii) confirmation of the lower contribution of total factor productivity to output growth in developing countries than in developed economies. Management decisions are involved in a lot of day-to-day operations at the firm level and therefore management is an unmeasured input. In developing countries, at the firm level, there is a need to understand the contribution of quality of inputs (management quality, education and labor quality, training, experience of workers, use of computers at work) and also the role of external agglomeration (for example, location in a booming city, competitive pressures from new firms, trade competition, and regulations).
Achieving Shared Growth --- Agriculture --- Constant returns to scale --- E-Business --- Economic Growth --- Economic growth --- Economic Theory & Research --- Foreign competition --- Gross domestic product --- Growth rate --- Human capital --- Increasing returns --- Increasing returns to scale --- International trade --- Labor Policies --- Macroeconomic growth --- Macroeconomics and Economic Growth --- Natural monopolies --- Poverty Reduction --- Private Sector Development --- Production function --- Production functions --- Productivity --- Social Protections and Labor --- Total factor productivity --- Total factor productivity growth --- Trade liberalization --- Trade policies --- Value added
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The authors illustrate some of the potential consequences of the World Trade Organization's Doha Round of multilateral trade negotiations on incomes and poverty globally. Using the global LINKAGE model to generate changes in domestic and international prices that have a direct impact on factor incomes and consumer prices, they estimate the change in real income at the poverty line that would accompany various reform scenarios. When accompanied by additional information about the elasticity of poverty with respect to income, this provides an estimate of the change in poverty by country. Under most liberalization scenarios considered, unskilled wages rise more than average incomes, but the estimated impact on global poverty is modest, especially if developing countries are unwilling to undertake much reform.
Agriculture --- Base Year --- Benchmark --- Constant Returns To Scale --- Consumers --- Debt Markets --- Development --- Economic Theory and Research --- Elasticity --- Emerging Markets --- Finance and Financial Sector Development --- Financial Literacy --- Free Trade --- Goods --- Inequality --- International Economics & Trade --- Labor Policies --- Macroeconomics and Economic Growth --- Multilateral Trade --- Poverty Reduction --- Prices --- Private Sector Development --- Pro-Poor Growth --- Public Sector Development --- Real Income --- Social Protections and Labor --- Trade and Regional Integration --- Trade Liberalization --- Trade Negotiations --- Trade Policy --- Trade Reforms --- Uruguay Round --- Utility --- Wages --- Welfare --- WTO
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