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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.

Economic development critically involves diversification and structural transformation—that is, the continued, dynamic reallocation of resources from less productive to more productive sectors and activities. This paper documents that, over an extended period, developing Asia has on average been particularly successful in diversifying its exports, particularly in comparison with Sub-Saharan Africa. Much of the progress has occurred through diversification along the ‘extensive margin,’ that is, through entry into completely new products. In addition, developing Asia has on average benefited significantly from quality upgrading, helping it capitalize on already existing comparative advantages. Yet, agricultural and natural resources tend to have lower potential for quality upgrading than manufactures. Therefore, for lower-income “frontier” countries, diversification into products with longer “quality ladders” may be a necessary first step before large gains from quality improvement can be reaped.

This report reviews the status of Maghreb countries' economic integration with the world, with the Arab world, and within the Maghreb itself. It focuses on trade in goods and services, labor and capital flows, financial integration and cross-border infrastructure integration. It discusses the potential benefits of and key constraints to greater integration. The focus on trade liberalization with the European Union (EU) provides an opportunity for individual Maghreb countries to lock in policies that would eventually help them harmonize policies within their own region. The same argument can be made regarding accession to the World Trade Organization (WTO). The Maghreb countries would reap significant additional benefits if, in parallel to reforms undertaken to improve trade liberalization with Europe, they improved conditions for streamlined trade among themselves. There is significant potential for trade in services in the financial sector, transportation and logistics, and communications and information, among other sectors. According to some studies, comprehensive services reforms that involve increased competition and regulatory streamlining would yield benefits that are at least twice the magnitude of those achieved through tariff removal alone.

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

A political economy model of protection is used to determine endogenously the intersectoral patterns of protection. Three propositions are derived that are consistent with the stylized patterns of tariff protection in rich and poor countries: Nominal protection rates escalate with the degree of processing, protection is higher on average in poor countries, and rich countries protect agriculture relatively more than they protect manufacturing, whereas poor countries do the reverse. Numerical simulations for archetypal rich and poor economies confirm that the endogenously determined structure of protection is broadly consistent with observed patterns of protection.