Full Proposal Template
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World Bank Knowledge for Change Program – Full Proposal Template Basic Data: Title Institutions for Growth and Well-Being: a research program in India Linked Project ID (if available) Product Line RA Applied Amount ($) 150,000 Est. Project Period 02/26/2020i -06/30/2021**ii Team Leader(s) Stuti Khemani; Rishabh Managing Unit DECMG Sinha Contributing unit(s) DECSI Funding Window Growth and Job Creation Regions/Countries Country/Countries (please India specify) General: 1. What is the Development Objective (or main objective) of this Grant? This project seeks to understand how institutions matter for growth and well-being in order to identify policy tools for reform leaders. India is the country of focus because its major states serve as a laboratory to examine the role of informal rules of the game while keeping formal institutions fixed. Rich data are available at low-level jurisdictions—districts, blocks and villages—to examine whether/how variations in local institutions correlate with variations in economic activity, productivity, and public services needed for well-being (such as health, environmental regulation, and resilience to climate change). The proposal builds upon prior work in the state of Bihar, with a population of more than 100 million, which ranks as the poorest state of India. Prior research has argued that poverty and persistent underdevelopment in Bihar can be attributed to weak institutions, with deep historical roots. Our research aims to identify forces of change in Bihar, and India more broadly, which reform leaders may harness to strengthen institutions and escape the burden of history. Through our prior work we have engaged the interest of political and bureaucratic leaders in Bihar, and initiated a partnership with a well- established local organization, the Asian Development Research Institute (ADRI), which allows this project to go beyond research to impact on policy dialogue. 2. Summary description of Grant financed activities The grant would finance: 1. Hiring of two full-time research assistants for database compilation and empirical analysis—one based with our partner research organization, ADRI, in India, and one in DECRG. 2. Travel of DECRG Principal Investigators to India to share research results for policy impact 3. Travel of partner researchers from ADRI, India, to Washington to build their capacity for policy-relevant research via exposure to DECRG and the international research community 4. Miscellaneous data gathering costs Page 1 of 12 World Bank Knowledge for Change Program – Full Proposal Template Activities 3. And 4., and the hiring of an India-based research assistant, would be undertaken by ADRI under a research partnership contract with them. This partnership is expected to build ADRI’s research capacity to contribute to evidence-based policy dialogue in India. 3. What are the main risks related to the Grant financed activity? Are there any potential conflicts of interest for the Bank? How will these risks/conflicts be monitored and managed? Since the proposed research will use already available databases in India, and work in collaboration with a well- established, locally trusted Indian research organization, ADRI, we do not anticipate any significant risk to undertaking the research. The results that emerge from our analysis may raise political sensitivities for the Bank’s operations in India. Our strategy to manage this risk is to leverage the partnership with ADRI so that the results can be owned and disseminated by an Indian research agency. ADRI has built relationships with political parties across the spectrum in India. DECRG has a valuable role to play as an international non-partisan research department which can build research capacity of a local agency like ADRI, so that technical evidence on politics as institutions can nourish within-country policy debate and dialogue for growth and well-being. 4. (Optional question) What can/has been done to find an alternative source of financing, i.e. instead of a Bank administered Grant? We have explored the interest of philanthropic organizations like the Bill & Melinda Gates Foundation (BMGF) to fund this research program. However, BMGF has indicated that it prefers to fund concrete interventions, such as in RCT studies, rather than the type of macroeconomic research, using available data, that we are proposing. Philanthropic organizations have only recently started grappling with the problems of institutions and politics and are unsure of their grant activities in this area. A KCP grant may crowd-in funding from these organizations, for expensive activities such as surveys and lab experiments, further down the road, once we have carved out opportunities with reform leaders and can engage in evaluating impact of reforms. KCPIII Specific: 1. How does (do) the objective(s) of this proposal align with the World Bank Group’s twin goals? What are the key thematic research questions being addressed in this research? The outcomes of interest in this proposal are aligned with the twin-goals of ending extreme poverty and sharing prosperity through the institutions needed for sustainable growth and public service delivery. Why are some countries of the world so much richer than others? What explains lagging regions, or the persistence of underdevelopment in some areas within countries (such as in a state like Bihar within India)? The answer to these large questions in prior literature, by and large, with some lingering debate, is “institutions”—the formal and informal rules of the game played in economies and societies (Rodrik, Subramanian, and Trebbi, 2004; Sachs, 2003 as a counter-point; MacLeod, 2013 reviewing “Why Nations Fail?” by Daron Acemoglu and James Robinson, and “Pillars of Prosperity” by Tim Besley and Torsten Persson; Review of geography versus institutions in Diamond, 2012, and Rodrik, 2004). Yet, we understand little, empirically, about what precisely are these institutions and how do reform leaders in countries go about establishing them. For example, Banerjee and Iyer (2005) find that colonial land revenue institutions of the 1800s have persistent effects on agricultural productivity in Indian districts up to the 1980s (when their analysis stops), long after those institutions have been abolished. Banerjee-Iyer attribute this persistence to antagonistic politics between “peasants” and elites which result in lower provision of public goods (investments in human capital and public infrastructure) needed to enhance productivity. If this mechanism is indeed at work, then reform leaders should be able to undo the burden of history simply by increasing public investments in lagging regions. Has increasing political competition in India over the 1990s, and the political rise of people from lower caste groups, resulted in convergence in public investments? What about convergence in agricultural productivity? If there is lack of Page 2 of 12 World Bank Knowledge for Change Program – Full Proposal Template convergence, what is it about political institutions that varies across districts that may explain the lack of convergence? A large macroeconomic literature has investigated whether formal political institutions, of elections versus non- electoral forms of gaining power, explains the variation in economic performance across countries. The conclusion from this literature is that while democracies on average perform better (Acemoglu et al, 2019), there is greater variation among autocracies, with some outperforming democracies (Besley and Kudamatsu, 2008, consider the example of the Communist Party of China outperforming electoral institutions in India in delivering growth and poverty reduction). An important question is what explains variation in performance within democracies—the modal form of government across the world (Polity IV). India is the largest democracy in the world and has the largest number of poor people among all democracies. What is the variation in informal rules of playing the game of democratic politics that can explain variation in economic policies and public service delivery outcomes? How can these informal institutions be reformed through policy actions? This project will put together a district-level database, described next, to examine whether/how political institutions explain variation in economic performance and public service delivery within Bihar and across India. 2. Describe analytic design & methodology. Elaborate on hypotheses, conceptual framework, data (survey design if applicable). The analytical design and methodology for examining whether/how political institutions explain growth and well- being rests upon the construction of a long-term district-level database for India. Our proposal is to build such a database, in partnership with ADRI, and then allow the data to reveal what types of variation in institutions across districts are correlated with long-term processes of growth. The district is a jurisdiction within India which is the lowest level at which we can combine: (1) aggregate economic and well-being data (eg. health, (lack of) crime, environment); (2) data on public investments and the implementation of public policies; and (3) data on institutional quality. Aggregate economic and well-being data: The finance department of state governments publish annual economic surveys which contain a rich set of economic data at the district-level. These data correspond to varying aspects of the economy and can help researchers to test a wide range of hypotheses. For instance, the surveys