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The high level of exports and their product and market concentration exposes the Democratic Republic of Congo to the economic fluctuations of the country's trade partners. This paper uses the United Nations Conference on Trade and Development trade data set to analyze the Democratic Republic of Congo's export patterns for the period 1960-2014. The data confirm that the country's exports remain highly concentrated. The product concentration on minerals is high and reaches exceptional levels. The geographic concentration is also high, while there is a shift in destinations. Hence, EU27, traditionally the main market destination for the Democratic Republic of Congo, lost its importance to China for most of the past decade. This trend continued to increase in the past few years from 2010 to 2013. The clear prevalence of commodity products within the Democratic Republic of Congo's exports and the higher exposure to the Chinese economic cycle are sources of vulnerability. The empirical analysis indicates that the country's exports appear to be significantly sensitive to foreign demand fluctuations. This exposure increases the volatility of the country's macroeconomic framework to exogenous shocks, with negative consequences on growth in gross domestic product and on external balances. The analysis concludes that increasing the Democratic Republic of Congo's resilience requires product and market diversification of exports. This diversification requires improvements in the investment climate and business environment, with emphasis on skills and infrastructure.

This paper investigates differences in the composition of employment between exporting and non-exporting firms. In particular, it asks whether exporting firms hire more engineers relative to blue-collar workers than non-exporting firms. In a stylized partial-equilibrium model, firms produce goods of varying quality and exporters tend to produce higher quality goods, which are intensive in engineers relative to blue-collar workers. Firms are heterogeneous and more productive firms become exporters and have a higher demand for engineers. The paper provides causal evidence in support of these theories using the Chilean Encuesta Nacional Industrial Anual, an annual census of manufacturing firms. The results from an instrumental variable estimator suggest that Chilean exporters indeed utilize a higher share of engineers over blue-collar workers.

This paper explores the economic impacts of two related tracks of China's expected transformation—economic slowdown and rebalancing away from investment toward consumption—and estimates the spillovers for the rest of the world, with a special focus on Sub-Saharan African countries. The paper finds that an average annual slowdown of gross domestic product in China of 1 percent over 2016–30 is expected to result in a decline of gross domestic product in Sub-Saharan Africa by 1.1 percent and globally by 0.6 percent relative to the past trends scenario by 2030. However, if China's transformation also entails substantial rebalancing, the negative income effects of the economic slowdown could be offset by the positive changes brought along by rebalancing through higher overall imports by China and positive terms of trade effects for its trading partners. If global supply responds positively to the shifts in relative prices and the new sources of consumer demand from China, a substantial rebalancing in China could have an overall favorable impact on the global economy. Economic growth could turn positive and higher on average, by 6 percent in Sub-Saharan Africa and 5.5 percent globally, as compared with the past trends scenario. Finally, rebalancing reduces the prevalence of poverty in Sub-Saharan Africa compared with the isolated negative effects of China's slowdown, which slightly increase the incidence of poverty. Overall, China's slowdown and rebalancing combined are estimated to increase gross domestic product in Sub-Saharan Africa by 4.7 percent by 2030 and reduce poverty, but the extent of this varies by country.

South Asia emerged as the fastest growing region in the world in 2015, posting GDP growth of 7 percent. Weak oil and commodity prices, slowing capital flows and shrinking global trade contributed towards a deceleration of growth in most of the world's economies. South Asia - as a net importer of oil - was an anomaly, growing significantly on the back of higher private consumption and public investment. Higher remittances and reserve buffers throughout the region offset the fall in exports caused by the drop in global demand. The region is set to maintain real GDP growth above 7 percent over the next few years. However, the tailwinds are now fading - capital flows have declined and remittances are starting to feel the reality of low oil prices. Pakistan, while not growing as quickly as its neighbors, has continued its steady growth recovery in H1FY16. Strong growth in consumption, rising foreign exchange reserves, fast-growing workers' remittances and a lower import bill compensated for a significant fall in exports. Low oil prices generated a significant boost, driving a 9.1 percent fall in the import bill and reducing inflation significantly, in turn creating scope to reduce the policy rate. Private sector consumption, propelled by higher remittances and a loosened monetary policy, is expected to account for over half of FY16 GDP growth.

Existing work on China's economic influence in Africa refers to Africa in broad terms, thereby generalizing the results to an extent that is unhelpful for policy-makers in a specific country. Moreover, the emphasis is on oil exporters. This paper remedies this by focusing on a single, oil-importing country: Kenya. The paper examines China's economic presence in Kenya and some of the popular myths surrounding Chinese economic activity. The first myth is that Chinese companies do not employ local workers. In fact, 78 percent of full-time and 95 percent of part-time employees in Chinese companies are locals. Second, although China represents a large potential market for local exporters, the study finds that China has a better chance of expanding its exports to Kenya than Kenya does to China based on existing specializations. This may change with recent oil discoveries in Kenya, increasing the space for Kenyan exports to China, as well as from China's shift to a consumption-driven economy which will increase demand for services, a growing strength of Kenya's economy (World Bank Country Economic Memorandum 2016). The paper emphasizes that Kenyan policy makers should be less concerned about bilateral trade imbalances and worry about Kenya's overall trade balance. However, the Standard Gauge Railway and Thika superhighway experiences suggest that Chinese firms offer relatively few technology transfer or supplier opportunities for local firms and academia. Third, the popular focus of Chinese competition is on the impact on well-organized Kenyan producers and not on consumers, thereby underestimating the benefits Kenyan consumer derive from the availability of more affordable Chinese goods. The paper concludes with policy directions for improving export competitiveness and transparency in infrastructure projects, and local content.

Agriculture is among the most risk-prone sectors in the economies of Central Asia. Production shocks from weather, pests and diseases and adverse movements in agricultural product and input prices not only impact farmers and agri-business firms, but can also strain government finances. Some of these risks are small and localized and can be managed by producers. Others are the result of more severe, exogenous shocks outside agriculture or outside the country, which require a broader response. Failure to respond adequately to these more severe risks leads to a perpetual cycle of ‘shock-recovery-shock’, which reinforces poverty traps and compromises long-term growth. The agriculture sector’s exposure to production and price risk is increasing. Climate change is increasing production risks in the short to medium-term by increasing the frequency and severity of droughts and floods and in the longer-term by reducing the availability of water for irrigation due to accelerated glacial melt. The modernization and commercialization of agricultural production and processing, which is critical for sector growth, also raises the sector’s exposure to price risk at a time of high volatility on international markets for agricultural commodities. An effective response to these risks requires a broader, more integrated approach to risk management than the current system of ex-ante, public sector activity associated with crop and livestock disease and ad hoc, ex-post emergency responses to local disasters. Measures to strengthen risk mitigation will need to be mainstreamed into sector development and investment programs, additional human and financial resources will need to be allocated to the public institutions responsible for ex-ante and ex-post risk management, and the potential for transfer (insurance) mechanisms will need to be clarified and developed where feasible. Given the limited human and financial resources available for public sector activity, a clear sense of the priorities for agriculture risk management is also required, together with a balanced view of the respective roles of public and private sector stakeholders.

Agriculture is among the most risk-prone sectors in the economies of Central Asia. Production shocks from weather, pests and diseases and adverse movements in agricultural product and input prices not only impact farmers and agri-business firms, but can also strain government finances. Some of these risks are small and localized and can be managed by producers. Others are the result of more severe, exogenous shocks outside agriculture or outside the country, which require a broader response. Failure to respond adequately to these more severe risks leads to a perpetual cycle of ‘shock-recovery-shock’, which reinforces poverty traps and compromises long-term growth. The agriculture sector’s exposure to production and price risk is increasing. Climate change is increasing production risks in the short to medium-term by increasing the frequency and severity of droughts and floods and in the longer-term by reducing the availability of water for irrigation due to accelerated glacial melt. The modernization and commercialization of agricultural production and processing, which is critical for sector growth, also raises the sector’s exposure to price risk at a time of high volatility on international markets for agricultural commodities. An effective response to these risks requires a broader, more integrated approach to risk management than the current system of ex-ante, public sector activity associated with crop and livestock disease and ad hoc, ex-post emergency responses to local disasters. Measures to strengthen risk mitigation need to be mainstreamed into sector development and investment programs, additional human and financial resources need to be allocated to the public institutions responsible for ex-ante and ex-post risk management, and the potential for transfer (insurance) mechanisms will need to be clarified and developed where feasible. Given the limited human and financial resources available for public sector activity, a clear sense of the priorities for agriculture risk management is also required, together with a balanced view of the respective roles of public and private sector stakeholders.

Kazakhstan’s economy faces the challenge of adjusting to a large terms-of-trade shock in a context of declining domestic and external demand. The authorities responded to the collapse of global oil prices through a rapid fiscal adjustment followed by corresponding monetary and exchange-rate policy adjustments. A difficult external environment will continue to affect Kazakhstan’s medium-term outlook. In the medium term, the economy continues to face significant downside risks, including the possibility of delays in Kashagan offshore oil production or a protracted recession in Russia and a further slowdown in China. Over the longer term, diversification of the economy will be required to increase its resilience to external shocks.

Using highly disaggregated firm-level customs transaction data for imports and exports in Peru over the 2000–2012 period, this paper explores the relationship between imports of intermediate inputs and firm export performance. The paper shows that greater use, variety, and quality of imported intermediate inputs is significantly correlated with higher exports, faster export growth, greater diversification of export markets, and higher quality exports (as measured by relative unit prices) at the firm level. This relationship is robust and persistent to controls for unobserved firm heterogeneity and year fixed effects. The use of imported inputs is also associated with higher productivity at the firm level. Considering the relationship between specific trade policy measures and the import performance of those exporters that are direct importers, the analysis shows that those exposed to higher tariffs and nontariff measures import less in total and exhibit lower import variety. The use of the advanced clearance procedure as the modality to clear customs for imports is favorable to the import performance of exporter-importers, in that the users of the modality import more and import a more diversified bundle of inputs than those that do not use it, even after controlling for firm size.

GDP grew at a rate of 6.8 percent, year-on-year (y/y), between January and August, boosted by frontloaded gold production and a strong performance of the agricultural sector. Gold output grew by 46 percent (y/y), while the non-gold GDP growth rate reached 4.5 percent, up 0.9 percentage points from the same period in the previous year. However, gold production is projected to decelerate markedly during the remainder of 2015, while increasingly adverse external conditions and exchange-rate developments are expected to depress domestic consumption and private investment, as well as foreign demand. As a result, the overall growth rate for 2015 is projected to slow to 2 percent. As of August the headline inflation rate had fallen to 5.8 percent (y/y) from 10.5 percent at end-2014, but the combined effect of higher public spending and exchange-rate pressures are expected to drive up prices during the final months of the year, underscoring the importance of maintaining a tight monetary stance. Looking beyond 2015, the Kyrgyz economy is projected to recover over the medium term, and public finances are expected to stabilize, but this generally positive outlook is subject to significant downside risks. In the baseline scenario, growth is projected to accelerate to 4.2 percent in 2016, driven by higher gold production and an expected acceleration in regional economic activity. Growth in the non-gold sectors should be relatively robust at around 3.7 percent, but a slower-than-anticipated recovery in Russia and Kazakhstan could threaten this projection. Moreover, slower growth in both the domestic and regional economies could complicate the process of fiscal consolidation.

Evidence shows that foreign direct investment can provide many benefits to host countries, including productivity improvements, better jobs, and knowledge transfer. Further, it can serve as a vehicle for transformation of domestic production and better integration with global value chains. Nonetheless, these benefits are not automatic. Investment policies are required to maximize the potential gains of foreign direct investment. One challenge is that there are different kinds of foreign direct investment, and each may have different economic, social, and environmental impacts. However, the literature analyzing foreign direct investment often tends to swing from an extremely case-specific focus — analyzing experiences in one particular country in a single sector during a given period — to lumping together the analysis as if it was a homogenous phenomenon. Investment policy formulation requires a framework sophisticated enough to differentiate between the various kinds of foreign direct investment, as well as potential challenges and benefits for development. It must also be simple enough to enable governments to organize and prioritize the multiple and complex variables affecting the maximization of investment benefits. This paper presents an overview of the literature on the impact of foreign direct investment. The paper argues that a logical framework is needed to organize existing evidence from research to fill gaps in the literature and make existing evidence more useful in targeting policy making.

This paper presents new data on the micro structure of the export sector for 45 countries and studies how exporter behavior varies with country size and stage of development. Larger countries and more developed countries have more exporters, larger exporters, and a greater share of exports controlled by the top 5 percent. The extensive margin (more firms) plays a greater role than the intensive margin (average size) in supporting exports of larger countries. In contrast, the intensive margin is relatively more important in explaining the exports of richer countries. Exporter entry and exit rates are higher and entrant survival is lower at an early stage of development. The paper discusses the results in light of trade theories with heterogeneous firms and the empirical literature on resource allocation, firm size, and development. An implication from the findings is that developing countries export less because the top of the firm-size distribution is truncated.

Since we introduced the term “middle-income trap” in 2006, it has become popular among policy makers and researchers. In May 2015, a search of Google Scholar returned more than 3,000 articles including the term and about 300 articles with the term in the title. This paper provides a (non-exhaustive) survey of this literature. The paper then discusses what, in retrospect, we missed when we coined the term. Today, based on developments in East Asia, Latin America, and Central Europe during the past decade, we would have paid more attention to demographic factors, entrepreneurship, and external institutional anchors. We would also make it clearer that to us, the term was as much the absence of a satisfactory theory that could inform development policy in middle-income economies as the articulation of a development phenomenon. Three-quarters of the people in the world now live in middle-income economies, but economists have yet to provide a reliable theory of growth to help policy makers navigate the transition from middle- to high-income status. Hybrids of the Solow-Swan and Lucas-Romer models are not unhelpful, but they are poor substitutes for a well-constructed growth framework.

This paper makes analytical, methodological and empirical contributions to the literature on purchasing power parity. Purchasing power parities are required in a host of cross-country welfare comparisons, such as poverty rates and gross domestic product. The subject has recently generated much interest in the wake of the release of the final results of the 2011 International Comparison Program. This paper introduces a preference-based analytical framework that departs from the conventional Balassa-Samuelson framework in deriving empirically verifiable propositions on the link between purchasing power parity and exchange rates, and between purchasing power parity and inequality. The paper also provides an alternative methodology for calculating purchasing power parities that are benchmarked against the 2011 International Comparison Program purchasing power parities. As this study shows, the alternative methodology is capable of easy implementation on readily available data sets. The benchmarking exercise suggests that the 2011 International Comparison Program generally understates purchasing power parity and overstates gross domestic product, and that the purchasing power parities vary across expenditure percentiles. The study reports regional variation in the direction of the difference between the two purchasing power parities. The empirical evidence is supportive of the positive association between inequality and purchasing power parity derived in the paper.

How many and which firms issue equity and bonds in domestic and international markets, how do these firms grow relative to non-issuing firms, and how does firm performance vary along the firm size distribution? To evaluate these questions, a new data set is constructed by matching data on firm-level capital raising activity with balance sheet data for 45,527 listed firms in 51 countries. Three main patterns emerge from the analysis. (1) Only a few large firms issue equity or bonds, and among them a small subset has raised a large proportion of the funds raised during the 1990s and 2000s. (2) Issuers grow faster than non-issuers in assets, sales, and employment, that is, firms do not simply use securities markets to adjust their financial accounts. (3) The firm size distribution of issuers evolves differently from that of non-issuers, tightening among issuers and widening among non-issuers.

Economic activity in many African countries remains highly concentrated and exports are often dominated by mineral resources or a few primary products. The World Bank’s 2011 report on light manufacturing in Africa identified poor trade logistics performance as a constraint that especially penalized African exporters that relied on imported inputs, very often making them uncompetitive. The report highlighted research that demonstrated how poor logistics added roughly a 10 percent production cost penalty in Ethiopia, Tanzania, and Zambia across the five subsectors of light manufacturing where opportunities were identified as greatest in Africa. The report outlined how in Africa poor trade logistics increase production costs (often wiping out the labor cost advantage) and lead to long and unreliable delivery times, making local firm’s unattractive suppliers to lead firms in global value chains (GVCs), particularly for light manufacturing. This note seeks to contribute to a review of progress in achieving export diversification through greater exports of light manufacturing products. It looks at recent trends in the exports of the five categories of light manufacturing identified as having strong potential in Africa. The note reviews progress in improving trade logistics in Sub-Saharan Africa, with a focus on the three countries highlighted in the light manufacturing study: Ethiopia, Tanzania, and Zambia, and additionally Kenya and Uganda.

Freight forwarders play a key role in moving goods across international borders. They arrange transport, oversee customs clearance on behalf of their clients, and more generally troubleshoot issues that arise while goods are in transit. This paper reports the results from a survey of 153 freight forwarding firms in Serbia. Respondents report on firm characteristics, operational choices, and conditions at the border posts and terminals where imported goods are cleared for release. One key purpose of the study is to investigate operational trade-offs between time and cost that arise when import shipments are in transit. In three of four hypotheticals, respondents suggest that money savings dominate time savings. Responses regarding real operational decisions such as route choices reinforce this finding. Respondents also reported penalty rates for late delivery of import shipments as well as the value of a typical import shipment. From these responses, it is estimated that the contracted value of one additional (unexpected) day of delivery time in Serbia appears to be approximately 1 percent of the value of the underlying shipment.

The WTO has delivered policy outcomes that are very different from those likely to emerge out of the recent wave of preferential trade agreements (PTAs). Should economists see this as an efficient institutional hand-off, where the WTO has carried trade liberalization as far as it can manage, and is now passing the baton to PTAs to finish the job? This paper surveys a growing economics literature on international trade agreements and argues on this basis that the WTO is not passé. Rather, and subject to some caveats, this survey of research to date suggests that the WTO warrants strong support while a more cautious view of PTAs seems appropriate.

The paper estimates the effect of product standards on firms’ export decisions using two novel datasets. The first covers all exporting firms in 42 developing countries. The second covers pesticide standards for 243 agricultural and food products in 63 importing countries over 2006–12. The analysis shows that product standards significantly affect foreign market access. More restrictive standards in the importing country, relative to the exporting country, lower firms’ probability of exporting as well as their export values and quantities. The relative restrictiveness of standards also deters exporting firms from entering new markets and leads to higher exit rates from those markets. Moreover, firm characteristics mediate the effect of product standards on firms’ export decisions. Smaller exporters are more negatively affected in their market entry and exit decisions by the relative stringency of standards than larger exporters. Positive network effects of exporters from the same country may help reduce the burden of importing countries’ standards on firms’ decisions to enter new markets.

This paper investigates how internal migration is affected by Brazil’s increased integration into the world economy. It analyzes the impact of regional differences in access to foreign demand on sector-specific bilateral migration rates between the Brazilian states for the years 1995 to 2003. Using international trade data, a foreign market access measure is computed at the sectoral level, which is exogenous to domestic migration. A higher foreign market access is associated with a higher local labor demand and attracts workers via two potential channels: higher wages and new job opportunities. Results show that both channels play a significant role in internal migration. Further, we find a heterogeneous impact across industries, according to their comparative advantage on the world market. However, the observed impact is driven by the strong reaction of low-educated workers to changes in market access. This finding is consistent with the fact that Brazil is exporting mainly goods that are intensive in unskilled labor.

In the last decade Morocco undertook substantial, if gradual, trade liberalization by reducing tariffs, reforming trade regulations and signing free and preferential trade agreements with several regions and countries, including the United States, Turkey, the European Union and Arab countries. This paper analyzes the impact of input tariff reduction on Moroccan exporting firms through the channel of intermediate goods. Gaining access to more varied and cheaper inputs can make exporting firms more competitive, and as a result they export more. To evaluate how this policy may impact firms export performance, the paper analyzes the impact of input tariff reduction on different margins of trade with emphasis on export markets and product diversification. The identification of the effect of input tariffs on exports relies on a difference-in-difference estimator using heterogeneous access to import tariff exemption as a measure of different levels of exposure to input tariff reduction at the firm level. Overall, the analysis finds that firms that are relatively more exposed to input tariff perform better in those sectors with the largest input tariff reduction, with better access to markets, higher probability to survive when exporting new products in those sectors and higher export value growth.

Many production firms use intermediary trading firms to export indirectly. This paper uses Chinese export data at the transaction level to investigate the tax evasion motive through indirect trade. The paper provides strong evidence that, under Chinas partial export value-added tax rebate policy, production firms can effectively evade value-added taxes by underreporting their selling prices to domestic intermediary trading firms, especially when they sell differentiated products. Even for a moderate level of underreporting, the revenue loss is close to one billion U.S. dollars. The paper also finds that such underreporting behavior through domestic intermediaries may be associated with cross-border evasion through underreporting export values to foreign partners. In addition, the results indicate that the evasion motive is stronger for larger transactions.

Landlocked developing countries (LLDCs) are completely dependent on their transit neighbors infrastructure and administrative procedures to transport their goods to port. This publication provides a comprehensive ten-year review in order to assess the progress made in improving access of LLDCs to global markets, identify the remaining challenges faced by LLDCs, and present improved and innovative ways to overcome them. This publication is based on the practical knowledge from implementing the Almaty Program policies, shared by both of our institutions. It provides a snapshot of the economic trends in LLDCs, with regard to trade costs, connectivity constraints and trade diversification. It reviews the key access policies in the Almaty Program of Action framework that include infrastructure, transport and logistics services, regional integration, trade and transit facilitation. It combines data and substantial feedback from implemented projects and policy changes. The focus of the document is general in scope and does not include detailed economic or policy analysis of all the potential components of reforms. The publication is organized as follows: Chapter1: Economics of Landlockedness; Chapter 2: Connectivity Constraints; Chapter 3: Hinterland Connections; Chapter 4: Transit and Trade Facilitation, Regional Integration; Chapter 5: Physical Connectivity, Corridors. This document is based primarily on the experience of project implementation by the World Bank, and on analytical work on trade corridors and LLDCs, including reports and presentations on progress in implementing the Almaty Program of Action.

Since the Asian Financial Crisis in the late 1990s and through the Global Financial Crisis of the last decade, commendable progress has been made by the member states of the Association of South East Asian Nations (ASEAN) in improving economic and human development outcomes both within each country and across countries. Since 1997, the economies of the poorest countries in the ASEAN, Cambodia, Lao PDR, Myanmar and Vietnam, have generally grown faster than the richer economies, which has reduced gaps in per capita incomes. Overall, child mortality rates have been cut by two-thirds across the ASEAN. And significant reductions have occurred even in some of the poorer member countries such as Cambodia and Lao PDR. However, this report The ASEAN Equitable Development Monitor (henceforth referred to as The Monitor), also shows that much remains to be done to ensure that the poorest members of the ASEAN community, within countries and across countries, are not left behind as the countries of the ASEAN integrate further. In both policies and development outcomes, differences across the countries of the ASEAN remain large. In this context, the monitor is designed to facilitate further discussion on policies and programs that can promote inclusive growth within ASEAN member countries and across the ASEAN community. It presents a number of indicators that are intended to provide a summary of development outcomes across and within the ten ASEAN countries and over time. On this basis, the monitor is intended to help policymakers in ASEAN member states to identify areas of concerns and prioritize national and regional interventions. The monitor tracks indicators across two broad sets of development outcomes and policies: (i) economic development; and (ii) human development.

Agriculture and agribusiness play an important role in the Zambian economy, contributing around 20 percent of gross domestic product (GDP) in recent years and about 12 percent of national export earnings. Agriculture employs nearly 70 percent of the labor force and remains the main source of income and employment for most of the people living in rural areas. The objective of the Zambia agribusiness indicators (ABI) country report is to examine factors that have affected agricultural productivity, market access, and the policy environment for agriculture in Zambia. This report presents findings of a data collection exercise carried out to compile a set of pilot ABI for Zambia. The pilot indicators presented are based on a review of the literature, government statistical bulletins, and primary interviews in the seed, fertilizer, mechanization, agricultural finance, and transport subsectors. The resulting indicators are presented in matrix form, together with notes indicating the specific data source (or sources) used for each indicator. A set of questionnaires was developed for this part of the exercise based on guidelines. Perception indicators on the quality of road infrastructure and other transport sector issues were added to supplement the checklist guidelines. The anticipated impact of the presentation of country performances will be to raise the competitiveness of African agriculture by bringing into sharper focus measures of how individual countries are transitioning towards a more commercial agriculture. This report consists of following seven chapters: chapter one gives introduction; chapter two presents access to and use of improved seed; chapter three focuses on fertilizer access and availability; chapter four focuses on access to farm machinery and tractor hire services; chapter five presents access to agricultural and agri-enterprise finance; chapter six gives cost and efficiency of transport in Zambia; and chapter seven presents policy and enabling environment for agribusiness development.

Tanzania continues to stand out as a model of sound economic performance in the African continent, with a growth rate of over six per cent in 2011 and 2012, surpassing other regional economies and demonstrating impressive resilience to the global economic crisis. This is the second issue of the Tanzania economic update series. The series aim to engage a broad audience in a discussion of the state of the economy in general, as well as in specific debates of topical importance in Tanzania. The current issue seeks to get the discussion going on how to achieve the structural transformation of the rural economy so that rural households can also benefit from the country's remarkable growth performance.

With this Cameroon economic update, the World Bank is pursuing a program of short, crisp and frequent country economic reports. These economic updates provide an analysis of the trends and constraints in Cameroon's economic development. Each issue, produced bi-annually, provides an update of recent economic developments, as well as a special focus on a topical issue. The economic updates aim to share knowledge and stimulate debate among those interested in improving the economic management of Cameroon and unleashing its enormous potential. This fourth issue of the Cameroon economic update is entitled 'stepping out into the world a special focus on trade facilitation'. It reviews the challenges and opportunities related to trade facilitation in Cameroon. The coverage is not meant to be exhaustive, but puts an emphasis on particular areas that would require the country's sustained attention: a transformative trade facilitation agenda around which all stakeholders could be mobilized.

There is increasing evidence suggesting that climate change will negatively impact agricultural production in South Asia. Decreased domestic production may make South Asian countries more dependent on imports. The extent to which South Asia will need to increase its imports as a result of climate change will presumably depend on the degree to which the latter will affect domestic output. The effects of climate change on agriculture may well differ substantially for individual South Asian countries and indeed for regions within a given country which can be approximated by food production units. This calls for an analysis of climate change effects on trade flows under alternative trade policy regimes both for agriculture and non-agricultural sectors. The specific objectives of the paper include the following: analyze the extent to which agricultural production in South Asia and elsewhere in the world may be affected by different scenarios regarding climate change; analyze the extent to which changes in domestic production in South Asia resulting from climate change will lead to increased demand for imports by South Asian countries; analyze the effects of increased import demand in South Asia and changing exportable surpluses elsewhere on world market prices of major agricultural commodities consumed in South Asia; to the extent that South Asian governments allow transmission of changes in world market prices to domestic prices, analyze the potential welfare effects of changes in the latter; analyze if, and to what extent, worldwide trade liberalization and implementation of South Asian Free Trade Area (SAFTA) will dampen the effects of climate change on domestic agricultural prices in South Asia. In this context, the report is organized as follows: chapter one gives introduction. Chapter two describes the methodology used - with particular attention to how different models and modeling techniques are linked to produce an as accurate as possible assessment based on state-of-the-art knowledge. Chapter three provides an up-to-date analysis of trade flows and policies, and production patterns for key food products in South Asia to explain the context in which climate change is taking place. Chapter four describes the climate change scenarios and illustrates their consequences for crop yields at a global level and for South Asia - and in particular shows the vulnerability of the region to these changes. Baseline design, simulations, and results are discussed in chapter five. The final chapter six provides a short summary, discusses the limitations of the analysis, and derives suggestions and guidelines for future research.

The chief purpose of this handbook is to provide government lawyers with a framework to evaluate the quality of a country's investment legislation (if it exists) and how the legislation relates to its investment policy and investment incentives. More specifically, it deals with creating new and reforming existing investment legislation in developing and transition economies in furtherance of the World Bank Group's (WBG's) mandate to promote private investment - domestic and foreign - in those economies. Handbook appendices contain drafting guidelines and checklist of issues that foreign direct investment (FDI) laws should include and that countries can use when drafting investment legislation. The report is structured as follows: chapter one defines key terms about investment law reform in an effort to clarify terminology and concepts and show how they are related. Chapter two examines how widespread investment codes are and explains their utility and limitations. Chapter three provides recommendations on the structure of investment legislation and the key provisions to be included such as definitions, investors' guarantees, incentives, framework for investment promotion, and transitional provisions. Chapter four discusses the fundamental issue of investor entry, in particular the conditions under which foreign investors can invest including sectoral restrictions, limitations on foreign ownership, authorization and screening, minimum investment, and performance requirements. Chapter five discusses key investor guarantees including fair and equitable treatment, national treatment, most-favored-nation (MFN) treatment, protection against expropriation, guaranteed convertibility and repatriation of profits, and settlement of disputes. Chapter six looks at the issue of investment incentives, (fiscal incentives in particular) and their effectiveness. Chapter seven summarizes key aspects of investment promotion to guide legal drafters, should policymakers want the investment code to set out the basic framework of investment promotion. Chapter eight presents the various phases of investment law reform projects, from the government's request for assistance with legislation to the delivery of a project plan. Chapter nine identifies some of the challenges in preparing an investment code and the support that governments may need until the law is promulgated. Chapter ten discusses the monitoring and evaluation (M and E) of investment law reforms, including the key indicators involved in a desk review and medium- and large-scale projects.

South Africa has rapidly reduced trade barriers since the end of Apartheid, yet agricultural production and exports have remained sluggish. Also, poverty and unemployment have risen and become increasingly concentrated in rural areas. This paper examines the extent to which remaining price distortions, both domestic and foreign, are contributing to the underperformance of the agricultural sector vis-a-vis the rest of the economy. The author draws on a computable general equilibrium (CGE) and micro-simulation model of South Africa that is linked to the results of a global trade model. This framework is used to examine the effects of eliminating global and domestic price distortions. Model results indicate that South Africa's agricultural sector currently benefits from global price distortions, and that removing these will create more jobs for lower-skilled workers, thereby reducing income inequality and poverty. The author also fined that South Africa's own policies are biased against agriculture and that removing domestic distortions will raise agricultural production. Job losses in nonagricultural sectors will be outweighed by job creation in agriculture, such that overall employment rises and poverty falls. Overall, the findings suggest that South Africa's own policies are more damaging to its welfare, poverty and inequality than distortionary policies in the rest of the world. Existing national price distortions may thus explain some of the poor performance of South Africa's agricultural sector and rural development.

Although Mozambique has considerable agricultural potential, rural poverty remains extremely high. This paper examines the extent to which global and domestic price distortions affect agricultural production and national poverty. The author develops a computable general equilibrium (CGE) and micro-simulation model of Mozambique that is linked to the results of a global model. This framework is used to examine the effects of eliminating global and national price distortions. Model results indicate that agriculture is adversely affected by current trade distortions due to policies in the rest of the world. While a removal of all merchandise trade distortions will reduce import prices, it will also raise agricultural production and reduce poverty. By contrast, removing only agricultural price distortions abroad will have little effect on Mozambique's agricultural sector. Model results indicate that Mozambique's own distortions are also biased against agriculture, with producers of processed agricultural products enjoying high protection levels. Removing these distortions causes a significant expansion of agricultural Gross Domestic Product (GDP) and a reduction in both poverty and inequality. The findings therefore suggest that removing own-country and rest-of-world distortions will have positive implications for agriculture and for the overall economy in Mozambique, and in particular it will reduce its poverty and inequality.

The real exchange rate was not at the center of the first generation of neoclassical growth models, nor was it prominent among the policy prescriptions that flowed from those models. Recent analyses, in contrast, have paid it more attention. This paper analyzes the role of the real exchange rate in the growth process, the channels through which the real exchange rate influences other variables, and policies useful (and not useful) for governing the real rate. An appendix provides econometric evidence supportive of the emphases in the text.

This paper is a case study of an open small economy whose development and growth is based largely on foreign trade and foreign direct investment (FDI). One purpose of the paper is to uncover the causes that have created such a development pattern. Estonia is a former socialist economy, part of the Former Soviet Union (FSU), which introduced comprehensive structural and institutional reforms in the 1990s. The country's transition to a market economy has been enhanced by integration with the European Union (EU), which was very important in evolution of institutions. Other research in this paper concerns the role of external anchors upon economic development; that is, mandates that reflect the values, objectives, and aims of a socioeconomic alliance, and which also frame Estonia's economic policy. One conclusion of the paper is that the EU integration process played an important role in creating and supporting development of a liberal, private sector-based market economy. Implementation of the rules, standards, and norms helped to increase the competitiveness of Estonian companies by improving market access to the EU and other markets. The external anchor concept is related to the international agents. A critical factor for future development and structural changes will be transforming Estonia from a transition economy to an innovation economy. The paper examines the role of the information and communication technology (ICT) sector and Skype in this development. The case of Skype demonstrates the much wider impact of the new telecommunication technology on society. Estonia's development in this field is empirical evidence that location, production, technology, and timing along with external anchors represent a catalyst for change.

This paper argues that cumulative causation processes are fundamental to understanding growth and development. Such processes derive from spatially concentrated increasing returns to scale including thick market effects, knowledge spillovers, sectoral and urban clustering, and self-reinforcing improvements in physical and social infrastructure. These sources of agglomeration have been extensively analyzed in the economic geography literature. They imply that spatial unevenness in economic activity and incomes is an equilibrium outcome. Growth tends to be 'lumpy,' with some sectors in some countries growing fast while other countries lag. The policy challenge is to lift potential new centers of economic activity to the point where they can reap the productivity and investment climate advantages of increasing returns and cumulative causation.

This paper examines the experiences of the World Bank Group in other countries, and explores its work in Iraq in light of its mandate and areas of impact. It outlines the objectives the Bank Group has sought to meet and the procedures used to adapt to the Iraqi context, while focusing on transparency, inclusiveness, and sustainability. While the Bank's current focus in Iraq is on reconstruction and essential services, the near term offers a chance to lay the groundwork for credible institutions of social inclusion, in addition to supporting sustainable reconstruction and reform. This paper looks at how Iraq, a country with ample natural and human capital, can look past the immediate needs of post-conflict reconstruction to an eventual return as a middle-income country that managed its own affairs and contributed assistance to other countries. Models for reconstruction are closely looked at as to how to move Iraq to country ownership. The paper also looks at how to adopt post conflict reconstruction experience and adapting it to Iraq. The final section of the paper deals with lessons of experience and lessons learned.